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As filed with the Securities and Exchange Commission on September 20, 1999
Registration No. 333-84463
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AMERICAN FINANCIAL HOLDINGS, INC.
AMERICAN SAVINGS BANK
EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN
(exact name of registrant as specified in its charter)
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DELAWARE 6036 Being applied for
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
Incorporation or Organization) Classification Code Number)
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102 West Main Street
New Britain, Connecticut 06051
(860) 832-4000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Robert T. Kenney
Chairman of the Board, President and Chief Executive Officer
American Savings Bank
178 Main Street
New Britain, Connecticut 06051
(860) 832-4000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Douglas P. Faucette, Esquire
Lawrence M. F. Spaccasi, Esquire
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
----
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
____
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
____
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Calculation of Registration Fee
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Proposed Maximum Proposed Maximum Amount of
Title of each Class of Amount to Offering Price Aggregate Offering Registration
Securities to be Registered be Registered Per Unit Price (2) Fee
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<S> <C> <C> <C> <C>
Common Stock 44,920,035
$.01 par value Shares(1) $10.00 $449,200,350 (3)
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Participation (4) _______ $ 7,000,000 (5)
Interests
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</TABLE>
(1) Includes shares of Common Stock to be issued to American Savings Charitable
Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The registration fee of $124,878 was previously paid upon the initial filing
of the Form S-1 on August 4, 1999.
(4) In addition, pursuant to Rule 416(c) under the Securities Act, this
registration statement also covers an indeterminate amount of interests to
be offered or sold pursuant to the employee benefit plan described herein.
(5) The securities of American Financial Holdings, Inc. to be purchased by
American Savings Bank Employees' Savings and Profit-Sharing Plan are
included in the amount shown for Common Stock. Accordingly, no separate fee
is required for the participation interests. In accordance with Rule 457(h)
of the Securities Act, as amended, the registration fee has been calculated
on the basis of the number of shares of Common Stock that may be purchased
with the current assets of such Plan.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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INTERESTS IN
AMERICAN SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT-SHARING PLAN AND TRUST
AND
OFFERING OF 700,000 SHARES OF
AMERICAN FINANCIAL HOLDINGS, INC.
COMMON STOCK ($.01 PAR VALUE)
This prospectus supplement relates to the offer and sale to participants in
the American Savings Bank Employees' Savings & Profit-Sharing Plan and Trust of
participation interests and shares of common stock of American Financial
Holdings, Inc.
The Board of Directors of American Savings has adopted a plan that will
convert the structure of American Savings from a mutual savings institution to a
stock savings institution. As part of the conversion, American Financial
Holdings, Inc. has been established to acquire all of the stock of American
Savings and simultaneously offer American Financial common stock to the public
under certain purchase priorities in the plan of conversion. Savings Plan
participants are now permitted to direct the trustee of the Savings Plan to use
their current account balances to subscribe for and purchase shares of American
Financial common stock through the American Financial Stock Fund. Based upon
the value of the Savings Plan assets at May 31, 1999, the trustee of the Savings
Plan could purchase up to 700,000 shares of American Financial common stock
assuming a purchase price of $10.00 per share. This prospectus supplement
relates to the election of Savings Plan participants to direct the trustee of
the Savings Plan to invest all or a portion of their Savings Plan accounts in
American Financial common stock.
The prospectus dated____________ ___, 1999, of American Financial, which we
have attached to this prospectus supplement, includes detailed information
regarding the conversion of American Savings, American Financial common stock
and the financial condition, results of operations and business of American
Savings. This prospectus supplement provides information regarding the Savings
Plan. You should read this prospectus supplement together with the prospectus
and keep both for future reference.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE __ OF THE PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ANY OTHER STATE OR
FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, HAS APPROVED OR DISAPPROVED
THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS__________________, 1999.
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This prospectus supplement may be used only in connection with offers and
sales by American Financial of interests or shares of common stock under the
Savings Plan to employees of American Savings. No one may use this prospectus
supplement to reoffer or resell interests or shares of common stock acquired
through the Savings Plan.
You should rely only on the information contained in this prospectus
supplement and the attached prospectus. American Financial, American Savings
and the Savings Plan have not authorized anyone to provide you with information
that is different.
This prospectus supplement does not constitute an offer to sell or
solicitation of an offer to buy any securities in any jurisdiction to any person
to whom it is unlawful to make an offer or solicitation in that jurisdiction.
Neither the delivery of this prospectus supplement and the prospectus nor any
sale of common stock shall under any circumstances imply that there has been no
change in the affairs of American Savings or the Savings Plan since the date of
this prospectus supplement, or that the information contained in this prospectus
supplement or incorporated by reference is correct as of any time after the date
of this prospectus supplement.
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THE OFFERING
SECURITIES OFFERED
The securities offered in connection with this prospectus supplement are
participation interests in the Savings Plan. Assuming a purchase price of
$10.00 per share, the trustee may acquire up to 700,000 shares of American
Financial common stock for the American Financial Stock Fund. The interests
offered under this prospectus supplement are conditioned on the completion of
the conversion of American Savings. Your investment in the American Financial
Stock Fund in connection with the conversion of American Savings is also
governed by the purchase priorities contained in the plan of conversion of
American Savings.
This prospectus supplement contains information regarding the Savings Plan.
The attached prospectus contains information regarding the conversion of
American Savings and the financial condition, results of operations and business
of American Savings. The address of the principal executive office of American
Savings is 178 Main Street, New Britain, Connecticut 06051. The telephone
number of American Savings is (860) 832-4000.
ELECTION TO PURCHASE AMERICAN FINANCIAL COMMON STOCK IN THE CONVERSION OF
AMERICAN SAVINGS
In connection with the conversion of American Savings, the Savings Plan
will permit you to direct the trustee to transfer all or part of the funds which
represent your current beneficial interest in the assets of the Savings Plan to
the American Financial Stock Fund. The trustee of the Savings Plan will
subscribe for American Financial common stock offered for sale in connection
with the conversion of American Savings in accordance with each participant's
direction. If there is not enough Common Stock in the conversion to fill all
subscriptions, the Common Stock will be apportioned and the trustee for the
Savings Plan may not be able to purchase all of the Common Stock you requested.
In such case, the trustee will purchase shares in the open market, on your
behalf, after the conversion to fulfill your initial request. Such purchases may
be at prices higher than the initial public offering price.
Your ability to invest in the American Financial Stock Fund is based on
your status as an eligible account holder or supplemental eligible account
holder in the conversion of American Savings. An eligible account holder is a
depositor whose savings account(s) totalled $50.00 or more on December 31, 1997.
A supplemental eligible account holder is a depositor whose savings account(s)
totalled $50 or more on _____________, 199__. No eligible account holders or
supplemental eligible account holders may purchase in the subscription offering
more than $500,000 of American Financial common stock. If you fall into one of
the above subscription offering categories, you have subscription rights to
purchase shares of common stock in the subscription offering and you may use
funds in the Savings Plan account to pay for American Financial common stock for
which you subscribe.
1
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VALUE OF PARTICIPATION INTERESTS
As of May 31, 1999, the market value of the assets of the Savings Plan
equaled approximately $7,000,000. The plan administrator has informed each
participant of the value of his or her beneficial interest in the Savings Plan
as of May 31, 1999. The value of Savings Plan assets represents past
contributions to the Savings Plan on your behalf, plus or minus earnings or
losses on the contributions, less previous withdrawals and loans.
METHOD OF DIRECTING TRANSFER
The last two pages of this prospectus supplement is a form for you to
direct a transfer to the American Financial Stock Fund (the "Change of
Investment Allocation Form"). If you wish to transfer all, or part, in multiples
of not less than 1%, of your beneficial interest in the assets of the Savings
Plan to the American Financial Stock Fund, you should complete the Change of
Investment Allocation Form. If you do not wish to make such an election at this
time, you do not need to take any action. The minimum investment in the American
Financial Stock Fund during the initial public offering is $250.
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the American
Financial Stock Fund in connection with the conversion of American Savings is
ten (10) days before ____________ (the "Expiration Date") of the offering. You
should return the Change of Investment Allocation Form to ___________________ of
American Savings by __:__ p.m. on _______ ___, 1999.
IRREVOCABILITY OF TRANSFER DIRECTION
Your direction to transfer amounts credited to such account in the Savings
Plan to the American Financial Stock Fund cannot be changed.
PURCHASE PRICE OF AMERICAN FINANCIAL COMMON STOCK
The trustee will use the funds transferred to the American Financial Stock
Fund to purchase shares of American Financial common stock in the conversion of
American Savings. The trustee will pay the same price for shares of American
Financial common stock as all other persons who purchase shares of American
Financial common stock in the conversion of American Savings.
NATURE OF A PARTICIPANT'S INTEREST IN AMERICAN FINANCIAL COMMON STOCK
The trustee will hold American Financial common stock in the name of the
Savings Plan. The trustee will allocate shares of common stock acquired at your
direction to your account under the Savings Plan. Therefore, earnings with
respect to your account should not be affected by the investment designations of
other participants in the Savings Plan.
2
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VOTING AND TENDER RIGHTS OF AMERICAN FINANCIAL COMMON STOCK
The Trustee generally will exercise voting and tender rights attributable
to all American Financial common stock held by the American Financial Stock Fund
as directed by participants with interests in the American Financial Stock Fund.
With respect to each matter as to which holders of American Financial common
stock have a right to vote, you will be given voting instruction rights
reflecting your proportionate interest in the American Financial Stock Fund.
The number of shares of American Financial common stock held in the American
Financial Stock Fund that are voted for and against on each matter will be
proportionate to the number of voting instruction rights exercised in such
manner. If there is a tender offer for American Financial common stock, the
Savings Plan provides that each participant will be allotted a number of tender
instruction rights reflecting such participant's proportionate interest in the
American Financial Stock Fund. The percentage of shares of American Financial
common stock held in the American Financial Stock Fund that will be tendered
will be the same as the percentage of the total number of tender instruction
rights that are exercised in favor of tendering. The remaining shares of
American Financial common stock held in the American Financial Stock Fund will
not be tendered. The Savings Plan makes provisions for participants to exercise
their voting instruction rights and tender instruction rights on a confidential
basis.
DESCRIPTION OF THE SAVINGS PLAN
I. INTRODUCTION
Effective September 1, 1999, American Savings adopted the American Savings
Bank Employees' Savings & Profit Sharing Plan and Trust. American Savings
intends for the Savings Plan to comply, in form and in operation, with all
applicable provisions of the Internal Revenue Code and the Employee Retirement
Income Security Act or "ERISA." American Savings may change the Savings Plan
from time to time in the future to ensure continued compliance with these laws.
American Savings may also amend the Savings Plan from time to time in the future
to add, modify, or eliminate certain features of the plan, as it sees fit. As a
plan governed by the Employee Retirement Income Security Act of 1974, as
amended, federal law provides you with various rights and protections as a plan
participant. Although the Savings Plan is governed by many of the provisions of
the Employee Retirement Income Security Act of 1974, as amended, your benefits
under the plan are not guaranteed by the Pension Benefit Guaranty
Corporation.
Reference to Full Text of Plan. The following portions of this prospectus
------------------------------
supplement provide an overview of the material provisions of the Savings Plan.
American Savings qualifies this overview in its entirety by reference to the
full text of the Savings Plan. You may obtain copies of the full Savings Plan
document by sending a request to the Human Resources Department at American
Savings. You should carefully read the full text of the Savings Plan document to
understand your rights and obligations under the plan.
3
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II. ELIGIBILITY AND PARTICIPATION
Any employee of American Savings may participate in the Savings Plan as of
the first day of the month following completion of one "year of service" and
attainment of age twenty-one. For purposes of the Savings Plan, you generally
complete one "year of service" if you complete 1,000 hours of service with
American Savings within a twelve-consecutive-month period.
As of May 31, 1999, approximately _______ out of ______ then eligible
employees had elected to participate in the Savings Plan.
III. CONTRIBUTIONS UNDER THE SAVINGS PLAN
Savings Plan Participant Contributions. The Savings Plan permits each
--------------------------------------
participant to annually defer receipt of up to 15% of compensation that American
Savings would otherwise currently pay. For purposes of calculating deferrals,
the Savings Plan considers compensation to include your base salary, plus
overtime, bonuses and commissions. However, by law, the Savings Plan may not
consider more than $160,000 of compensation for purposes of determining
deferrals for 1999. Participants in the Savings Plan may modify the amount
contributed to the plan, effective on the first day of each calendar
quarter.
American Savings Contributions. American Savings has discretion under the
------------------------------
Savings Plan about whether or not to make matching contributions. American
Savings currently makes matching contributions to the Savings Plan equal to 50%
of a Participant's contributions up to 6% of a participant's compensation for
purposes of the Savings Plan. American Savings may also make special
contributions to the Savings Plan in an amount determined by American Savings as
of the last day of the plan year for all employees who participated in the
Savings Plan on the last day of the plan year.
IV. LIMITATIONS ON CONTRIBUTIONS
Limitation on Employee Salary Deferral. Although the Savings Plan permits
--------------------------------------
you to defer up to 15% of your compensation, by law your total deferrals under
the Savings Plan, together with similar plans, may not exceed $10,000 for 1999.
The Internal Revenue Service will periodically increase this annual limitation.
Contributions in excess of this limitation, or excess deferrals, will be
included in an affected participant's gross income for federal income tax
purposes in the year they are made. In addition, a participant will have to pay
federal income taxes on any excess deferrals when distributed by the Savings
Plan to the participant, unless the excess deferral and any related income
allocable is distributed to the participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
participant in the taxable year in which the distribution is made.
4
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Limitations on Annual Additions and Benefits. Under the requirements of
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the Internal Revenue Code, the Savings Plan provides that the total amount of
contributions and forfeitures (annual additions) allocated to a participant
during any year may not exceed the lesser of 25% of the participant's
compensation for that year, or $30,000. The Savings Plan will also limit annual
additions to the extent necessary to prevent the limitations contained in the
Internal Revenue Code for all of the qualified defined benefit plans and defined
contribution plans maintained by American Savings from being exceeded.
Limitation on Plan Contributions for Highly Compensated Employees. Special
-----------------------------------------------------------------
provisions of the Internal Revenue Code limit the amount of salary deferrals and
matching contributions that may be made to the Savings Plan in any year on
behalf of highly compensated employees in relation to the amount of deferrals
and matching contributions made by or on behalf of all other employees eligible
to participate in the Savings Plan. If these limitations are exceeded, the
level of deferrals by highly compensated employees must be adjusted.
In general, a highly compensated employee includes any employee who, (1)
was a five percent owner of the sponsoring employer at any time during the year
or preceding year, or (2) had compensation for the preceding year in excess of
$80,000 and, if the sponsoring employer so elects, was in the top 20% of
employees by compensation for such year. The dollar amounts in the foregoing
sentence are for 1999, but may be adjusted annually to reflect increases in the
cost of living.
Top-Heavy Plan Requirements. If for any calendar year the Savings Plan is
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a Top-Heavy Plan, then American Savings may be required to make certain minimum
contributions to the Savings Plan on behalf of non-key employees. In addition,
certain additional restrictions would apply with respect to the combination of
contributions to the Savings Plan and projected annual benefits under any
defined benefit plan maintained by American Savings.
In general, the Savings Plan will be treated as a "Top-Heavy Plan" for any
calendar year if, as of the last day of the preceding calendar year, the
aggregate balance of the accounts of participants who are Key Employees exceeds
60% of the aggregate balance of the accounts of all participants. Key Employees
generally include any employee who, at any time during the calendar year or any
of the four preceding years, is:
(1) an officer of the Bank having annual compensation in excess of $60,000
who is in an administrative or policy-making capacity,
(2) one of the ten employees having annual compensation in excess of
$30,000 and owning, directly or indirectly, the largest interests in American
Savings,
(3) a person who owns directly or indirectly more than 5% of the stock of
American Financial, or stock possessing more than 5% of the total combined
voting power of all stock of American Financial, or
5
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(4) a person who owns directly or indirectly combined voting power of all
stock and more than 1% of the total stock of American Financial and has annual
compensation in excess of $150,000.
The foregoing dollar amounts are for 1999.
V. INVESTMENT OF CONTRIBUTIONS
All amounts credited to participants' accounts under the Savings Plan are
held in trust. A trustee appointed by the Board of Directors of American
Savings administers the trust.
The Savings Plan offers the following investment choices:
S&P 500 STOCK FUND. This stock fund invests in the stocks of a broad array
of established U.S. companies. Its objective is long-term: to earn higher
returns by investing in the largest companies in the U.S. economy.
STABLE VALUE FUND. This fund invests primarily in Guaranteed Investment
Contracts and Synthetic Guaranteed Investment Contracts. These contracts pay a
steady rate of interest over a certain period of time, usually between three and
five years. Its objective is short to intermediate term: to achieve a stable
return over short to intermediate periods of time while preserving the value of
your investment.
S&P MIDCAP STOCK FUND. This stock fund invests in the stocks of mid-sized
U.S. companies, which are expected to grow faster than larger, more established
companies. Its objective is long-term: to earn higher returns which reflect the
growth potential of mid-sized companies.
MONEY MARKET FUND. This fund invests in a broad range of high-quality,
short-term instruments issued by banks, corporations and the U.S. Government and
its agencies. These instruments include certificates of deposit and U.S.
Treasury bills. Its objective is short-term: to achieve competitive, short-term
rates of return while preserving the value of your principal.
GOVERNMENT BOND FUND. This bond fund invests in U.S. Treasury bonds with a
maturity of 20 years or more. Its objective is long-term: to earn a higher level
of income along with the potential for capital appreciation.
INTERNATIONAL STOCK FUND. This fund invests in over 1,000 foreign stocks
in 20 countries, based in Europe, Australia, and the Far East. Its objective is
long-term: to offer the potential return of investing in the stocks of
established non-U.S. companies, as well as the potential risk-reduction of broad
diversification.
INCOME PLUS ASSET ALLOCATION FUND. This fund diversifies among a broad
range of stable value securities to reduce short-term risk and among a broad
range of large U.S. and international companies to capture growth potential.
The Fund is structured to take advantage of
6
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market opportunities with a small flexible component. Its objective is
intermediate-term: to preserve the value of your investment over short periods
of time and to offer some potential for growth.
GROWTH AND INCOME ASSET ALLOCATION FUND. This fund diversifies among U.S.
and international stocks, U.S. bonds, and stable value investments to pursue
long-term appreciation and short-term stability and takes advantage of market
opportunities with a small flexible component. Its objective is intermediate-
term: to provide a balance between the pursuit of growth and protection from
risk.
GROWTH ASSET ALLOCATION FUND. This fund diversifies among a broad range of
domestic and international stocks and takes advantage of market opportunities
with a large flexible component. Its objective is long-term: to pursue high
growth of your investment over time.
The Savings Plan now provides the American Financial Stock Fund as an
additional choice to these investment alternatives. The American Financial
Stock Fund invests primarily in the common stock of American Financial.
Participants in the Savings Plan may direct the trustee to invest all or a
portion of their Savings Plan account balance in the American Financial Stock
Fund.
The annual percentage return on these funds (net of fees) listed above
for the prior three years was:
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1998 1997 1996
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<S> <C> <C> <C>
S&P 500 Stock Fund......................................... 27.9% 32.7% 22.3%
Stable Value Fund.......................................... 5.9 6.2 6.5
S&P MidCap Stock Fund...................................... 18.6 31.5 18.6
Money Market Fund.......................................... 5.5 5.5 5.6
Government Bond Fund....................................... 13.8 15.4 (2.3)
International Stock Fund................................... 19.3 3.6 10.6
Income Plus Asset Allocation Fund.......................... 9.7 8.9 8.3
Growth and Income Asset Allocation Fund.................... 15.5 13.6 12.3
Growth Asset Allocation Fund............................... 24.3 19.0 18.0
</TABLE>
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The American Financial Stock Fund consists of investments in the common
stock of American Financial made on the effective date of the conversion of
American Savings. After the conversion of American Savings, the trustee of the
Savings Plan will, to the extent practicable, use all amounts held by it in the
American Financial Stock Fund, including cash dividends paid on the common stock
held in the fund, to purchase shares of common stock of American Financial.
As of the date of this prospectus supplement, none of the shares of common
stock have been issued or are outstanding and there is no established market for
the American Financial common stock. Accordingly, there is no record of the
historical performance of the American Financial Stock Fund. Performance of the
American Financial Stock Fund depends on a number of factors, including the
financial condition and profitability of American Financial and American Savings
and market conditions for American Financial common stock generally.
INVESTMENTS IN THE AMERICAN FINANCIAL STOCK FUND MAY INVOLVE CERTAIN
SPECIAL RISKS IN INVESTMENTS IN THE COMMON STOCK OF AMERICAN FINANCIAL. FOR A
DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" BEGINNING ON PAGE __ OF THE
PROSPECTUS.
VI. BENEFITS UNDER THE SAVINGS PLAN
Vesting. You are always 100% vested in your elective deferrals under the
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Savings Plan. You vest in regular matching contributions at a rate of 100%
after three (3) years of employment.
VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE SAVINGS PLAN
Withdrawals Before Termination of Employment. You may receive in-service
--------------------------------------------
distributions from the Savings Plan under limited circumstances in the form of
hardship distributions, withdrawal of rollover contributions. In order to
qualify for a hardship withdrawal, you must have an immediate and substantial
need to meet certain expenses and have no other reasonably available resources
to meet the financial need. If you qualify for a hardship distribution, the
trustee will make the distribution proportionately from the investment funds in
which you have invested your account balances. You may not receive more than
one (1) hardship withdrawals in any calendar year.
Distribution Upon Retirement or Disability. Upon retirement or disability,
------------------------------------------
you may receive a partial lump sum payment or a full lump sum payment from the
Savings Plan equal to the vested value of your accounts.
Distribution Upon Death. If you die before your benefits are paid from the
-----------------------
Savings Plan, your benefits will be paid to your surviving spouse or beneficiary
under one or more of the forms available under the Savings Plan.
8
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Distribution Upon Termination for Any Other Reason. If you terminate
--------------------------------------------------
employment for any reason other than retirement, disability or death and your
account balance exceeds $500, the trustee will make your distribution on your
normal retirement date, unless you request otherwise. If your account balances
does not exceed $500, the trustee will generally distribute your benefits to
you as soon as administratively practicable following termination of
employment.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations
order, benefits payable under the Savings Plan shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Savings Plan shall be void.
APPLICABLE FEDERAL TAX LAW REQUIRES THE SAVINGS PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON YOUR RIGHT TO WITHDRAW AMOUNTS HELD UNDER THE PLAN BEFORE YOUR
TERMINATION OF EMPLOYMENT WITH AMERICAN SAVINGS. FEDERAL LAW MAY ALSO IMPOSE AN
EXCISE TAX ON WITHDRAWALS MADE FROM THE SAVINGS PLAN BEFORE YOU ATTAIN 59-1/2
YEARS OF AGE REGARDLESS OF WHETHER THE WITHDRAWAL OCCURS DURING YOUR EMPLOYMENT
WITH AMERICAN SAVINGS OR AFTER TERMINATION OF EMPLOYMENT.
ADMINISTRATION OF THE SAVINGS PLAN
The trustee with respect to the Savings Plan is the named fiduciary of the
Savings Plan for purposes of ERISA.
Trustees. The board of trustees of American Savings appoints the trustee
--------
to serve at its pleasure. The board of trustees has appointed Bank of New York
as trustee of the American Financial Stock Fund.
The trustee receives, holds and invests the contributions to the Savings
Plan in trust and distributes them to participants and beneficiaries in
accordance with the terms of the Savings Plan and the directions of the plan
administrator. The trustee is responsible for investment of the assets of the
trust.
REPORTS TO SAVINGS PLAN PARTICIPANTS
The plan administrator will furnish you a statement at least quarterly
showing the balance in your account as of the end of that period, the amount of
contributions allocated to your account for that period, and any adjustments to
your account to reflect earnings or losses.
9
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PLAN ADMINISTRATOR
The current plan administrator of the Savings Plan is American Savings. The
plan administrator is responsible for the administration of the Savings Plan,
interpretation of the provisions of the plan, prescribing procedures for filing
applications for benefits, preparation and distribution of information
explaining the plan, maintenance of plan records, books of account and all other
data necessary for the proper administration of the plan, and preparation and
filing of all returns and reports relating to the Plan which are required to be
filed with the U.S. Department of Labor and the Internal Revenue Service, and
for all disclosures required to be made to participants, beneficiaries and
others under Employee Retirement Income Security Act of 1974, as amended.
AMENDMENT AND TERMINATION
American Savings intends to continue the Savings Plan indefinitely.
Nevertheless, American Savings may terminate the Savings Plan at any time. If
American Savings terminates the Savings Plan in whole or in part, then
regardless of other provisions in the plan, all affected participants will
become fully vested in their accounts. American Savings reserves the right to
make, from time to time, changes which do not cause any part of the trust to be
used for, or diverted to, any purpose other than the exclusive benefit of
participants or their beneficiaries; provided, however, that American Savings
may amend the plan as it determines necessary or desirable, with or without
retroactive effect, to comply with the Employee Retirement Income Security Act
of 1974, as amended, or the Internal Revenue Code.
MERGER, CONSOLIDATION OR TRANSFER
If the Savings Plan merges or consolidates with another plan or transfers
the trust assets to another plan, and if either the Savings Plan or the other
plan is then terminated, the Savings Plan requires that you would receive a
benefit immediately after the merger, consolidation or transfer. The benefit
would be equal to or greater than the benefit you would have been entitled to
receive immediately before the merger, consolidation or transfer if the Savings
Plan had then terminated.
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of the material federal income tax
aspects of the Savings Plan. You should not rely on this survey as a complete
or definitive description of the material federal income tax consequences
relating to the Savings Plan. Statutory provisions change, as do their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. YOU ARE URGED TO CONSULT
YOUR TAX ADVISOR WITH RESPECT TO ANY DISTRIBUTION FROM THE SAVINGS PLAN AND
TRANSACTIONS INVOLVING THE PLAN.
As a "qualified retirement plan," the Code affords the Savings Plan special
tax treatment, including:
10
<PAGE>
(1) The sponsoring employer is allowed an immediate tax deduction for the
amount contributed to the plan each year;
(2) participants pay no current income tax on amounts contributed by the
employer on their behalf; and
(3) earnings of the plan are tax-deferred thereby permitting the tax-free
accumulation of income and gains on investments.
American Savings will administer the Savings Plan to comply in operation
with the requirements of the Internal Revenue Code as of the applicable
effective date of any change in the law. If American Savings receives an
adverse determination letter regarding its tax exempt status from the Internal
Revenue Service, all participants would generally recognize income equal to
their vested interest in the Savings Plan, the participants would not be
permitted to transfer amounts distributed from the Savings Plan to an Individual
Retirement Account or to another qualified retirement plan, and American Savings
may be denied certain deductions taken with respect to the Savings Plan.
Lump Sum Distribution. A distribution from the Savings Plan to a
---------------------
participant or the beneficiary of a participant will qualify as a lump sum
distribution if it is made within one taxable year, on account of the
participant's death, disability or separation from service, or after the
participant attains age 59-1/2; and consists of the balance to the credit of the
participant under this plan and all other profit sharing plans, if any,
maintained by American Savings. The portion of any lump sum distribution
required to be included in your taxable income for federal income tax purposes
consists of the entire amount of the lump sum distribution less the amount of
after-tax contributions, if any, you have made to any other profit sharing plans
maintained by American Savings which is included in the distribution.
Averaging Rules. The portion of any lump sum distribution, required to be
---------------
included in your federal taxable income for federal income tax purposes,
attributable to participation after 1973 in the Savings Plan or in any other
profit-sharing plan maintained by American Savings, known as the "ordinary
income portion," will be taxable generally as ordinary income for federal income
tax purposes. However, if you have completed at least five (5) years of
participation in the Savings Plan before the taxable year in which the
distribution is made, or receive a lump sum distribution on account of your
death, regardless of the period of your participation in this plan or any other
profit-sharing plan maintained by American Savings, you may elect to have the
ordinary income portion of such lump sum distribution taxed according to a
special five-year averaging rule. The election of the special five-year
averaging rules may apply only to one lump sum distribution you or your
beneficiary receive, provided such amount is received on or after the date your
turn 59-1/2 and the recipient elects to have any other lump sum distribution
from a qualified plan received in the same taxable year taxed under the special
five-year averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their lump sum distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule. These individuals also may elect to have that portion of the lump sum
11
<PAGE>
distribution attributable to the participant's pre-1974 participation in the
plan taxed at a flat 20% rate as gain from the sale of a capital asset.
American Financial Common Stock Included in Lump Sum Distribution. If a
-----------------------------------------------------------------
lump sum distribution includes American Financial common stock, the distribution
generally will be taxed in the manner described above, except that the total
taxable amount will be reduced by the amount of any net unrealized appreciation
with respect to American Financial common stock that is the excess of the value
of American Financial common stock at the time of the distribution over its cost
or other basis of the securities to the trust. The tax basis of American
Financial common stock for purposes of computing gain or loss on its subsequent
sale equals the value of American Financial common stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of American Financial common stock,
to the extent of the amount of net unrealized appreciation at the time of
distribution, will constitute long-term capital gain regardless of the holding
period of American Financial common stock. Any gain on a subsequent sale or
other taxable disposition of American Financial common stock in excess of the
amount of net unrealized appreciation at the time of distribution will be
considered long-term capital gain regardless of the holding period of American
Financial common stock. Any gain on a subsequent sale or other taxable
disposition of American Financial common stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term, mid-term or long-term capital gain depending upon the length of the
holding period of American Financial common stock. The recipient of a
distribution may elect to include the amount of any net unrealized appreciation
in the total taxable amount of the distribution to the extent allowed by the
regulations to be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
---------------------------------------------------------------------------
to an IRA. You may roll over virtually all distributions from the Savings Plan
- ---------
to another qualified plan or to an individual retirement account generally.
WE HAVE PROVIDED YOU WITH A BRIEF DESCRIPTION OF THE MATERIAL FEDERAL
INCOME TAX ASPECTS OF THE SAVINGS PLAN WHICH ARE OF GENERAL APPLICATION UNDER
THE CODE. IT IS NOT INTENDED TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE
FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS
FROM THE SAVINGS PLAN. ACCORDINGLY, YOU ARE URGED TO CONSULT A TAX ADVISOR
CONCERNING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND
RECEIVING DISTRIBUTIONS FROM THE SAVINGS PLAN.
RESTRICTIONS ON RESALE
Any person receiving a distribution of shares of common stock under the
Savings Plan who is an "affiliate" of American Financial under Rules 144 and 405
under the Securities Act of 1933, as amended, may reoffer or resell such shares
only under a registration statement filed under the Securities Act of 1933, as
amended, assuming the availability of a registration statement, under Rule 144
or some other exemption of the registration requirements of the Securities Act
of 1933, as amended. Directors, officers and substantial shareholders of
American Financial are generally considered "affiliates." Any person who may be
an "affiliate" of
12
<PAGE>
American Savings may wish to consult with counsel before transferring any common
stock they own. In addition, participants are advised to consult with counsel as
to the applicability of Section 16 of the Securities Exchange Act of 1934, as
amended, which may restrict the sale of American Financial common stock acquired
under the Savings Plan, or other sales of American Financial common stock.
Persons who are not deemed to be "affiliates" of American Savings at the
time of resale will be free to resell any shares of American Financial common
stock distributed to them under the Savings Plan, either publicly or privately,
without regard to the registration and prospectus delivery requirements of the
Securities Act or compliance with the restrictions and conditions contained in
the exemptive rules under federal law. An "affiliate" of American Savings is
someone who directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control, with American Savings.
Normally, a director, principal officer or major shareholder of a corporation
may be deemed to be an "affiliate" of that corporation. A person who may be
deemed an "affiliate" of American Savings at the time of a proposed resale will
be permitted to make public resales of the common stock only under a "reoffer"
prospectus or in accordance with the restrictions and conditions contained in
Rule 144 under the Securities Act of 1933, as amended, or some other exemption
from registration, and will not be permitted to use this prospectus in
connection with any such resale. In general, the amount of the common stock
which any such affiliate may publicly resell under Rule 144 in any three-month
period may not exceed the greater of one percent of American Financial common
stock then outstanding or the average weekly trading volume reported on the
National Association of Securities Dealers Automated Quotation System during the
four calendar weeks before the sale. Such sales may be made only through
brokers without solicitation and only at a time when American Financial is
current in filing the reports required of it under the Securities Exchange Act
of 1934, as amended.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the Securities Exchange Act of 1934, as amended, imposes
reporting and liability requirements on officers, directors and persons
beneficially owning more than ten percent of public companies such as American
Financial. Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person required to file reports under Section 16(a), a Form 3
reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of American Savings' fiscal year. Participation in the American
Financial Stock Fund of the Savings Plan by officers, directors and persons
beneficially owning more than ten percent of common stock of American Financial
must be reported to the SEC annually on a Form 5 by such individuals.
In addition to the reporting requirements described above, Section 16(b) of
the Securities Exchange Act of 1934 provides for the recovery by American
Financial of profits realized by any
13
<PAGE>
officer, director or any person beneficially owning more than ten percent of the
common stock resulting from the purchase and sale or sale and purchase of the
common stock within any six-month period.
The SEC has adopted rules that exempt many transactions involving the
Savings Plan from the "short-swing" profit recovery provisions of Section 16(b).
The exemptions generally involve restrictions upon the timing of elections to
buy or sell employer securities for the accounts of any officer, director or any
person beneficially owning more than ten percent of the common stock.
Except for distributions of the common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, persons who are governed by Section 16(b) may, under limited
circumstances involving the purchase of common stock within six months of the
distribution, be required to hold shares of the common stock distributed from
the Savings Plan for six months following the distribution date.
LEGAL OPINIONS
The validity of the issuance of the common stock of American Financial will
be passed upon by Muldoon, Murphy & Faucette LLP, Washington, D.C. Muldoon,
Murphy & Faucette LLP acted as special counsel for American Savings in
connection with the conversion of American Savings.
14
<PAGE>
American Savings Bank DRAFT
-----
CHANGE OF INVESTMENT ALLOCATION
- -------------------------------
1. Member Data
<TABLE>
<S> <C> <C>
____________________________________________________________________________________________________
Print your full name above (Last, first, middle initial) Social Security Number
____________________________________________________________________________________________________
Street Address City State Zip
</TABLE>
2. Instructions
American Savings Bank Employees' Savings & Profit Sharing Plan and Trust (the
"Plan") is giving members a special opportunity to invest their 401(k) account
balances in a new investment fund - the Employer Stock Fund - which is comprised
primarily of common stock ("Common Stock") issued by American Financial
Holdings, Inc. (the "Company") in connection with the reorganization of American
Savings Bank. The percentage of a member's account transferred at the direction
of the member into the Employer Stock Fund will be used to purchase shares of
Common Stock during the Subscription and Community Offering. Please review the
Prospectus (the "Prospectus") and the Prospectus Supplement ( the "Supplement")
before making any decision.
In the event of an oversubscription in the Offering so that the total amount you
allocate to the Employer Stock Fund can not be used by the trustee to purchase
Common Stock, your account will be reinvested in the other funds of the Plan as
previously directed in your last investment election.
Investing in Common Stock entails some risks, and we encourage you to discuss
this investment decision with your spouse and investment advisor. The Plan
trustee and the Plan administrator are not authorized to make any
representations about this investment other than what appears in the Prospectus
and Supplement, and you should not rely on any information other than what is
contained in the Prospectus and Supplement. For a discussion of certain factors
that should be considered by each member as to an investment in the Common
Stock, see "Risk Factors" beginning on page __ of the Prospectus. Any shares
purchased by the Plan pursuant to your election will be subject to the
conditions or restrictions otherwise applicable to Common Stock, as discussed in
the Prospectus and Supplement.
3. Investment Directions (Applicable to Accumulated Balances Only)
To direct a transfer of all or part of the funds credited to your accounts to
the Employer Stock Fund, you should complete and file this form with Human
Resources, American Savings Bank, no later than _________________ at 12:00 noon.
If you need any assistance in completing this form, please contact Human
Resources. If you do not complete and return this form to Human Resources by
12:00 noon, the funds credited to accounts under the Plan will continue to be
invested in accordance with your prior investment direction, or in accordance
with the terms of the 401(k) Plan if no investment direction had been provided.
<PAGE>
DRAFT
-----
I hereby revoke any previous investment direction and now direct that the market
value of the units that I have invested in the following funds, to the extent
permissible, be transferred out of the specified fund and invested (in whole
percentages) in the Employer Stock Fund as follows:
FUND PERCENTAGE TO BE TRANSFERRED
---- ----------------------------
S&P 500 Stock Fund ____ %
Stable Value Fund ____ %
S&P MidCap Stock Fund ____ %
Money Market Fund ____ %
Government Bond Fund ____ %
International Stock Fund ____ %
Income Plus Fund ____ %
Growth & Income Fund ____ %
Growth Fund ____ %
Note: The total amount transferred may not exceed the total value of your
accounts.
4. Investment Directions (Applicable to Future Contributions Only)
I hereby revoke any previous investment instructions and now direct that any
future contributions and/or loan repayments, if any, made by me or on my behalf
by American Savings Bank, including those contributions and/or repayments
received by American Savings Bank Employees' Savings & Profit Sharing Plan and
Trust during the same reporting period as this form, be invested in the
following whole percentages. If I elect to invest in American Financial
Holdings, Inc. Common Stock, such future contributions or loan repayments, if
any, will be invested in the Employer Stock Fund the month following the
conclusion of the Offering.
FUND PERCENTAGE
---- ----------
S&P 500 Stock Fund ____ %
Stable Value Fund ____ %
S&P MidCap Stock Fund ____ %
Money Market Fund ____ %
Government Bond Fund ____ %
International Stock Fund ____ %
Income Plus Fund ____ %
Growth & Income Fund ____ %
Growth Fund ____ %
Employer Stock Fund ____ %
Total (Important!) 100 %
Notes: No amounts invested in the Stable Value Fund may be transferred directly
- -----
to the Money Market Fund. Stable Value Fund amounts invested in the S&P 500
Stock Fund, S&P MidCap Stock Fund, Government Bond Fund, International Stock
Fund, Income Plus Fund, Growth & Income Fund, Growth Fund and/or Employer Stock
Fund, for a period of three months may be transferred to the Money Market Fund
upon the submission of a separate Change of Investment Allocation form.
The percentage that can be transferred to the Money Market Fund may be limited
by any amounts previously transferred form the Stable Value Fund that have not
satisfied the equity wash requirement. Such amounts will remain in either the
S&P 500 Stock Fund, S&P MidCap Stock Fund, Government Bond Fund, International
Stock Fund, Income Plus Fund, Growth & Income Fund, Growth Fund and/or Employer
Stock Fund and a separate direction to transfer them to the Money Market Fund
will be required when they become available.
<PAGE>
DRAFT
-----
5. Participant Signature and Acknowledgment - Required
By signing this Change Of Investment Allocation form, I authorize and direct the
Plan administrator and trustee to carry out my instructions. I acknowledge that
I have been provided with and read a copy of the Prospectus and Supplement
relating to the issuance of Common Stock. I am aware of the risks involved in
the investment in Common Stock, and understand that the trustee and Plan
administrator are not responsible for my choice of investment.
MEMBER'S SIGNATURE
____________________________ ___________________
Signature of Member Date
Pentegra Services, Inc. is hereby authorized to make the above listed change(s)
to this member's record.
______________________________________ __________
Signature of American Savings Bank Date
Authorized Representative
Minimum Stock Purchase is $250.
Maximum Stock Purchase is $500,000
Please complete and return by 12:00 noon on________________________
<PAGE>
[To be used in connection with Syndicated Community Offering only]
PROSPECTUS SUPPLEMENT FOR SYNDICATED COMMUNITY OFFERING
[LOGO] AMERICAN FINANCIAL HOLDINGS, INC.
(Proposed Holding Company for American Savings Bank)
102 West Main Street
New Britain, Connecticut 06051
(860) 832-4000
================================================================================
American Savings Bank is converting from the mutual to stock form of
organization. After the conversion, American Financial will own all of American
Savings' stock. American Financial has already received subscriptions for
_________ shares. Up to ________ shares will be sold in the conversion. The
conversion will not be completed and no common stock will be sold unless
additional subscriptions are received for at least the minimum number of shares
in the offering. American Financial will hold all funds of subscribers in an
interest-bearing savings account at American Savings until the conversion is
completed or terminated. Funds will be returned promptly with interest if the
conversion is terminated.
Sandler O'Neill & Partners, L.P. will use its best efforts to assist
American Financial in selling at least the minimum number of shares but does not
guarantee that this number will be sold. Neither Sandler O'Neill nor any
selected broker-dealer is obligated to purchase any shares of common stock in
the syndicated community offering. Sandler O'Neill intends to make a market in
the common stock.
================================================================================
PRICE PER SHARE: $10.00
EXPECTED TRADING MARKET AND SYMBOL: Nasdaq National Market "AMFH"
This offering will expire no later than 12:00 noon, Eastern time, on
____________, 1999, unless extended.
. Number of Shares
Minimum/Maximum
. Estimated Underwriting Commissions and Other Expenses
Minimum/Maximum
. Estimated Net Offering Proceeds to American Financial
Minimum/Maximum
. Estimated Net Offering Proceeds per Share to American Financial
Minimum/Maximum
Please refer to "Risk Factors" beginning on page __ of the attached Prospectus
dated ________ __, 1999.
These securities are not deposits or accounts and are not insured or guaranteed
by American Financial, American Savings, the Federal Deposit Insurance
Corporation or any other government agency. The common stock is subject to
investment risk, including the possible loss of money invested.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the State of Connecticut Department of Banking, nor any state
securities commission has approved or disapproved these securities or determined
if this prospectus supplement is truthful or complete. Any representations to
the contrary is a criminal offense.
Sandler O'Neill & Partners, L.P.
The date of this Prospectus Supplement is _______________, 1999
<PAGE>
THE SYNDICATED COMMUNITY OFFERING
American Financial is offering for sale between ___________ and __________
shares of common stock at price of $10.00 per share in a syndicated community
offering. These shares are to be sold in connection with the conversion of
American Savings from a mutual savings bank to a stock savings bank and the
issuance of American Savings' outstanding capital stock to American Financial.
The remaining __________ shares of common stock to be sold in connection with
the conversion have been subscribed for in subscription and direct community
offerings. The prospectus in the form used in the subscription and direct
community offerings is attached to this prospectus supplement. The purchase
price for all shares sold in the syndicated community offering will be the same
as the price paid by subscribers in the subscription and direct community
offerings.
Funds sent with purchase orders will earn interest at the American Savings'
passbook rate from the date American Savings receives them until the completion
or termination of the conversion. If the syndicated community offering is not
completed by _________________, 1999, and the State of Connecticut Department of
Banking allows more time to complete the conversion, American Savings will
contact everyone who subscribed for shares to see if they still want to purchase
stock, and subscribers will be able to confirm, modify or cancel their
subscriptions. A failure to respond will be treated as a cancellation of the
purchase order. If payment for the stock was made by check or money order,
subscription funds will be returned with accrued interest. If payment was
authorized by withdrawal of funds on deposit at American Savings, that
authorization would terminate. The conversion must be completed by August 3,
2001.
The minimum number of shares which may be purchased is 25 shares. Except for the
American Savings employee stock ownership plan, which intends to purchase up to
5% of the total number of shares of common stock sold in the conversion, no
person, together with related persons and persons acting together, may purchase
more than $500,000 of common stock (50,000 shares) in the syndicated community
offering. However, the maximum amount of shares of common stock that may be
subscribed for or purchased in all categories of the conversion by any person,
related persons or persons acting together is 1.0% of the shares of common stock
sold in the conversion. American Financial reserves the right, in its absolute
discretion, to accept or reject, in whole or in part, any or all subscriptions
in the syndicated community offering. If a subscription is rejected in part, you
cannot cancel the remainder of your order.
American Financial and American Savings have engaged Sandler O'Neill &
Partners, L.P. as their financial advisor to assist them in the sale of the
common stock in the syndicated community offering.
2
<PAGE>
Sandler O'Neill expects to use the services of other registered broker-dealers
and that fees to Sandler O'Neill and other selected broker-dealers will not
exceed __% of the aggregate purchase price of the shares sold in the syndicated
community offering.
Before this offering, there has not been a public market for the common
stock, and there can be no assurance that an active and liquid trading market
for the common stock will develop. The absence or discontinuance of an active
and liquid trading market may hurt the market price of the common stock. See
"Risk Factors--American Financial cannot assure or guarantee an active trading
market for the common stock." in the attached prospectus.
3
<PAGE>
PROSPECTUS [LOGO]
AMERICAN FINANCIAL HOLDINGS, INC.
(Proposed Holding Company for American Savings Bank)
36,167,500 Shares of Common Stock
American Savings Bank is converting from the mutual form to the stock form of
organization. After the conversion, American Financial will own all of American
Savings' common stock.
Price Per Share: $10.00
Expected Trading Market and Symbol: Nasdaq National Market "AMFH"
Minimum Maximum
------- -------
Number of shares: 26,732,500 36,167,500
Gross offering proceeds: $267,325,000 $361,675,000
Estimated underwriting commissions
and other offering expenses: $ 5,905,000 $ 7,069,000
Estimated net proceeds: $261,420,000 $354,606,000
Estimated net proceeds per share: $ 9.78 $ 9.80
If the appraiser increases the estimated value, American Financial may increase
the maximum number of shares by up to 15%, to 41,592,625 shares.
Sandler O'Neill will use its best efforts to assist American Financial in
selling at least the minimum number of shares but does not guarantee that this
number will be sold. Sandler O'Neill is not obligated to purchase any shares of
common stock in the offering. Sandler O'Neill intends to make a market in the
common stock.
The offering to depositors, officers, directors, employees and corporators of
American Savings will end at 12:00 Noon, Eastern Time, on ________, 1999. An
offering to the general public may also be held and may end as early as 12:00
Noon, Eastern Time, on _________ __, 1999. If the conversion is not completed by
_________ __, 1999, and the State of Connecticut Department of Banking allows
more time to complete the conversion, all subscribers will be able to increase,
decrease or cancel their orders. All extensions may not go beyond August 3,
2001. American Financial will hold all funds of subscribers in an interest-
bearing savings account at American Savings until the conversion is completed or
terminated. Funds will be returned promptly with interest if the conversion is
terminated.
- -------------------------------------------------------------------------------
These securities are not deposits or accounts and are not insured or guaranteed
by American Savings, American Financial, the Federal Deposit Insurance
Corporation or any other federal or state government agency. The common stock is
subject to investment risks, including the possible loss of money invested.
For a discussion of certain risks that you should consider, see "Risk Factors"
beginning on page _.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the State of Connecticut Department of Banking, nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
- --------------------------------------------------------------------------------
For assistance, please contact the conversion center at (___) ___-____.
SANDLER O'NEILL & PARTNERS, L.P.
The date of this prospectus is ________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................................
Risk Factors............................................................................
Selected Consolidated Financial Information.............................................
Recent Developments.....................................................................
Use of Proceeds.........................................................................
Dividend Policy.........................................................................
Market for Common Stock.................................................................
Capitalization..........................................................................
Historical and Pro Forma Regulatory Capital Compliance..................................
Pro Forma Data..........................................................................
Comparison of Independent Valuation and Pro Forma Financial Information With and
Without Foundation.....................................................................
American Savings Bank Consolidated Statements of Income.................................
Management's Discussion and Analysis of Financial Condition.............................
and Results of Operations..............................................................
Business of American Financial..........................................................
Business of American Savings............................................................
Management of American Financial........................................................
Management of American Savings..........................................................
Regulation and Supervision..............................................................
Federal and State Taxation of Income....................................................
Shares to Be Purchased by Management with Subscription Rights...........................
The Conversion..........................................................................
Restrictions on Acquisition of American Financial and American Savings..................
Description of American Financial Stock.................................................
Description of American Savings Stock...................................................
Registration Requirements...............................................................
Legal and Tax Opinions..................................................................
Experts.................................................................................
Where You Can Find More Information.....................................................
Index to Consolidated Financial Statements - American Savings Bank......................
</TABLE>
<PAGE>
SUMMARY
You should read the entire prospectus carefully before you decide to
invest. For assistance, please contact the conversion center at (___) ___-____.
The Companies
American Financial Holdings, Inc. (page __) American Savings formed American
102 West Main Street Financial to be its holding
New Britain, Connecticut 06051 company. To date, American
(860) 832-4000 Financial has only conducted
organizational activities. After
the conversion, it will own all of
American Savings' capital stock and
will direct, plan and coordinate
American Savings' business
activities. After the conversion,
American Financial might become an
operating company or acquire or
organize other operating
subsidiaries, including other
financial institutions or financial
services companies. American
Financial intends to retain 50% of
the net conversion proceeds.
American Savings Bank (page __) American Savings is a community
178 Main Street bank dedicated to serving the
New Britain, Connecticut 06051 financial service needs of
(860) 832-4000 consumers within its primary market
area. Currently, American Savings
operates out of its main office in
New Britain, Connecticut and its 16
branch offices in Hartford,
Middlesex, Tolland and Windham
counties, which American Savings
considers as its primary market
area for making loans and
attracting deposits.
Historically, American Savings'
principal business has been
attracting deposits from the
general public and using those
funds to originate loans secured by
residential real estate, which
accounted for 96.0% of American
Savings' total loan portfolio at
May 31, 1999. American Savings also
makes other consumer loans,
including automobile loans.
American Savings also invests in
U.S. government and agency
securities, U.S. government insured
or guaranteed mortgage-backed
securities, corporate bonds and
marketable equity securities. At
May 31, 1999, American Savings had
total assets of $1.61 billion,
deposits of $1.15 billion and total
equity of $286.0 million.
Recently, American Savings expanded
the products it offers. In 1993, it
began to offer mutual funds,
annuities and other non-deposit
investment products and in 1996 it
began to offer trust services. See
"Business of American Savings--
Trust Services" and "--Subsidiary
Activities--American Investment
Services, Inc."
1
<PAGE>
Going forward, American Savings
intends to initiate a commercial
banking program targeted at small
businesses operating within its
primary market area. This initiative
includes offering commercial deposit
products and commercial business loans
that are primarily secured by business
assets other than real estate.
Additionally, American Savings intends
to expand the offering of insurance
products to its customers potentially
through the acquisition or
establishment of an insurance agency
and to expand its market share by
opening additional branch offices and
alternative delivery channels over the
next five years.
For a discussion of American Savings'
business strategy and recent results
of operations, see "Management's
Discussion and Analysis of Financial
Condition and Results of Operations."
For a discussion of American Savings'
business activities, see "Business of
American Savings."
The Conversion
What is the Conversion (page __) The conversion is a change in American
Savings' legal form of organization.
As a mutual savings bank, American
Savings currently has no stock or
stockholders. Instead, American
Savings operates for the mutual
benefit of its depositors. American
Savings' corporators elect directors
and vote on other important matters.
After the conversion, the corporators
will cease to exist and the
corporators will no longer have voting
rights. Instead, through the
conversion American Savings will
become a stock savings bank and will
be owned and controlled by the holder
of all its stock, American Financial.
Voting rights in American Financial
will belong to its stockholders.
American Savings is conducting the
conversion under the terms of its plan
of conversion. The corporators
approved and adopted the plan of
conversion at a special meeting of
corporators called for that purpose on
August 3, 1999. The State of
Connecticut Department of Banking
approved the plan of conversion on
____________, 1999. In addition, the
Federal Deposit Insurance Corporation
has informed American Savings that,
subject to certain conditions, it does
not intend to object to the
conversion. If American Savings
fulfills those conditions, the Federal
Deposit Insurance Corporation will
issue a final non-objection
letter.
Reasons for the Conversion (page __) By converting to the stock form of
organization, American Savings will be
structured in the form used by
commercial banks, most business
entities and a large number of savings
institutions. The conversion will be
important to American Savings' future
growth and performance because it
will:
. enhance its ability to expand
through the acquisition of other
financial institutions or their
assets;
2
<PAGE>
. enhance its ability to attract
and retain qualified
management through stock-based
compensation plans;
. expand its ability to serve
the public;
. enhance its ability to
diversify into other financial
services related activities;
and
. provide a larger capital base
from which to operate.
Currently, American Savings does not
have any specific contracts,
understandings, or arrangements for
the acquisition of other financial
service companies or their assets.
American Savings Charitable Foundation To continue its long-standing
(page _______) commitment to its local communities,
American Savings intends to establish
a charitable foundation, American
Savings Charitable Foundation, in
connection with the conversion. The
foundation will be funded with
American Financial common stock equal
to 8% of the shares sold in the
conversion. This would range from
2,138,600 shares, assuming 26,732,500
shares are sold in the conversion to
2,893,400 shares, assuming 36,167,500
shares are sold in the conversion, or
3,327,410 shares if the number of
shares sold in the conversion is
increased to 41,592,625 shares. Based
on the purchase price of $10.00 per
share, the foundation would be funded
with between $21.4 million and $28.9
million of common stock, or $33.3
million, if the number of shares sold
in the conversion is increased to
41,592,625 shares. American Savings
Charitable Foundation will make grants
and donations to non-profit and
community groups within the
communities where American Savings
operates. If American Savings
Charitable Foundation was not
established as part of the conversion,
then the amount of common stock sold
would be greater than if the
conversion was completed with the
foundation. For a further discussion
of the financial impact of the
foundation, including its dilutive
effect on those who purchase shares in
the conversion, see "Risk Factors --
The contribution to the American
Savings Charitable Foundation means
that a stockholder's total ownership
interest will be 7.4% less after the
contribution," "Pro Forma Data" and
"Comparison of Independent Valuation
and Pro Forma Financial Information
With and Without Foundation."
American Savings Charitable Foundation
will complement the activities of
American Savings Bank Foundation,
Inc., a private foundation established
by American Savings in 1995. American
Savings contributed $4.0 million in
1998 and $2.4 million in 1997 to
community organizations and to
American Savings Bank Foundation, Inc.
American Savings Bank Foundation,
Inc., which had assets of $11.2
million at May 31, 1999, provides
grants to charitable organizations
that focus primarily
3
<PAGE>
on children and education and
scholarships to qualified students in
the communities in which American
Savings operates. American Savings
does not expect to make any further
contributions to American Savings Bank
Foundation, Inc. after the
conversion.
Benefits of the Conversion to Management American Financial and American
(page __) Savings intend to adopt the following
benefit plans and employment
agreements:
. Employee Stock Ownership Plan.
This plan intends to acquire an
amount of shares equal to 8% of
the shares issued in the
conversion. This would range
from 2,309,688 shares, assuming
28,871,100 shares are issued in
the conversion, to 3,124,872
shares, assuming 39,060,900
shares are issued in the
conversion, or 3,593,602 shares
if the number of shares issued
in the conversion is increased
to 44,920,035 shares. This plan
intends to acquire such shares
by subscribing for 5% of the
shares sold in the conversion
and by purchasing the remaining
amount of shares in the open
market. American Savings will
allocate these shares to
employees over a period of years
in proportion to their
compensation.
. Stock-Based Incentive Plan.
Under this plan, which will be
adopted after the conversion and
will be submitted to
stockholders for their approval,
American Financial may award
stock options to key employees
and directors of American
Financial and its affiliates. No
determinations have been made as
to who will be awarded options
or the amounts that will be
awarded. The number of options
available under this plan will
be equal to 10% of the number of
shares issued in the conversion.
This would range from 2,887,100
shares, assuming 28,871,100
shares are issued in the
conversion, to 3,906,090 shares,
assuming 39,060,900 shares are
issued in the conversion, or
4,492,003 shares if the number
of shares issued in the
conversion is increased to
44,920,035 shares.
This plan may also award shares
of stock to key employees and
directors at no cost to the
recipient. No determinations
have been made as to who will be
awarded shares of stock or the
amounts that will be awarded.
The number of shares available
for stock awards will equal 4%
of the number of shares issued
in the conversion. This would
range from 1,154,844 shares,
assuming 28,871,100 shares are
issued in the conversion, to
1,562,436 shares, assuming
39,060,900 shares are issued in
the conversion, or
4
<PAGE>
. 1,796,801 shares if the number
of shares issued in the
conversion is increased to
44,920,035 shares.
. Employment Agreements. American
Financial and American Savings
intend to enter into employment
agreements with six officers of
American Savings. These
agreements will provide for
severance benefits if the
executive is terminated
following a change in control of
American Financial or American
Savings.
. Employee Stock Ownership Plan
Supplemental Executive
Retirement Plan. This plan will
provide benefits to eligible
employees if their retirement
benefits under the employee
stock ownership plan are reduced
because of federal tax law
limitations. The plan will also
provide benefits to eligible
employees if they retire or are
terminated following a change in
control of American Financial or
American Savings but before the
complete allocation of shares
under the employee stock
ownership plan.
. Employee Severance Compensation
Plan. This plan will provide
severance benefits to eligible
employees if there is a change
in control of American Financial
or American Savings.
The following table summarizes the total
number and dollar value of the shares of
common stock, assuming 39,060,900 shares
are issued in the conversion, which the
employee stock ownership plan expects to
acquire and the total value of all stock
awards that are expected to be available
under the stock-based incentive plan.
The table assumes the value of the
shares is $10.00 per share. The table
does not include a value for the options
because their value would be equal to
the fair market value of the common
stock on the day that the options are
granted. As a result, financial gains
can be realized on an option only if the
market price of common stock increases
above the price at which the options are
granted.
<TABLE>
<CAPTION>
Percentage
of Shares
Number Estimated Issued
of Value in the
Shares of Shares Conversion
----------- -------------- -------------
<S> <C> <C> <C>
Employee stock ownership plan......... 3,124,872 $ 31,248,720 8.0%
Stock awards.......................... 1,562,436 $ 15,624,360 4.0
Stock options......................... 3,906,090 -- 10.0
--------- -------------- ----
Total.......................... 8,593,398 $ 46,873,080 22.0%
========= ============== ====
</TABLE>
For a discussion of risks associated
with these plans and agreements, see
"Risk Factors--Implementation of
additional benefit plans will increase
future compensation expense and may
lower American Savings' net income,"
"Risk Factors
5
<PAGE>
--Issuance of shares for benefit
program may lower your ownership
interest" and "Risk Factors--Employment
agreements, the employee stock ownership
plan supplemental executive retirement
plan and the severance plan could make
takeover attempts more difficult to
achieve."
The Offering
Subscription Offering (page-) American Savings has granted
subscription rights in the following
order of priority to:
Note: Subscription rights are not
transferable, and persons with 1. Persons with $50 or more on
subscription rights may not deposit at American Savings as of
subscribe for shares for the December 31, 1997.
benefit of any other person. If you
violate this prohibition, you may 2. The American Savings employee
lose your rights to purchase shares stock ownership plan.
and may face criminal prosecution
and/or other sanctions.
3. Persons with $50 or more on
deposit at American Savings as of
__________, 1999, other than
American Savings' officers,
directors and employees.
4. American Savings' directors,
officers and employees who do not
have a higher priority right.
5. American Savings' corporators who
do not have a higher priority
right.
To ensure that American Savings properly
identifies your subscription rights, you
must list all of your deposit accounts
as of the eligibility dates on the stock
order form. If you fail to do so, your
subscription may be reduced or rejected
if the offering is oversubscribed.
The subscription offering will end at
12:00 Noon, Eastern time, on _________
__, 1999. If the offering is
oversubscribed, shares will be allocated
in order of the priorities described
above under a formula outlined in the
plan of conversion.
Direct Community Offering (page __) American Financial may offer shares not
sold in the subscription offering to the
general public in a direct community
offering. People and trusts of people
who are residents of Hartford,
Middlesex, Tolland and Windham Counties,
Connecticut will have first preference
to purchase shares in a direct community
offering. If shares are available,
American Financial expects to offer them
to the general public immediately after
the end of the subscription offering,
but may begin a direct community
offering at any time during the
subscription offering.
American Financial and American Savings
may reject orders received in the direct
community offering either in whole or
in
6
<PAGE>
part. If your order is rejected in part,
you cannot cancel the remainder of your
order.
Time Period for Completing the If the conversion is not completed by
Conversion _________ __, 1999, and the State of
Connecticut Department of Banking allows
more time to complete the conversion,
everyone who subscribed for shares will
be contacted to see if they still want
to purchase stock. This is known as a
"resolicitation offering." A material
change in the independent appraisal of
American Financial and American Savings
would be the most likely, but not
necessarily the only, reason for a delay
in completing the conversion. The
conversion must be completed by August
3, 2001, unless the State of Connecticut
Department of Banking allows more time
to complete the conversion.
In the resolicitation offering, if you
subscribed for stock, you will receive a
supplement to this prospectus which will
instruct you how to confirm, modify or
cancel your subscription. If you fail to
respond to the resolicitation offering,
it would be as if you had canceled your
order. If you paid for stock by check or
money order, your subscription funds
would be returned to you, together with
accrued interest. If you authorized
payment by withdrawal of funds on
deposit at American Savings, that
authorization would terminate.
If you affirmatively confirm your
subscription order during the
resolicitation offering, your
subscription funds will be held until
the end of the resolicitation offering.
You would be unable to cancel your
resolicitation order without the
approval of American Financial and
American Savings until the conversion is
completed or terminated.
Purchase Price The purchase price is $10.00 per share.
The Boards of Directors of American
Financial and American Savings consulted
with Sandler O'Neill in determining it.
You will not pay a commission to buy any
shares in the conversion.
Number of Shares to be Sold (page __) American Financial will sell between
26,732,500 and 36,167,500 shares of its
common stock in this offering. With
regulatory approval, American Financial
may increase the number of shares to be
sold to 41,592,625 shares without giving
you further notice.
The amount of common stock that American
Financial will offer in the conversion
is based on an independent appraisal of
the estimated market value of American
Financial and American Savings as if the
conversion had occurred as of the date
of the appraisal. FinPro, Inc., an
independent appraiser, has estimated
that, in its opinion, as of August 3,
1999, the estimated market value ranged
between $267.3 million and $361.7
million, with a midpoint of $314.5
million. The appraisal was based in part
on American Savings' financial condition
and results of operations
7
<PAGE>
and the effect on American Savings of
the additional capital raised by the
sale of common stock in this offering.
The independent appraisal will be
updated before the conversion is
completed.
In preparing its independent appraisal,
FinPro focused primarily on the
price/earnings and price/book valuation
methodologies, both of which are
discussed in the appraisal report. See
"Where You Can Find More Information"
for how to obtain a copy of the
appraisal report. The following table
compares American Savings' pro forma
price/earnings and price/book ratios at
the minimum and maximum of the offering
range to the medians for all publically
traded thrift institutions, all
publically traded Connecticut thrift
institutions and a comparable group of
11 publically traded thrift institutions
identified in the appraisal report.
Thrift institutions in the mutual
holding company structure are excluded
from each comparison group.
The price/earnings ratios for American
Savings presented in the following table
are based on earnings for the trailing
12 months as required by regulatory
appraisal guidelines. Therefore, these
ratios differ from the ratios presented
in the tables under "Pro Forma Data."
<TABLE>
<CAPTION>
Price/ Price/
Earnings Book
Ratio Ratio
----------- -----------
<S> <C> <C>
American Savings:
Minimum.............................. 12.35x 55.49%
Maximum.............................. 15.38 68.68
Median for all publicly traded thrifts.. 14.76 108.36
Median for all publicly traded 13.89 163.73
Connecticut thrifts.................
Median for the comparable group......... 12.61 131.42
</TABLE>
The independent appraisal does not
indicate market value. Do not assume or
expect that American Savings' valuation
as shown in the above table means that
the common stock will trade above the
$10.00 purchase price after the
conversion. American Financial cannot
guarantee that anyone who purchases
shares in the conversion will be able to
sell their shares at or above the $10.00
purchase price.
Purchase Limitations (page __) The minimum purchase is 25 shares.
The maximum purchase in the subscription
offering by any person or group of
persons through a single deposit account
or similarly titled deposit accounts is
$500,000 of common stock, which equals
50,000 shares.
8
<PAGE>
The maximum purchase by any person,
related persons or persons acting
together in the direct community
offering is $500,000 of common stock,
which equals 50,000 shares.
The maximum purchase in the subscription
offering and direct community offering
combined by any person, related persons
or persons acting together is 1% of the
common stock offered for sale, which is
$3,616,750 of common stock, which equals
361,675 shares.
How to Purchase Common Stock (page __) If you want to subscribe for shares in
the direct subscription offering or
Note: Once American Financial place a purchase order for shares in the
receives your order, you cannot community offering, you must complete an
cancel or change it without original stock order form and send it
American Financial's consent. If together with full payment to American
American Financial intends to sell Savings in the postage-paid envelope
fewer than 26,732,500 shares or provided. You must sign the
more than 41,592,625 shares, all certification that is part of the stock
subscribers will be notified and order form. American Savings must
given the opportunity to change or receive your stock order form before the
cancel their orders. If you do not end of the subscription offering or the
respond to this notice, American end of the direct community offering, as
Financial will return your funds appropriate.
promptly with interest.
You may pay for shares in the
subscription offering or the direct
community offering in any of the
following ways:
. By cash, if delivered in person to
a full-service banking office of
American Savings.
. By check or money order made
payable to American Financial
Holdings, Inc.
. By withdrawal from an account at
American Savings. To use funds in
an Individual Retirement Account at
American Savings, you must transfer
your account to an unaffiliated
institution or broker. Please
contact the conversion center as
soon as possible for
assistance.
American Savings will pay interest on
your subscription funds at the rate it
pays on passbook accounts from the date
it receives your funds until the
conversion is completed or terminated.
All funds authorized for withdrawal from
deposit accounts with American Savings
will earn interest at the applicable
account rate until the conversion is
completed. There will be no early
withdrawal penalty for withdrawals from
certificates of deposit used to pay for
stock.
No prospectus will be mailed later than
five days before the end of the offering
or hand-delivered less than 48 hours
before the end of the offering.
9
<PAGE>
Use of Proceeds (page __) American Financial will use 50% of the
net offering proceeds to buy all of the
common stock of American Savings and
will retain the remaining net proceeds
for general business purposes. These
purposes may include investment in
securities, paying cash dividends or
repurchasing back shares of its common
stock, although American Financial has
no specific plans to pay dividends or
repurchase its common stock at this
time. American Savings will use the
funds it receives for general business
purposes, including originating loans
and purchasing securities.
American Financial will also loan an
amount equal to 8% of the total dollar
value of the stock to be issued in the
conversion to the employee stock
ownership plan to fund its purchase of
common stock both in the conversion and
in the open market after the
conversion.
American Financial and American Savings
may also use the proceeds of the
offering to expand and diversify their
businesses, although they do not have
any specific contracts, understandings
or arrangements for the acquisition of
other financial service companies or
their assets.
Purchases by Directors and Executive American Savings' directors and
Officers (page __) executive officers intend to subscribe
for 308,000 shares, which equals 0.85%
of the 36,167,500 shares that would be
sold at the maximum of the offering
range. If fewer shares are sold in the
conversion, then directors and executive
officers may own a greater percentage of
American Financial. Directors and
executive officers will pay the $10.00
per share price as will everyone else
who purchases shares in the conversion.
Market for Common Stock (page __) American Financial intends to have its
common stock quoted on the Nasdaq
National Market. After shares of the
common stock begin trading, you may
contact a stock broker to buy or sell
shares. American Financial cannot assure
you that there will be an active trading
market for the common stock.
Dividend Policy (page __) American Financial intends to adopt a
policy of paying regular cash dividends,
but has not yet decided on the exact
amount or range of amounts, or the
frequency of payments.
10
<PAGE>
RISK FACTORS
Before investing in American Financial Holdings, Inc.'s common stock please
carefully consider the matters discussed below.
American Savings' lower return on average equity after conversion may decrease
the market price of the common stock
Return on average equity, which equals net income divided by average
equity, is a ratio used by many investors to compare the performance of a
particular company with other companies. In recent years, American Savings'
return on average equity has been below the average return on equity for
publicly-traded savings associations and banks of comparable size. As a result
of the additional capital that will be raised in this offering, American
Financial's equity will increase substantially. American Financial will not be
able to immediately deploy the increased capital from the offering into higher-
yielding loans. American Financial's ability to invest in loans will depend on
market interest rates, demand in its market area and its ability to compete
successfully for loans. Unless and until the capital can be invested in higher-
yielding loans, American Financial expects that its return on average equity
will continue to be below average. In addition, compensation expense will
increase as a result of the new benefit plans. Over time, American Financial
intends to use the net proceeds from this offering to increase earnings per
share and book value per share, without assuming undue risk, with the goal of
achieving a return on average equity competitive with other publicly traded
financial institutions. This goal could take a number of years to achieve, and
American Financial cannot assure you that this goal can be attained.
Consequently, you should not expect a competitive return on equity in the near
future. See "Pro Forma Data" for an illustration of the financial effects of
this stock offering.
Competition has hurt American Savings' net interest income
American Savings faces intense competition both in making loans and
attracting deposits. This competition has made it more difficult for American
Savings to make new loans and has forced it to offer higher deposit rates in its
market area. This competition for loans and deposits has contributed to a
narrowing of its interest rate spread, which has hurt net interest income. The
competition for deposits, particularly from mutual funds and other stock market
investment vehicles, also has contributed to slower growth in American Savings'
deposit base in recent years. American Savings expects that the competition for
loans and deposits will continue to be intense and may increase in the future.
For more information about American Savings' market area and the competition it
faces, see "Business of American Savings--Market Area" and "Business of American
Savings--Competition."
American Savings' plans to enter commercial business lending may hurt both asset
quality and net income
American Savings has limited experience with commercial business lending,
which involves loans secured by business assets other than real estate. These
loans generally offer a higher rate of return but also possess a greater risk of
loss than loans secured by real estate. Currently, American Savings does not
make any commercial loans. Subject to market conditions, American Savings
intends to begin making commercial loans secured by business assets other than
real estate, such as equipment, inventory and accounts receivable. American
Savings cannot assure you that the level of nonaccruing commercial business
loans will not be higher in future periods which would reduce net interest
income, or that it will not have to charge-off material amounts of commercial
business loans in future periods, which could lead to a material increase in the
provision for loan losses in future periods which would also reduce net income.
See "Business of American Savings--Lending Activities--Nonperforming Assets and
Delinquencies" and "Business of American Savings--Lending Activities--Commercial
Business Loans" for additional information.
11
<PAGE>
Establishment of the American Savings Charitable Foundation will hurt American
Savings' earnings
American Financial intends to contribute to American Savings Charitable
Foundation shares of its common stock equal to 8% of the shares sold in the
conversion. This contribution will hurt operating results during the fiscal
year in which the foundation is established, which is expected to be 1999,
possibly resulting in an operating loss for such year. For a further discussion
regarding the effect of the contribution to the foundation, see "The Conversion-
- -Establishment of the Charitable Foundation."
Management will have substantial discretion over investment of the offering
proceeds
The net offering proceeds to American Savings are estimated to range from
$130.7 million to $204.1 million. The net offering proceeds to American
Financial are estimated to range from $107.6 million to $168.2 million after it
loans a portion of the proceeds to American Savings' employee stock ownership
plan to purchase shares of common stock. American Financial and American Savings
intend to use these funds for general business purposes, giving management
substantial discretion over their investment. See "Use of Proceeds" for further
discussion.
Implementation of additional benefit plans will increase future compensation
expense and may lower American Savings' net income
American Savings will recognize additional material employee compensation
and benefit expenses stemming from the shares purchased or granted to employees
and executives under new benefit plans. American Savings cannot predict the
actual amount of these new expenses because applicable accounting practices
require that they be based on the fair market value of the shares of common
stock at specific points in the future. American Savings would recognize
expenses for its employee stock ownership plan when shares are committed to be
released to participants' accounts and would recognize expenses for the stock-
based incentive plan over the vesting period of awards made to recipients. These
expenses have been estimated in the pro forma financial information under "Pro
Forma Data" assuming the $10.00 per share purchase price as fair market value.
Actual expenses, however, may be higher or lower. Recently proposed accounting
rules would also require American Financial to recognize compensation expense
for stock options awarded to nonemployee directors. For further discussion of
these plans, see "Management of American Savings--Benefits."
Year 2000 data processing problems could interrupt and hurt American Savings'
operations
Computer programs that use only two digits to identify a year could fail or
create erroneous results at or after the year 2000. While American Savings
performs all of its data processing through in-house systems, a third party
vendor provides all core application software to American Savings. If the
vendor is unable to complete its year 2000 adjustments in a timely fashion, or
if it does not successfully make all the necessary year 2000 adjustments,
resulting computer malfunctions could interrupt the operations of American
Savings and have a significant adverse impact on American Savings' financial
condition and results of operations. For further discussion of American
Savings' year 2000 compliance program, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000 Readiness."
Declining interest rates could hurt American Savings' profits
Like most financial institutions, American Savings' ability to make a
profit depends largely on its net interest income, which is the difference
between interest income it receives from its loans and securities and interest
it pays on deposits and borrowings. A large percentage of American Savings'
interest-earning assets have shorter maturities. Therefore, if interest rates
decline, American Savings anticipates that its net interest income would decline
as interest earned on its assets would decrease more quickly than the interest
paid on deposits. For further discussion of how changes in interest rates could
impact American Savings, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Management of Interest Rate Risk and Market
Risk Analysis."
12
<PAGE>
Issuance of shares for benefit program may lower your ownership interest
If stockholders approve the new stock-based incentive plan, American
Financial intends to issue shares to its officers and directors through this
plan. If the restricted stock awards under the stock-based incentive plan are
funded from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 3.85%. If the options under the stock-based
incentive plan are granted from authorized but unissued stock, your ownership
interest could be reduced by up to approximately 9.09%. See "Pro Forma Data" and
"Management of American Savings--Benefits."
Expected voting control by management and employees may make takeover attempts
more difficult to achieve
The shares of common stock that American Savings' directors and executive
officers intend to purchase in the conversion, when combined with the shares
that may be awarded to participants under American Savings' employee stock
ownership plan and American Financial's stock-based incentive plan, could result
in management and employees controlling a significant percentage of American
Financial's common stock. If these individuals were to act together, they could
have significant influence over the outcome of any stockholder vote. This
voting power may discourage takeover attempts you might like to see happen. In
addition, the total voting power of management and employees could reach in
excess of 20% of American Financial's outstanding stock. That level would
enable management and employees as a group to defeat any stockholder matter that
requires an 80% vote. For information about management's intended stock
purchases and the number of shares that may be awarded under new benefit plans,
see "Management of American Savings--Executive Compensation," "Shares to Be
Purchased by Management with Subscription Rights" and "Restrictions on
Acquisition of American Financial and American Savings."
The contribution to American Savings Charitable Foundation means that a
stockholder's total ownership interest will be 7.4% less after the contribution
Purchasers of shares will have their ownership and voting interests in
American Financial diluted by 7.4% when American Financial issues an additional
8% of its shares and contributes those shares to the foundation. For a further
discussion regarding the effect of the contribution to the foundation, see "Pro
Forma Data" and "Comparison of Independent Valuation and Pro Forma Financial
Information With and Without Foundation."
Contribution to the foundation may not be tax deductible which could hurt
American Savings' earnings
American Financial believes that its contribution to the American Savings
Charitable Foundation should be deductible for federal income tax purposes.
However, American Financial does not have any assurance that the Internal
Revenue Service will grant tax-exempt status to the foundation. If the
contribution is not deductible, American Financial would not receive any tax
benefit from the contribution. In addition, even if the contribution is tax
deductible, American Financial may not have sufficient earnings to be able to
use the deduction in full. For a further discussion of the contribution to the
charitable foundation, see "The Conversion--Establishment of the Charitable
Foundation."
Anti-takeover provisions and statutory provisions could make takeover attempts
more difficult to achieve and may decrease the market price of common stock
Provisions in American Financial's Certificate of Incorporation and Bylaws,
the corporate law of the State of Delaware, and federal regulations may make it
difficult and expensive to pursue a takeover attempt that management opposes.
These provisions may discourage or prevent takeover attempts you might like to
see happen and may decrease the market price of the common stock. These
provisions will also make the removal of the current board of directors or
management of American Financial, or the appointment of new directors, more
difficult. These provisions include: limitations on voting rights of
beneficial owners of more than 5% or 10% of American Financial's common stock;
supermajority voting requirements for certain business combinations; the
13
<PAGE>
election of directors to staggered terms of three years; and the elimination of
cumulative voting for directors. The Certificate of Incorporation of American
Financial also contains provisions regarding the timing and content of
stockholder proposals and nominations and limiting the calling of special
meetings. For further information about these provisions, see "Restrictions on
Acquisition of American Financial and American Savings."
Employment agreements, the employee stock ownership plan supplemental executive
retirement plan and the severance plan could make takeover attempts more
difficult to achieve
The employment agreements to be entered into with officers of American
Financial and American Savings provide for cash severance payments and/or the
continuation of health, life and disability benefits if the officers are
terminated following a change in control of American Financial or American
Savings. If a change in control had occurred at December 31, 1998, the
aggregate value of the severance benefits available to these officers under the
agreements would, based on 1998 compensation data, have been approximately $3.9
million. In addition, if a change in control had occurred at December 31, 1998
and all eligible employees had been terminated, the aggregate payment due under
the employee stock ownership plan supplemental executive retirement plan would
have been approximately $3.9 million and the aggregate payment due under the
severance plan would have been approximately $10.5 million. These estimates do
not take into account future salary adjustments or bonus payments or the value
of the continuation of other employee benefits. All of these arrangements may
have the effect of increasing the costs of acquiring American Financial, thereby
discouraging future attempts to take over American Financial or American
Savings. For information about the proposed employment and severance agreements
and severance plan, see "Management of American Savings--Executive
Compensation."
Banking reform legislation may reduce American Financial's powers
The U.S. Congress is currently considering legislation intended to
modernize the financial services industry. Under the pending legislation, newly
formed unitary savings and loan holding companies would not have the broad
powers currently available to them. American Financial will be a unitary savings
and loan holding company after the conversion. American Financial does not know
whether federal legislation will be enacted that affects unitary savings and
loan holding companies or, if the legislation is enacted, what form it might
take. Accordingly, management of American Savings and American Financial cannot
predict what effect, if any, banking reform legislation would have on the
activities and operations of American Financial and its subsidiaries.
American Financial cannot assure or guarantee an active trading market for the
common stock
Because American Financial has never issued stock, there is no current
trading market for the common stock. Consequently, American Financial cannot
assure or guarantee that an active trading market for the common stock will
develop or that, if developed, will continue. An active and orderly trading
market will depend on the existence and individual decisions of willing buyers
and sellers at any given time over which neither American Financial nor any
market maker will have any control. If an active trading market does not develop
or is sporadic, this may hurt the market value of the common stock. Furthermore,
American Financial cannot assure or guarantee that purchasers of common stock in
the offering will be able to sell their shares after the conversion at or above
the $10.00 per share purchase price. For further information, see "Market for
Common Stock."
Sandler O'Neill has not given an opinion or recommendation that the common stock
is a good investment
American Financial and American Savings have engaged Sandler O'Neill to
consult with and advise American Savings and American Financial with respect to
the conversion and to assist, on a best-efforts basis, with the solicitation of
subscriptions and purchase orders for shares of common stock. Sandler O'Neill
has not prepared or delivered any opinion or recommendation as to prices at
which the common stock may trade after the conversion or the appropriateness of
the amount of common stock to be issued in the conversion. Sandler O'Neill also
has not verified the accuracy or completeness of the information contained in
this prospectus, nor has it prepared a report or opinion constituting
recommendations to American Savings or American Financial.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables contain certain information concerning the financial
position and results of operations of American Savings at the dates and for the
periods indicated. The data presented at May 31, 1999 and 1998 and for the five
month periods then ended are derived from unaudited financial statements but, in
the opinion of management, reflects all adjustments necessary to present fairly
the results for these interim periods. These adjustments consist only of normal
recurring adjustments. The results of operations for the five months ended May
31, 1999 are not necessarily indicative of the results of operations that may be
expected for the year ending December 31, 1999. This information should be read
in conjunction with the Consolidated Financial Statements included in this
prospectus.
<TABLE>
<CAPTION>
At May 31, At December 31,
------------------------ ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- --------- ------------ ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets................................ $1,609,709 $1,513,743 $1,590,451 $1,475,262 $1,385,844 $1,290,279 $1,165,153
Loans, net.................................. 941,251 859,541 907,254 837,683 747,540 678,822 625,443
Mortgage-backed securities:
Available for sale.................... 205,868 138,418 172,855 132,817 103,677 111,046 --
Held to maturity...................... -- -- -- -- -- -- 49,750
Investment securities:
Available for sale.................... 370,390 444,462 417,673 432,032 441,401 368,146 279,809
Held to maturity...................... -- -- -- -- -- -- 73,356
Deposits.................................... 1,151,648 1,124,194 1,143,754 1,096,398 1,075,558 1,053,464 970,019
FHLB advances............................... 129,744 80,244 120,244 80,244 50,244 244 244
Total equity................................ 286,028 269,492 280,984 258,141 230,164 210,801 183,322
Real estate owned, net...................... 617 1,359 720 739 1,094 1,943 2,179
Nonperforming loans......................... 2,872 5,636 3,986 6,874 6,508 5,735 4,066
</TABLE>
<TABLE>
<CAPTION>
For the Five Months
Ended May 31, For the Year Ended December 31,
------------------------ ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- --------- ------------ ---------- ---------- ----------
(In thousands)
<S>............................................ <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Total interest and dividend income.......... $41,314 $41,260 $98,989 $95,255 $88,488 $83,813 $71,030
Total interest expense...................... 22,394 22,391 54,067 52,507 49,051 43,990 32,483
------- ------- ------- ------- ------- ------- -------
Net interest income...................... 18,920 18,869 44,922 42,748 39,437 39,823 38,547
Provision for loan losses................... 800 1,000 2,400 2,154 2,250 2,405 1,540
------- ------- ------- ------- ------- ------- -------
Net interest income after provision...... 18,120 17,869 42,522 40,594 37,187 37,418 37,007
for loan losses
Non-interest income:
Service charges and fees................. 1,830 1,473 4,114 2,449 2,345 1,896 2,086
Net gain on sale/contribution............ 2,797 4,196 6,696 4,655 3,950 2,877 1,429
of securities
Other.................................... 223 241 454 601 371 508 555
Total non-interest expense.................. 10,873 10,491 26,705 21,946 19,496 18,298 14,995
------- ------- ------- ------- ------- ------- -------
Income before income taxes............... 12,097 13,288 27,081 26,353 24,357 24,401 26,082
Income taxes................................ 4,198 4,272 9,066 8,093 8,627 9,222 10,312
------- ------- ------- ------- ------- ------- -------
Net income............................... $ 7,899 $ 9,016 $18,015 $18,260 $15,730 $15,179 $15,770
======= ======= ======= ======= ======= ======= =======
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
At December 31,
At May 31, ------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Selected Other Data:
Number of:
Mortgage loans outstanding........ 6,805 6,769 6,918 7,050 7,140 6,963
Deposit accounts.................. 111,361 111,747 108,349 104,146 93,316 84,088
Full-service offices.............. 17 17 14 14 13 13
</TABLE>
<TABLE>
<CAPTION>
At or For the Five
Months Ended
May 31, At or For the Year Ended December 31,
-------------------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- --------- ---------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Ratios and Other Data:
Performance Ratios(1):
Average yield on interest-earning assets...... 6.72% 7.17% 7.06% 7.13% 7.08% 7.27% 6.48%
Average rate paid on interest-bearing
liabilities................................ 4.34 4.62 4.61 4.66 4.65 4.47 3.49
Interest rate spread (2)...................... 2.38 2.55 2.45 2.47 2.43 2.80 2.99
Net interest margin (3)....................... 3.08 3.27 3.20 3.20 3.15 3.50 3.52
Ratio of interest-bearing assets
to interest-bearing liabilities............ 119.22 118.80 119.52 118.49 118.48 118.47 137.32
Ratio of net interest income after provision
for loan losses to noninterest expense....... 166.66 170.33 159.23 184.70 190.28 204.49 246.80
Noninterest expense as a percent.............. 1.65 1.70 1.78 1.55 1.48 1.50 1.14
of average assets
Return on average assets (4).................. 1.20 1.46 1.20 1.29 1.19 1.24 1.20
Return on average equity (5).................. 6.73 8.26 6.76 7.56 7.28 7.94 9.33
Ratio of average equity to average assets..... 17.81 17.67 17.78 17.01 16.41 15.68 15.15
Regulatory Capital Ratios:
Leverage capital ratio........................ 15.48 15.67 16.35 15.95 15.33 15.52 15.74
Total risk-based capital ratio................ 29.56 29.13 29.19 30.30 29.79 30.84 34.74
Asset Quality Ratios:
Nonperforming loans as a percent
of total loans (6)......................... 0.30 0.65 0.44 0.81 0.86 0.84 0.65
Nonperforming assets as a percent
of total assets (7)........................ 0.22 0.46 0.30 0.52 0.55 0.60 0.54
Allowance for loan losses as a percent
of total loans............................. 0.84 0.77 0.83 0.74 0.74 0.66 0.44
Allowance for loan losses as a percent
of nonperforming loans..................... 277.61 117.96 191.32 91.32 85.86 78.19 68.69
Net loans charged-off as a percent of average
interest-earning loans..................... 0.12 0.18 0.12 0.18 0.16 0.11 0.05
</TABLE>
_____________________________
(1) Regulatory Capital and Asset Quality Ratios are end of period ratios. With
the exception of end of period ratios, all ratios are based on average
monthly balances during the indicated periods and are annualized for
interim periods.
(2) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(3) Net interest income as a percentage of average interest-earning assets.
(4) Net income divided by average total assets.
(5) Net income divided by average total equity.
(6) Nonperforming loans consist of nonaccrual loans. See "Business of American
Savings--Lending Activities--Nonperforming Assets and Delinquencies."
(7) Nonperforming assets consist of nonaccrual loans and real estate owned. See
"Business of American Savings--Lending Activities--Nonperforming Assets and
Delinquencies."
16
<PAGE>
RECENT DEVELOPMENTS
The following tables contain certain information concerning the financial
position and results of operations of American Savings at the date and for the
periods indicated. The data presented at August 31, 1999 and 1998 and for the
eight month periods then ended are derived from unaudited condensed consolidated
financial statements but, in the opinion of management, reflects all adjustments
necessary to present fairly the results for these interim periods. These
adjustments consist only of normal recurring adjustments. The results of
operations for the eight months ended August 31, 1999 are not necessarily
indicative of the results of operations that may be expected for the year ending
December 31, 1999.
<TABLE>
<CAPTION>
At August 31, At December 31,
1999 1998
-------------- -----------------
(In thousands)
<S> <C> <C>
Selected Financial Data:
Total assets...................................................... $1,658,742 $1,590,451
Loans, net........................................................ 992,781 907,254
Mortgage-backed securities available for sale..................... 209,986 172,855
Investment securities available for sale.......................... 397,172 417,673
Deposits.......................................................... 1,152,221 1,143,754
FHLB advances..................................................... 189,744 120,244
Total equity...................................................... 285,183 280,984
Real estate owned................................................. 386 720
Nonperforming loans............................................... 2,787 3,986
</TABLE>
<TABLE>
<CAPTION>
For the Eight Months
Ended August 31,
-----------------------------------------
1999 1998
-------------- -----------------
(In thousands)
<S> <C> <C>
Selected Operating Data:
Total interest and dividend income................................ $67,049 $66,024
Total interest expense............................................ 36,064 35,970
------- -------
Net interest income............................................ 30,985 30,054
Provision for loan losses......................................... 1,280 1,600
------- -------
Net interest income after provision for loan losses............ 29,705 28,454
Non-interest income:
Service charges and fees....................................... 3,075 2,576
Net gain on sale/contribution of securities.................... 5,224 6,055
Other.......................................................... 343 339
Total non-interest expense........................................ 16,606 17,825
------- -------
Income before income taxes..................................... 21,741 19,599
Income taxes...................................................... 7,563 6,127
------- -------
Net income..................................................... $14,178 $13,472
======= =======
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
At or For the
Eight Months
Ended August 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Selected Operating Ratios and Other Data
Performance Ratios (1):
Average yield on interest-earning assets............................... 6.63% 7.05%
Average rate paid on interest-bearing liabilities...................... 4.28 4.57
Interest rate spread (2)............................................... 2.35 2.48
Net interest margin (3)................................................ 3.10 3.25
Ratio of interest-bearing assets to interest-bearing liabilities....... 120.01 118.91
Ratio of net interest income after provision for....................... 178.88 159.63
loan losses to noninterest expense
Noninterest expense as a percent of average assets..................... 1.56 1.80
Return on average assets (4)........................................... 1.33 1.36
Return on average equity (5)........................................... 7.51 7.62
Ratio of average equity to average assets.............................. 17.74 17.81
Regulatory Capital Ratios:
Leverage capital ratio................................................. 15.27 15.89
Total risk-based capital ratio......................................... 28.09 30.04
Asset Quality Ratios:
Nonperforming loans as a percent of total loans (6).................... 0.28 0.50
Nonperforming assets as a percent of total assets (7).................. 0.19 0.37
Allowance for loan losses as a percent of total loans.................. 0.83 0.77
Allowance for loan losses as a percent of nonperforming loans.......... 298.92 154.83
Net loans charged-off as a percent of average interest-earning loans... 0.10 0.17
</TABLE>
_______________________________
(1) Regulatory capital and asset quality ratios are end of period ratios. With
the exception of end of period ratios, all ratios are based on average
monthly balances during the indicated periods and are annualized for interim
periods.
(2) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(3) Net interest income as a percentage of average interest-earning assets.
(4) Net income divided by average total assets.
(5) Net income divided by average total equity.
(6) Nonperforming loans consist of nonaccrual loans.
(7) Nonperforming assets consist of nonaccrual loans and real estate owned.
18
<PAGE>
Comparison of Financial Condition at August 31, 1999 and December 31, 1998.
Total assets increased $68.3 million, or 4.3%, to $1.66 billion at August 31,
1999 from $1.59 billion at December 31, 1998. This increase was primarily a
result of an $85.5 million net increase in loans and a $37.1 million increase in
mortgage-backed securities available for sale, partially offset by a $30.7
million decrease in federal funds sold and a $20.5 million decrease in
investment securities available for sale. The shift in the composition of assets
reflects management's strategy to enhance the yield on its interest-earning
assets by reducing federal funds sold and using the proceeds, along with cash
flows from the securities portfolio, to invest in corporate debt obligations and
mortgage-backed securities, including collateralized mortgage obligations, with
maturities or average lives ranging from two to five years. The increase in
loans occurred primarily in one-to-four family and home equity loans and lines
of credit due to strong demand for new housing, expansion of American Savings'
loan markets in 1999 and lower interest rates which resulted in an increase in
loan originations for refinancings and home purchases. See "Business of American
Savings--Lending Activities" and "Business of American Savings--Investment
Activities."
Deposits increased $8.5 million, or 0.7%, to $1.15 billion at August 31, 1999,
due primarily to the opening of three new branches in late 1998 and more
aggressive marketing of deposit products. Advances from the Federal Home Loan
Bank of Boston, which increased $69.5 million, or 57.8%, to $189.7 million at
August 31, 1999 from $120.2 million at December 31, 1998, were used to fund loan
originations. Mortgagors' escrow deposits decreased $7.5 million to $3.1 million
at August 31, 1999, primarily due to property tax payments made in July.
Deferred income tax liability decreased $6.0 million due primarily to a decrease
in the net unrealized gains on securities available for sale.
Nonperforming assets totaled $3.2 million at August 31, 1999 compared to $4.7
million at December 31, 1998, a decrease of $1.5 million, or 31.9%. This
decrease reflects a $1.2 million decline in non-performing loans to $2.8 million
at August 31, 1999 and a $334,000 decrease in real estate owned to $386,000 at
August 31, 1999. The decline in non-performing loans was primarily attributable
to the improved financial condition of borrowers, which management attributes to
the strong economy. The decline in real estate owned was due to the disposition
of foreclosed properties and the lack of additional significant
foreclosures.
Total equity increased $4.2 million to $285.2 million at August 31, 1999 as
compared to $281.0 million at December 31, 1998, due to $14.2 million of net
income offset by a $10.0 million decrease in accumulated other comprehensive
income from a decline in the after-tax net unrealized gain on available for sale
securities.
Comparison of Operating Results for the Eight Months Ended August 31, 1999 and
1998
Net Income. Net income increased $706,000, or 5.2%, to $14.2 million for the
eight months ended August 31, 1999 from $13.5 million for the eight months ended
August 31, 1998. The increase was attributable to increases in interest and
dividend income, service charges and fees, and gains on sale of investment
securities of $1.0 million, $499,000 and $1.2 million, respectively, and a
$320,000 decrease in the provision for loan losses. This increase was partially
offset by increases of $1.4 million in non-interest expense excluding charitable
contributions, and $1.4 million in income tax expense. Charitable contributions
declined $2.6 million, and gain on contribution of investment securities
decreased $2.1 million, due primarily to the contribution of appreciated
investment securities to American Savings Bank Foundation, Inc. in the 1998
period.
Net Interest Income. Net interest income for the eight months ended August 31,
1999 increased by $931,000, or 3.1%, primarily as a result of increased interest
income resulting from an increase in the average balance of interest-earning
assets offset by lower yields due to a lower market interest rate environment.
Interest and dividend income increased $1.0 million, or 1.6%, to $67.0 million
for the eight months ended August 31, 1999 from $66.0 million for the eight
months ended August 31, 1998. The yield on interest-earning assets was 6.63% and
7.05% for the eight-month periods ended August 31, 1999 and 1998, respectively,
due to a
19
<PAGE>
lower market interest rate environment. Interest income on loans increased by
$1.3 million, or 2.9%, to $45.4 million for the eight months ended August 31,
1999 from $44.1 million for the same period in 1998. The increase was
attributable to an $86.1 million increase in the average balance of loans
partially offset by a decrease in the average yield on loans from 7.63% during
the first eight months of 1998 to 7.13% during the same period in 1999 due to a
lower interest rate environment. Interest and dividend income from investment
securities decreased $2.3 million, or 15.5%, to $12.6 million for the eight
months ended August 31, 1999 from $14.9 million for the eight months ended
August 31, 1998. This decrease was primarily attributable to a $35.1 million
decrease in the average balance of investment securities to $318.1 million for
the eight months ended August 31, 1999, as well as a 36 basis point decrease in
the average yield earned on investments due to a lower interest rate
environment. The decrease in the average balance of investment securities
reflects management's strategy to reduce federal funds sold and invest the
proceeds in higher yielding mortgage-backed securities. Interest income on
mortgage-backed securities increased $2.0 million, or 32.8%, from $6.2 million
for the eight months ended August 31, 1998 to $8.2 million for the eight months
ended August 31, 1999. The increase resulted from a $58.3 million increase in
the average balance of mortgage-backed securities due to additional purchases of
such securities, partially offset by a decrease in the average yield of 47 basis
points due to the lower interest rate environment.
Interest expense was approximately $36.0 million for the eight month periods
ended August 31, 1999 and 1998. Interest expense on deposits was lower in 1999
than 1998 due to a lower interest rate environment while interest expense on
borrowings increased due to increases in the average balance of borrowings from
the Federal Home Loan Bank of Boston that were used to fund loan growth.
Provision for Loan Losses. The provision for loan losses decreased $320,000 to
$1.3 million for the eight months ended August 31, 1999 from $1.6 million for
the eight months ended August 31, 1998. The decrease in the provision for loan
losses reflects a decrease in non-performing loans, which totaled $2.8 million
and $4.5 million at August 31, 1999 and 1998, respectively, and represented
0.28% and 0.50% of total loans at August 31, 1999 and 1998, respectively. At
August 31, 1999 and 1998, the allowance for loan losses was $8.3 million and
$7.0 million, respectively, which represented 299% of non-performing loans and
0.83% of total loans at August 31, 1999 as compared to 155% of non-performing
loans and 0.77% of total loans at August 31, 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Comparison of
Operating Results for the Five Months Ended May 31, 1999 and 1998" and "Business
of American Savings-Lending Activities-Allowance for Loan Losses."
Non-interest Income. Non-interest income decreased $328,000, or 3.7%, to $8.6
million for the eight months ended August 31, 1999 from $9.0 million in the same
period in the prior year primarily due to a decrease in the gains on the
contribution of securities of $2.1 million, partially offset by an increase of
$1.2 million, or 30.6%, in the gain on sales of securities from $4.0 million for
the eight months ended August 31, 1998 to $5.2 million for the eight months
ended August 31, 1999. The decline in the gain on contribution of securities was
due to contributions of appreciated securities to American Savings Bank
Foundation, Inc. in 1998. There was no such contribution made in 1999. However,
due to the planned establishment of American Savings Charitable Foundation as
part of the conversion, American Savings does not intend to make further
contributions of securities to American Savings Bank Foundation, Inc. and,
therefore, no future gains on the contribution of appreciated securities will be
recognized. Gains on sales of securities for the 1999 period includes a $2.2
million gain recognized in June when American Savings received cash, that
exceeded the cost basis of the underlying shares, in exchange for shares of
common stock of a company that was acquired by merger. The proceeds from this
transaction were primarily invested in corporate debt obligations and mortgage-
backed securities including collateralized mortgage obligations with maturities
or average lives ranging from two to five years. See "Business of American
Savings--Investment Activities" for further discussion of American Savings'
marketable equity securities. Service charges and fees increased $499,000 for
the eight months ended August 31, 1999 compared to the same period last year due
to the implementation of a new service charge structure, increased transaction
accounts and an increase in fees following the start of operations of American
Savings financial services subsidiary in June 1998. See "Business of American
Savings--Subsidiary Activities--American Investment Services, Inc."
20
<PAGE>
Non-interest Expense. Non-interest expense for the eight months ended August
31, 1999 was $16.6 million, a decrease of $1.2 million, or 6.8%, compared to
$17.8 million for the eight months ended August 31, 1998. The decrease was due
primarily to a decrease in charitable contributions, offset by increases in
salary and occupancy expenses. Charitable contributions decreased $2.6 million,
or 80.8%, to $615,000 for the eight months ended August 31, 1999 compared to
$3.2 million in the same period in 1998. This decrease was due to American
Savings funding the majority of the contribution to the American Savings Bank
Foundation, Inc. during the first eight months of 1998, while no similar
contribution was made during the eight months ended August 31, 1999. Salaries
and employee benefits increased $896,000, or 11.3%, to $8.9 million for the
eight months ended August 31, 1999 from $8.0 million for the same period in
1998. Occupancy expense for the eight months ended August 31, 1999 increased
$247,000 to $1.6 million from $1.3 million in the same period last year. Both
the salary and occupancy expense increases are primarily due to the opening of
three new branches during the latter part of 1998 and the increased depreciation
charges associated with capital improvements to the main office completed in
late 1998.
Income Tax Expense. Income taxes were $7.6 million for the eight months ended
August 31, 1999, compared to $6.1 million for the eight months ended August 31,
1998. The effective tax rates were 34.8% and 31.3% for the eight months ended
August 31, 1999 and 1998, respectively. The increase in income tax expense was
primarily due to an increase in income before income taxes and due to the
absence in 1999 of a tax benefit received in 1998 due to the non-taxable gain on
the contribution of appreciated securities to American Savings Bank Foundation,
Inc.
21
<PAGE>
USE OF PROCEEDS
The following table presents the estimated net proceeds of the offering, the
amount to be retained by American Financial, the amount to be contributed to
American Savings, and the amount of American Financial's loan to the employee
stock ownership plan. See "Pro Forma Data" for additional assumptions used to
arrive at these amounts.
<TABLE>
<CAPTION>
26,732,500 36,167,500 41,592,625
Shares at Shares at Shares at
$10.00 $10.00 $10.00
Per Share Per Share Per Share
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Gross proceeds................................................ $ 267,325 $ 361,675 $ 415,926
Less: estimated underwriting commissions and
other offering expenses................................ 5,905 7,069 7,738
---------- ----------- -----------
Net proceeds.................................................. $ 261,420 $ 354,606 $ 408,188
========== =========== ===========
Net proceeds to be retained by American Financial............. $ 130,710 $ 177,303 $ 204,094
Net proceeds to be contributed to American Savings............ $ 130,710 $ 177,303 $ 204,094
Amount of loan by American Financial to employee.............. $ 23,097 $ 31,249 $ 35,936
stock ownership plan
</TABLE>
American Financial will purchase all of the capital stock of American Savings
to be issued in the conversion in exchange for 50% of the net proceeds of the
stock offering. Receipt of 50% of the net proceeds of the sale of the common
stock will increase American Savings' capital and will support the expansion of
American Savings' existing business activities. American Savings will use the
funds contributed to it for general business purposes, including, loan
originations and investment in short-term U.S. government agency obligations and
U.S. government agency issued mortgage-backed securities.
American Financial intends to loan the employee stock ownership plan the
amount necessary to acquire an amount of shares equal to 8% of the shares issued
in the conversion, including shares issued to American Savings Charitable
Foundation. Accordingly, the employee stock ownership plan acquisitions would
range between 2,309,688 shares at the minimum of the offering range and
3,124,872 shares at the maximum of the offering range. At the midpoint of the
offering range, the employee stock ownership plan would acquire 2,717,280
shares. If 44,920,035 shares are issued in the conversion, the employee stock
ownership plan would acquire 3,593,602 shares. The employee stock ownership plan
plans to acquire such amount of stock by subscribing for 5% of the shares sold
in the conversion in the stock offering and acquiring the remaining balance of
shares through open market purchases after the completion of the conversion. For
purposes of the above table, it is assumed that any shares of common stock to be
purchased by the employee stock ownership plan in the open market will be
purchased at $10.00 per share. If there are not enough shares to satisfy the
employee stock ownership plan's subscription for shares sold in the conversion,
the plan may purchase such shares in the open market after conversion. It is
anticipated that the employee stock ownership plan loan will have a 20-year term
with interest payable at the prime rate as published in The Wall Street Journal
on the closing date of the conversion. The loan will be repaid principally from
American Savings' contributions to the employee stock ownership plan and from
any dividends paid on shares of common stock held by the employee stock
ownership plan.
The remaining net proceeds retained by American Financial will initially be
invested primarily in short- to intermediate-term securities. American Financial
may also use the funds it retains to support future expansion of operations or
diversification into other banking or financial services related businesses and
for other business or investment purposes. With the exception of American
Savings' strategic plan to acquire or establish an insurance
22
<PAGE>
agency and expand its branch network over the next five years, there are no
specific plans, arrangements, agreements or understandings, written or oral,
regarding any expansion activities.
American Financial may also use available funds to repurchase shares of common
stock and for the payment of dividends, subject to any limitations set forth in
applicable laws and regulations. Following the conversion, the Board of
Directors will have the authority to adopt plans that meet statutory and
regulatory requirements for repurchases of common stock. Since American
Financial has not yet issued stock, there currently is insufficient information
upon which an intention to repurchase stock could be based and consequently, no
such intention currently exists. The Board of Directors will consider many facts
and circumstances in determining whether to repurchase stock in the future.
These factors include market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk involved
in the investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and the ability to improve American
Financial's return on equity. The avoidance of dilution to stockholders by not
having to issue additional shares to cover the exercise of stock options or to
fund employee stock benefit plans is another factor that will be considered. The
Board of Directors will also consider any other circumstances in which
repurchases would be in the best interests of American Financial and its
stockholders.
Before undertaking any stock repurchases, the Board of Directors must
determine that both American Financial and American Savings will be capitalized
in excess of all applicable regulatory requirements after any repurchases and
that capital will be adequate, taking into account, among other things, American
Savings' level of nonperforming and classified assets, American Financial's and
American Savings' current and projected results of operations and
asset/liability structure, the economic environment and tax and other regulatory
considerations. For a discussion of the regulatory limitations applicable to
stock repurchases, see "The Conversion--Restrictions on Repurchase of Stock."
Except as described above, neither American Financial nor American Savings has
specific plans for the investment of the proceeds of this offering. Although
American Savings' capital currently exceeds regulatory requirements, it is
converting to stock form primarily to structure itself in the form of
organization used by commercial banks and most other financial services
companies. For a discussion of management's business reasons for undertaking the
conversion, see "The Conversion--Reasons for the Conversion."
DIVIDEND POLICY
General
American Financial's Board of Directors intends to adopt a policy of paying
regular cash dividends after the conversion, but has not decided the exact
amount or range of amounts that may be paid, when the payments may begin or the
frequency of any payments. In addition, the Board of Directors may declare and
pay periodic special cash dividends in addition to, or in lieu of, regular cash
dividends. In determining whether to declare or pay any dividends, whether
regular or special, the Board of Directors will take into account the amount of
the net proceeds retained by American Financial, American Financial's financial
condition, results of operations, tax considerations, capital requirements,
industry standards, and economic conditions. The regulatory restrictions that
affect the payment of dividends by American Savings to American Financial
discussed below will also be considered. American Financial is also subject to
Delaware law, which generally limits dividends to an amount equal to an excess
of the net assets of a company (the amount by which total assets exceed total
liabilities) over statutory capital, or if there is no excess, to the company's
net profits for the current and/or immediately preceding fiscal year. In order
to pay cash dividends, however, American Financial must have available cash
either from the net proceeds raised in the conversion and retained by American
Financial, borrowings by American Financial, dividends received from American
Savings or earnings on American Financial's assets. No assurances can be given
that any dividends, either regular or special, will be declared or paid, or if
declared and paid, what the amount of dividends will be or whether they will
continue uninterrupted.
23
<PAGE>
Regulatory Restrictions
Dividends from American Financial may depend, in part, upon receipt of
dividends from American Savings because American Financial initially will have
no source of income other than dividends from American Savings and earnings from
the investment of the net proceeds from the offering retained by American
Financial. American Savings, as a Connecticut-chartered savings bank, must also
comply with Connecticut law when considering paying a dividend. Connecticut law
limits all cash dividends declared by a bank in any calendar year, unless
specifically approved by the Connecticut Banking Commissioner, to the total of
net profits for that year and retained net profits for the preceding two years.
Net profits are defined as the remainder of all earnings from current
operations. Subject to the approval of the Connecticut Banking Commissioner,
stock dividends may be declared and paid up to the amount of the bank's surplus
earnings. In addition, American Savings may not declare or pay a cash dividend
on its capital stock if its effect would be to reduce the regulatory capital of
American Savings below the amount required for the liquidation account to be
established as required by American Savings' plan of conversion and below
amounts required to be maintained by the Federal Deposit Insurance Corporation.
See "The Conversion--Effects of Conversion to Stock Form--Liquidation Account."
Tax Considerations
In addition to the foregoing, retained earnings of American Savings
appropriated to bad debt reserves and previously deducted for federal income tax
purposes cannot be used by American Savings to pay cash dividends to American
Financial without the payment of federal income taxes by American Savings at the
then current income tax rate on the amount deemed distributed, which would
include the amounts of any federal income taxes paid by American Savings
relating to the distribution. See "Federal and State Taxation of Income--Federal
Income Taxation" and Note 11 of the Notes to Consolidated Financial Statements
included in this prospectus. American Financial does not contemplate any
distribution by American Savings that would result in a recapture of American
Savings' bad debt reserve or create the above-mentioned federal tax liabilities.
MARKET FOR COMMON STOCK
American Financial and American Savings have not issued capital stock and,
consequently, no established market for the common stock exists. American
Financial expects to receive approval to have its common stock quoted on the
Nasdaq National Market under the symbol "AMFH" upon completion of the
conversion. To receive that approval, American Financial must satisfy various
conditions, including selling the stock and meeting certain listing criteria.
There can be no assurance that the common stock will be able to meet the
applicable listing criteria to maintain its quotation on the Nasdaq National
Market or that an active and liquid trading market will develop or, if
developed, will be maintained. No assurance can be given that an investor will
be able to resell the common stock at or above the purchase price of the common
stock after the conversion.
24
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of American Savings
at May 31, 1999, and the pro forma capitalization of American Financial after
giving effect to the assumptions listed under "Pro Forma Data," based on the
sale of the number of shares of common stock indicated in the table. This table
does not reflect the issuance of additional shares under the proposed stock-
based incentive plan. A change in the number of shares to be issued in the
conversion may materially affect pro forma capitalization.
<TABLE>
<CAPTION>
American Financial Pro Forma
Capitalization Based Upon the Sale of
----------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Valuation Valuation
Range Range Range
----------------------------------------------
American Savings 26,732,500 36,167,500 41,592,625
Capitalization Shares at Shares at Shares at
as of $10.00 $10.00 $10.00
May 31, 1999 Per Share Per Share Per Share
---------------- ------------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Deposits (1)............................................... $1,151,648 $ 1,151,648 $ 1,151,648 $ 1,151,648
Advances from Federal Home Loan Bank....................... 129,744 129,744 129,744 129,744
---------- ----------- ----------- -----------
Total deposits and borrowed funds.......................... $1,281,392 $ 1,281,392 $ 1,281,392 $ 1,281,392
---------- ----------- ----------- -----------
Stockholders' equity:
Preferred stock:
10,000,000 shares, $.01 par value per share,
authorized; none issued or outstanding ........... $ -- $ -- $ -- $ --
Common stock:
120,000,000, $.01 par value per share,
authorized; specified number of shares
assumed to be issued and outstanding (2) ......... -- 289 391 449
Additional paid-in capital................................. -- 261,131 354,215 407,739
Undivided profits (3)...................................... 249,122 249,122 249,122 249,122
Net unrealized gain on available-for-sale securities, net.. 36,906 36,906 36,906 36,906
Plus:
Contribution to foundation.............................. -- 21,386 28,934 33,274
Less:
Expense of contribution to foundation, net of taxes (4). -- (13,901) (18,807) (21,628)
Less:
Common stock acquired by employee....................... -- (23,097) (31,249) (35,936)
stock ownership plan (5)
Common stock to be acquired by stock-based
incentive plan (6)................................... -- (11,548) (15,624) (17,968)
---------- ----------- ----------- -----------
Total stockholders' equity................................. $ 286,028 $ 520,288 $ 603,888 $ 651,958
========== =========== =========== ===========
</TABLE>
_____________________
(1) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Withdrawals to purchase common stock will reduce pro forma
deposits by the amounts of the withdrawals.
(2) American Savings' authorized capital consists solely of 120,000,000 shares
of common stock, par value $1.00 per share, 1,000 shares of which will be
issued to American Financial, and 10,000,000 shares of preferred stock,
$1.00 par value per share, none of which will be issued in connection with
the conversion.
(3) Undivided profits are restricted by applicable regulatory capital
requirements. Additionally, American Savings will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of
American Savings' eligible depositors as of December 31, 1997 and ________,
1999 at the time of the conversion and decreased subsequently as these
account holders reduce their balances or cease to be depositors. See "The
Conversion--Effects of Conversion to Stock Form--Liquidation Account."
(4) Represents the expense, net of tax, of the contribution of common stock to
American Savings Charitable Foundation based on a 35% tax rate. The
realization of the tax benefit is limited annually to 10% of American
Financial's annual taxable income. However, for federal tax and state
purposes, American Financial can carry forward any unused portion of the
deduction for five years following the year in which the contribution is
made.
(5) Assumes that 8% of the common stock issued in the conversion will be
acquired by the employee stock ownership plan in the conversion and in the
open market after the conversion at $10.00 per share with funds borrowed
from American Financial. The employee stock ownership plan intends to
purchase 5% of the shares sold in the conversion in the stock offering and
will acquire the remaining percentage through open market purchases after
the completion of the conversion. Under generally accepted accounting
principles, the amount of common stock to be purchased by the employee
stock ownership plan represents unearned compensation and is, accordingly,
reflected as a reduction of capital. As shares are released to employee
stock ownership plan participants' accounts, a corresponding reduction in
the charge against capital will occur. Since the funds are borrowed from
American Financial, the borrowing will be eliminated in consolidation and
no liability or interest expense will be reflected in the consolidated
financial statements of American Financial. See "Management of American
Savings--Benefits--Employee Stock Ownership Plan."
(6) Assumes the purchase in the open market at $10.00 per share, under the
proposed stock-based incentive plan, of a number of shares equal to 4% of
the shares of common stock issued in the conversion. The shares are
reflected as a reduction of stockholders' equity. See "Risk Factors--
Issuance of shares for benefit program may lower your ownership interest,"
"Pro Forma Data" and "Management of American Savings--Benefits--Stock-Based
Incentive Plan." The stock-based incentive plan will be submitted to
stockholders for approval at a meeting following the conversion.
25
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents American Savings' historical and pro forma
capital position relative to its regulatory capital requirements at May 31,
1999. The amount of capital infused into American Savings for purposes of the
following table is 50% of the net proceeds of the offering. For purposes of the
table, the amount expected to be borrowed by the employee stock ownership plan
and the cost of the shares expected to be awarded under the stock-based
incentive plan as restricted stock are deducted from pro forma regulatory
capital. For a discussion of the assumptions underlying the pro forma capital
calculations presented below, see "Use of Proceeds," "Capitalization" and "Pro
Forma Data." The definitions of the terms used in the table are those provided
in the capital regulations issued by the Federal Deposit Insurance Corporation.
For a discussion of the capital standards applicable to American Savings, see
"Regulation and Supervision--Federal Regulations--Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma at May 31, 1999
------------------------------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Valuation Estimated Valuation Estimated Valuation
Range Range Range
---------------------- ---------------------- ----------------------
Historical at 26,732,500 Shares 36,167,500 Shares 41,592,625 Shares
May 31, 1999, at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
---------------------- ---------------------- ---------------------- ----------------------
Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted
Total Total Total Total
Amount Assets(1) Amount Assets Amount Assets Amount Assets
--------- ----------- --------- ----------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Generally accepted accounting
principles capital............ $286,028 17.77% $382,093 22.40% $416,458 23.93% $436,218 24.79%
======== ===== ======== ===== ======== ===== ======== =====
Leverage Capital:
Capital level (2)............. $249,123 15.48% $345,188 20.24% $379,553 21.81% $399,313 22.69%
Requirement................... 64,380 4.00 68,223 4.00 69,598 4.00 70,388 4.00
-------- ----- -------- ----- -------- ----- -------- -----
Excess........................ $184,743 11.48% $276,965 16.24% $309,955 17.81% $328,925 18.69%
======== ===== ======== ===== ======== ===== ======== =====
Total Risk-Based Capital:
Total risk-based capital (3).. $286,130 29.56% $382,195 37.62% $416,560 40.32% $436,320 41.83%
Requirement................... 77,434 8.00 81,277 8.00 82,651 8.00 83,442 8.00
-------- ----- -------- ----- -------- ----- -------- -----
Excess........................ $208,696 21.56% $300,918 29.62% $333,909 32.32% $352,878 33.83%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
_________________
(1) Leverage capital levels are shown as a percentage of adjusted total assets
of $1.61 billion. Risk-based capital levels are shown as a percentage of
risk-weighted assets of $967.9 million.
(2) A portion of the net unrealized gains on available-for-sale investment
securities accounts for the difference between generally accepted
accounting principles capital and leverage capital.
(3) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that
carry a 50% risk-weighting.
26
<PAGE>
PRO FORMA DATA
The plan of conversion requires that the common stock must be sold at a
price equal to the estimated market value of American Financial and American
Savings, as converted, based upon an independent appraisal by FinPro, Inc. The
estimated valuation range as of August 3, 1999, is from a minimum of $267.3
million to a maximum of $361.7 million with a midpoint of $314.5 million. At a
price per share of $10.00, this results in a minimum number of shares of
26,732,500, a maximum number of shares of 36,167,500 and a midpoint number of
shares of 31,450,000.
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, net proceeds indicated in
the following tables are based upon the following assumptions:
(1) All shares of common stock will be sold in the subscription and direct
community offerings;
(2) Sandler O'Neill will receive a fee equal to 1.35% of the aggregate
purchase price of the shares sold in the subscription and direct
community offerings, except that no fee will be paid with respect to
shares purchased by the employee plans, officers, employees, directors
of American Savings or American Financial and their associates. See
"The Conversion--Plan of Distribution for the Subscription, Direct
Community and Syndicated Community Offerings"; and
(3) conversion expenses, excluding the 1.35% fee paid to Sandler O'Neill,
will total approximately $2,650,000 regardless of the number of shares
sold in the conversion.
Actual expenses may vary from this estimate, and the fees paid will depend
upon whether a syndicate of broker-dealers or other means is necessary to sell
the shares, and other factors.
American Financial and American Savings prepared the following pro forma
data with the assistance of FinPro. The following tables summarize the
historical net income and equity of American Savings and the pro forma net
income and stockholders' equity of American Financial at and for the five months
ended May 31, 1999 and at and for the year ended December 31, 1998. Pro forma
net income for the five months ended May 31, 1999 and for the year ended
December 31, 1998 has been calculated as if the conversion were completed on
January 1, 1999 and 1998, respectively, and the estimated net proceeds had been
invested at 4.93% beginning on that date, which represents the one-year U.S.
Treasury Bill yield as of May 31, 1999.
A pro forma after-tax return of 3.20% is used for both American Financial
and American Savings for the five months ended May 31, 1999 and the year ended
December 31, 1998 after giving effect to a combined federal and state income tax
rate of 35%. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the number of shares of common
stock indicated in the table.
When reviewing the following tables you should consider the following:
. The final column gives effect to the sale of an additional 5,425,125
shares in the conversion, which may be issued without any further
notice if FinPro increases its appraisal to reflect the results of
this offering or changes in the financial condition or results of
operations of American Savings or changes in market conditions after
the date of the appraisal. See "The Conversion--Stock Pricing and
Number of Shares to be Issued."
. Since funds on deposit at American Savings may be withdrawn to
purchase shares of common stock, the amount of funds available for
investment will be reduced by the amount of withdrawals for stock
purchases. The pro forma tables do not reflect withdrawals from
deposit accounts.
27
<PAGE>
. Historical per share amounts have been computed as if the shares of
common stock expected to be issued in the conversion had been
outstanding at January 1, 1998 or January 1, 1999, as applicable.
However, neither historical nor pro forma stockholders' equity has
been adjusted to reflect the investment of the estimated net proceeds
from the sale of the shares in the conversion, the additional employee
stock ownership plan expense or the proposed stock-based incentive
plan.
. Pro forma stockholders' equity ("book value") represents the
difference between the stated amounts of American Savings' assets and
liabilities. The amounts shown do not reflect the liquidation
account, which will be established for the benefit of eligible
depositors as of December 31, 1997 and _________, 1999, or the federal
income tax consequences of the restoration to income of American
Savings' special bad debt reserves for income tax purposes, which
would be required in the unlikely event of liquidation. See "Federal
and State Taxation of Income" and "The Conversion--Effects of
Conversion to Stock Form." The amounts shown for book value do not
represent fair market values or amounts available for distribution to
stockholders in the unlikely event of liquidation.
. The amounts shown as pro forma stockholders' equity per share do not
represent possible future price appreciation or depreciation of
American Financial's common stock.
. The amounts shown do not account for the shares to be reserved for
issuance upon the exercise of stock options that may be granted under
the proposed stock-based incentive plan, which requires stockholder
approval at a meeting following the conversion. Recently proposed
accounting rules would require American Financial to recognize
compensation expense for stock options awarded to nonemployee
directors.
The following pro forma data, which are based on American Savings' equity
at May 31, 1999, and net income for the year ended December 31, 1998 and for the
five months ended May 31, 1999, may not represent the actual financial effects
of the conversion or the operating results of American Financial after the
conversion. The pro forma data rely exclusively on the assumptions outlined
above. The pro forma data do not represent the fair market value of American
Financial's common stock, the current fair market value of American Savings' or
American Financial's assets or liabilities, or the amount of money that would be
available for distribution to stockholders if American Financial is liquidated
after the conversion.
The following tables assume that American Savings Charitable Foundation is
funded as part of the conversion and therefore gives effect to the issuance of
authorized but unissued shares of American Financial common stock to the
American Savings Charitable Foundation. The valuation range accounts for the
dilutive impact of the issuance of shares to the American Savings Charitable
Foundation.
28
<PAGE>
<TABLE>
<CAPTION>
At or For the Five Months Ended May 31, 1999
--------------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Valuation Valuation
Range Range Range
---------------- ---------------- ----------------
26,732,500 36,167,500 41,592,625
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
---------------- ---------------- ----------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Gross proceeds............................................................. $ 267,325 $ 361,675 $ 415,926
Plus: shares issued to the foundation (equal to 8% of the shares
issued in the conversion)........................................... 21,386 28,934 33,274
----------- ----------- -----------
Pro forma market capitalization............................................ $ 288,711 $ 390,609 $ 449,200
=========== =========== ===========
Gross proceeds............................................................. $ 267,325 $ 361,675 $ 415,926
Less: estimated expenses.................................................. (5,905) (7,069) (7,738)
Estimated net proceeds..................................................... 261,420 354,606 408,188
Less: common stock acquired by employee stock ownership plan.............. (23,097) (31,249) (35,936)
Less: common stock to be acquired by stock-based incentive plan........... (11,548) (15,624) (17,968)
----------- ----------- -----------
Net investable proceeds................................................. $ 226,775 $ 307,733 $ 354,284
=========== =========== ===========
Pro Forma Net Income:
Number of shares used to calculate pro forma net income per share.......... 26,609,531 36,001,130 41,401,297
Pro forma net income (1):
Historical.............................................................. $ 7,899 $ 7,899 $ 7,899
Pro forma income on net investable proceeds............................. 3,024 4,103 4,724
Less: pro forma employee stock ownership plan adjustments (2).......... (313) (423) (487)
Less: pro forma stock-based incentive plan adjustments (3)............. (626) (846) (973)
----------- ----------- -----------
Pro forma net income................................................. $ 9,984 $ 10,733 $ 11,163
=========== =========== ===========
Pro forma net income per share (1):
Historical.............................................................. $ 0.30 $ 0.22 $ 0.19
Pro forma income on net investable proceeds............................. 0.11 0.11 0.11
Less: pro forma employee stock ownership plan adjustments (2).......... (0.01) (0.01) (0.01)
Less: pro forma stock-based incentive plan adjustments (3)............. (0.02) (0.02) (0.02)
----------- ----------- -----------
Pro forma net income per share (4)................................... $ 0.38 $ 0.30 $ 0.27
=========== =========== ===========
Pro Forma Stockholders' Equity:
Number of shares used to calculate pro forma stockholders' equity
per share .............................................................. 28,871,100 39,060,900 44,920,035
Pro forma stockholders' equity (book value):
Historical.............................................................. $ 286,028 $ 286,028 $ 286,028
Estimated net proceeds.................................................. 261,420 354,606 408,188
Plus: tax benefit to the foundation.................................... 7,485 10,127 11,646
Less: common stock acquired by employee stock ownership plan........... (23,097) (31,249) (35,936)
Less: common stock to be acquired by stock-based incentive plan (3).... (11,548) (15,624) (17,968)
----------- ----------- -----------
Pro forma stockholders' equity (4)................................... $ 520,288 $ 603,888 $ 651,958
=========== =========== ===========
Pro forma stockholders' equity per share:
Historical.............................................................. $ 9.91 $ 7.32 $ 6.37
Estimated net proceeds.................................................. 9.05 9.08 9.09
Plus: tax benefit to the foundation.................................... 0.26 0.26 0.26
Less: common stock acquired by employee stock ownership plan........... (0.80) (0.80) (0.80)
Less: common stock to be acquired by stock-based incentive plan (3).... (0.40) (0.40) (0.40)
----------- ----------- -----------
Pro forma stockholders' equity per share............................. $ 18.02 $ 15.46 $ 14.52
=========== =========== ===========
Purchase price as a percentage of pro forma stockholders' equity
per share .............................................................. 55.49% 64.68% 68.87%
Purchase price as a multiple of pro forma net income per share (annualized) 10.96x 13.89x 15.43x
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1998
--------------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range
--------------- --------------- ---------------
26,732,500 36,167,500 41,592,625
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
--------------- --------------- ---------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Gross proceeds.......................................................... $ 267,325 $ 361,675 $ 415,926
Plus: shares issued to the foundation (equal to 8% of the shares
issued in the conversion)............................................ 21,386 28,934 33,274
--------------- --------------- ---------------
Pro forma market capitalization......................................... $ 288,711 $ 390,609 $ 449,200
=============== =============== ===============
Gross proceeds.......................................................... $ 267,325 $ 361,675 $ 415,926
Less: estimated expenses............................................... (5,905) (7,069) (7,738)
Estimated net proceeds.................................................. 261,420 354,606 408,188
Less: common stock acquired by employee stock ownership plan........... (23,097) (31,249) (35,936)
Less: common stock to be acquired by stock-based incentive plan........ (11,548) (15,624) (17,968)
--------------- --------------- ---------------
Net investable proceeds.............................................. $ 226,775 $ 307,733 $ 354,284
=============== =============== ===============
Pro Forma Net Income:
Number of shares used to calculate pro forma net income per share....... 26,676,896 36,092,272 41,506,110
Pro forma net income (1):
Historical........................................................... $ 18,015 $ 18,015 $ 18,015
Pro forma income on net investable proceeds.......................... 7,257 9,847 11,337
Less: pro forma employee stock ownership plan adjustments (2)....... (751) (1,016) (1,168)
Less: pro forma stock-based incentive plan adjustments (3).......... (1,501) (2,031) (2,336)
--------------- --------------- ---------------
Pro forma net income.............................................. $ 23,020 $ 24,815 $ 25,848
=============== =============== ===============
Pro forma net income per share (1):
Historical........................................................... $ 0.68 $ 0.50 $ 0.43
Pro forma income on net investable proceeds.......................... 0.27 0.27 0.27
Less: pro forma employee stock ownership plan adjustments (2)....... (0.03) (0.03) (0.03)
Less: pro forma stock-based incentive plan adjustments (3).......... (0.06) (0.06) (0.06)
--------------- --------------- ---------------
Pro forma net income per share (4)................................ $ 0.86 $ 0.68 $ 0.61
=============== =============== ===============
Pro Forma Stockholders' Equity:
Number of shares used to calculate pro forma stockholders' equity
per share............................................................ 28,871,100 39,060,900 44,920,035
Pro forma stockholders' equity (book value):
Historical........................................................... $ 280,984 $ 280,984 $ 280,984
Estimated net proceeds............................................... 261,420 354,606 408,188
Plus: tax benefit to the foundation................................. 7,485 10,127 11,646
Less: common stock acquired by employee stock ownership plan........ (23,097) (31,249) (35,936)
Less: common stock to be acquired by stock-based incentive plan (3). (11,548) (15,624) (17,968)
--------------- --------------- ---------------
Pro forma stockholders' equity (4)................................ $ 515,244 $ 598,844 $ 646,914
=============== =============== ===============
Pro forma stockholders' equity per share:
Historical........................................................... $ 9.73 $ 7.19 $ 6.26
Estimated net proceeds............................................... 9.05 9.08 9.09
Plus: tax benefit to the foundation................................. 0.26 0.26 0.26
Less: common stock acquired by employee stock ownership plan........ (0.80) (0.80) (0.80)
Less: common stock to be acquired by stock-based incentive plan (3). (0.40) (0.40) (0.40)
--------------- --------------- ---------------
Pro forma stockholders' equity per share.......................... $ 17.84 $ 15.33 $ 14.41
=============== =============== ===============
Purchase price as a percentage of pro forma stockholders' equity
per share............................................................ 56.05% 65.23% 69.40%
Purchase price as a multiple of pro forma net income per share.......... 11.63x 14.71x 16.39x
</TABLE>
30
<PAGE>
____________________________
(1) Does not give effect to the non-recurring expense that will be recognized in
1999 as a result of the establishment of the American Savings Charitable
Foundation. The following table shows the estimated after-tax expense
associated with the contribution to the foundation, as well as pro forma net
income and pro forma net income per share assuming the contribution to the
foundation was expensed during the periods presented. The pro forma data
assumes that American Financial will realize 100% of the income tax benefit
as a result of the contribution to the foundation based on a 35% tax rate.
The realization of the tax benefit is limited annually to 10% of American
Financial's annual taxable income. However, for federal and state tax
purposes, American Financial can carry forward any unused portion of the
deduction for five years following the year in which the contribution is
made.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
------------ ------------ ------------
26,732,500 36,167,500 41,592,625
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
After-tax expense of contribution to foundation:
Five months ended May 31, 1999............................. $ 13,901 $ 18,807 $ 21,628
Year ended December 31, 1998............................... 13,901 18,807 21,628
Pro forma net income (loss):
Five months ended May 31, 1999............................. (3,917) (8,074) (10,465)
At December 31, 1998....................................... 9,119 6,008 4,220
Pro forma net income (loss) per share:
Five months ended May 31, 1999............................. (0.15) (0.22) (0.25)
Year ended December 31, 1998............................... 0.34 0.17 0.10
</TABLE>
(2) Assumes that the employee stock ownership plan will acquire an amount of
stock equal to 8% of the shares of common stock issued in the conversion.
The employee stock ownership plan intends to purchase 5% of the shares sold
in the conversion in the stock offering and acquire the remaining percentage
through open market purchases after the completion of the conversion.
Shares purchased in the open market are assumed to be purchased at $10.00
per share. The employee stock ownership plan will borrow the funds used to
acquire these shares from the net proceeds from the conversion retained by
American Financial. The amount of this borrowing, which will have an
interest rate equal to the prime rate as published in The Wall Street
Journal, which is currently 8.00%, has been reflected as a reduction from
gross proceeds to determine estimated net investable proceeds. American
Savings intends to make contributions to the employee stock ownership plan
in amounts at least equal to the principal and interest requirement of the
debt. As the debt is paid down, stockholders' equity will be increased.
American Savings' payment of the employee stock ownership plan debt is based
upon equal installments of principal over a 20-year period, assuming a
combined federal and state income tax rate of 35%. Interest income earned
by American Financial on the loan to the employee stock ownership plan
offsets the interest paid on the loan by American Savings. No reinvestment
is assumed on proceeds contributed to fund the employee stock ownership
plan. Applicable accounting principles require that compensation expense
for the employee stock ownership plan be based upon shares committed to be
released and that unallocated shares be excluded from earnings per share
computations. The valuation of shares committed to be released would be
based upon the average market value of the shares during the year, which,
for purposes of this calculation, was assumed to be equal to the $10.00 per
share purchase price. See "Management of American Savings--Benefits--
Employee Stock Ownership Plan."
(3) Assumes that the stock-based incentive plan will acquire an amount of stock
equal to 4% the common stock issued in the conversion for award to key
employees and directors. In calculating the pro forma effect of the stock-
based incentive plan, it is assumed that the required stockholder approval
has been received, that the shares were acquired by the stock-based
incentive plan at the beginning of the respective period in open market
purchases at the $10.00 per share purchase price, that 20% of the amount
contributed was an amortized expense during the period, that the combined
federal and state income tax rate is 35%, and that stock options which may
be issued under the stock-based incentive plan are not granted or exercised.
The issuance of authorized but unissued shares of the common stock instead
of open market purchases would dilute the voting interests of existing
stockholders by approximately 3.85%.
31
<PAGE>
For purposes of this table, shares issued under the stock-based incentive
plan vest 20% per year and compensation expense is recognized on a straight-
line basis over each vesting period. If the fair market value per share is
greater than $10.00 per share on the date shares are awarded under the
stock-based incentive plan, total stock-based incentive plan expense would
be greater. The total estimated stock-based incentive plan expense was
multiplied by 20%, which is the total percent of shares for which expense is
recognized in the first year.
The following table shows the estimated pro forma net income and
stockholders' equity per share if shares for the stock-based incentive plan
were authorized but unissued shares instead of repurchased shares. The table
also shows the estimated pre-tax stock-based incentive plan expense.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
------------ ------------ ------------
26,732,500 36,167,500 41,592,625
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma net income per share:
Five months ended May 31, 1999............................. $ 0.37 $ 0.29 $ 0.26
Year ended December 31, 1998............................... 0.84 0.67 0.61
Pro forma stockholders' equity per share:
At May 31, 1999............................................ 17.33 14.87 13.96
At December 31, 1998....................................... 17.16 14.74 13.85
Pre-tax stock-based incentive plan expense:
Five months ended May 31, 1999............................. 962 1,302 1,497
Year ended December 31, 1998............................... 2,310 3,125 3,594
</TABLE>
(4) In calculating the pro forma effect of the stock-based incentive plan, no
effect has been given for any shares that may be reserved for issuance upon
the exercise of stock options that may be granted under the stock-based
incentive plan. The number of options available under the stock-based
incentive plan will be equal to 10% of the number of shares issued in the
conversion. The issuance of authorized but unissued shares of common stock
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 9.09%.
The following table shows the estimated pro forma net income and
stockholders' equity per share if shares for stock issued as a result of the
exercise of stock options were authorized but unissued shares instead of
repurchased shares.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
------------ ------------ ------------
26,732,500 36,167,500 41,592,625
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma net income per share:
Five months ended May 31, 1999 $ 0.34 $ 0.27 $ 0.24
Year ended December 31, 1998 0.78 0.62 0.56
Pro forma stockholders' equity per share:
At May 31, 1999 16.38 14.05 13.19
At December 31, 1998 16.22 13.94 13.09
</TABLE>
32
<PAGE>
COMPARISON OF INDEPENDENT VALUATION AND
PRO FORMA FINANCIAL INFORMATION WITH AND WITHOUT FOUNDATION
As set forth in the following table, if the American Savings Charitable
Foundation is not established and funded as part of the conversion, FinPro
estimates that the pro forma valuation of American Financial and American
Savings would be greater than if the foundation is included, and would result in
an increase in the amount of common stock offered for sale in the conversion. If
the foundation is not established, there is no assurance that the appraisal
prepared at that time of conversion would conclude that the pro forma market
value of American Financial and American Savings would be the same as the
estimate set forth in the table below. Any appraisal prepared at the time of
conversion would be based on the facts and circumstances existing at that time,
including, among other things, market and economic conditions.
The information presented in the following table is for comparative purposes
only. It assumes that the conversion was completed at May 31, 1999, based on
the assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
At the Maximum,
At the Minimum of At the Maximum of as Adjusted, of
Estimated Valuation Range Estimated Valuation Range Estimated Valuation Range
------------------------- ------------------------- -------------------------
With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Estimated pro forma valuation (1)................ $ 267,325 $ 306,000 $ 361,675 $ 414,000 $ 415,926 $ 476,100
Estimated offering amount........................ 267,325 306,000 361,675 414,000 415,926 476,100
Pro forma market capitalization.................. 288,711 306,000 390,609 414,000 449,200 476,100
Total assets..................................... 1,843,969 1,872,580 1,927,569 1,966,279 1,975,639 2,020,155
Total liabilities................................ 1,323,681 1,323,681 1,323,681 1,323,681 1,323,681 1,323,681
Pro forma stockholders' equity................... 520,288 548,899 603,888 642,598 651,958 696,474
Pro forma net income (2)......................... 9,984 10,409 10,733 11,307 11,163 11,824
Pro forma stockholders' equity per share......... 18.02 17.94 15.46 15.52 14.52 14.63
Pro forma net income per share (2)............... 0.38 0.37 0.30 0.30 0.27 0.27
Pro Forma Pricing Ratios:
Offering price as a percentage of pro forma.... 55.49% 55.74% 64.68% 64.43% 68.87% 68.35%
stockholders' equity per share
Offering price to pro forma net income......... 10.96 11.26 13.89 13.89 15.43 15.43
per share
Offering price to assets....................... 15.66 16.34 20.26 21.05 22.74 23.57
Pro Forma Financial Ratios:
Return on assets (annualized).................. 1.30 1.33 1.34 1.38 1.36 1.40
Return on stockholders' equity (annualized).... 4.61 4.55 4.27 4.22 4.11 4.07
Stockholders' equity to total assets........... 28.22 29.31 31.33 32.68 33.00 34.48
</TABLE>
____________________________
(1) Based on independent valuation prepared by FinPro as of August 3,
1999.
(2+) Net income and net income per share data are based on the five month
period ended May 31, 1999.
33
<PAGE>
AMERICAN SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income for each of the years in
the three year period ended December 31, 1998 have been audited by KPMG LLP,
independent certified public accountants. The report of KPMG LLP on these
Consolidated Statements of Income appears on page F-2 of this prospectus.
Information for the five months ended May 31, 1999 and 1998, which is unaudited,
includes all adjustments which, in the opinion of management, are of a normal
recurring nature and are necessary for a fair presentation of these interim
periods. Results for the five months ended May 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. These statements should be read in conjunction with the Consolidated
Financial Statements and Notes and with the Management's Discussion and Analysis
of Financial Condition and Results of Operations included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Five Months Ended May 31, Year Ended December 31,
---------------------------- ------------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Real estate mortgage loans................... $19,270,532 $19,262,111 $46,897,585 $44,538,518 $41,901,888
Consumer loans............................... 8,564,827 8,094,263 19,856,252 17,662,892 14,879,279
Mortgage-backed securities................... 4,841,810 3,968,693 9,064,117 7,278,009 7,472,723
Federal funds sold........................... 723,509 551,496 1,599,613 1,378,611 2,219,440
Investment securities:
Interest.................................. 6,897,924 8,609,568 19,434,383 21,884,851 17,128,824
Dividends................................. 1,015,469 773,678 2,136,915 2,512,353 4,886,142
----------- ----------- ----------- ----------- -----------
Total interest and dividend income..... 41,314,071 41,259,809 98,988,865 95,255,234 88,488,296
----------- ----------- ----------- ----------- -----------
Interest expense:
Deposits (note 7)............................ 19,398,423 20,287,766 48,822,600 49,121,033 48,989,125
Federal Home Loan Bank advances.............. 2,995,309 2,103,260 5,244,037 3,385,975 61,745
----------- ----------- ----------- ----------- -----------
Total interest expense................. 22,393,732 22,391,026 54,066,637 52,507,008 49,050,870
----------- ----------- ----------- ----------- -----------
Net interest income before provision
for loan losses.................... 18,920,339 18,868,783 44,922,228 42,748,226 39,437,426
Provision for loan losses (note 4).............. 800,000 1,000,000 2,400,000 2,154,500 2,250,000
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses.................... 18,120,339 17,868,783 42,522,228 40,593,726 37,187,426
----------- ----------- ----------- ----------- -----------
Non-interest income:
Service charges and fees..................... 1,829,482 1,472,688 4,114,039 2,448,984 2,345,181
Gain on sale of investment securities
available for sale (note 3)............... 2,797,133 2,142,454 3,148,740 508,342 3,950,256
Gain on contribution of investment
securities available for sale (note 3).... -- 2,053,726 3,547,193 4,146,913 --
Net gain (loss) on sale of loans............. 54,834 3,404 (16,602) 5,577 (27,420)
Other........................................ 167,755 237,750 470,058 594,851 397,949
----------- ----------- ----------- ----------- -----------
Total non-interest income.............. 4,849,204 5,910,022 11,263,428 7,704,667 6,665,966
----------- ----------- ----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits............... 5,771,149 5,197,279 12,281,110 10,102,372 9,121,552
Occupancy expense............................ 995,437 826,477 2,053,072 1,707,325 1,494,830
Furniture and fixture expense................ 680,561 637,030 1,453,833 1,342,428 927,947
Charitable contributions (note 15)........... 375,435 1,010,486 3,963,624 2,410,400 2,267,039
Advertising.................................. 591,942 419,513 1,456,063 1,372,950 1,445,629
Deposit insurance expense.................... 55,825 56,889 133,768 137,760 (1,027)
Real estate owned expenses, net.............. 52,992 100,339 84,019 510,977 308,960
Other........................................ 2,349,469 2,242,681 5,279,525 4,361,655 3,931,695
----------- ----------- ----------- ----------- -----------
Total non-interest expense............. 10,872,810 10,490,694 26,705,014 21,945,867 19,496,625
----------- ----------- ----------- ----------- -----------
Income before income taxes............. 12,096,733 13,288,111 27,080,642 26,352,526 24,356,767
Income taxes (note 11).......................... 4,198,000 4,272,000 9,066,000 8,092,744 8,626,771
----------- ----------- ----------- ----------- -----------
Net income............................. $ 7,898,733 $ 9,016,111 $18,014,642 $18,259,782 $15,729,996
=========== =========== =========== =========== ===========
</TABLE>
Note references are to the Notes to the Consolidated Financial Statements
beginning on page F-6.
34
<PAGE>
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 Information" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in the prospectus. In addition to
historical information, the following "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements as a result of certain factors, including those discussed in "Risk
Factors," contained elsewhere in this prospectus.
General
American Savings' results of operations depend primarily on net interest
income, which is the difference between the interest income earned on American
Savings' interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as deposits and borrowings.
American Savings also generates non-interest income primarily from service
charges and other fees earned on fee-based activities such as trust operations
and insurance sales and from investment services provided through its wholly
owned subsidiary, American Investment Services, Inc. Gains on the sale and
contribution of securities is another source of non-interest income. Gains on
the contributions of securities arise from donations to American Savings'
existing private foundation, American Savings Bank Foundation, Inc. See
"Business of American Savings--American Savings Bank Foundation, Inc." American
Savings' non-interest expenses primarily consist of employee compensation and
benefits, occupancy expense, charitable contributions (including donations to
American Savings Bank Foundation, Inc.), advertising and other operating
expenses. American Savings' results of operations are also affected by general
economic and competitive conditions, notably changes in market interest rates,
government policies and regulations. American Savings exceeded all of its
regulatory capital requirements at May 31, 1999.
Forward Looking Statements
This prospectus contains forward-looking statements that are based on
assumptions and describe future plans, strategies, and expectations of American
Savings and American Financial. These forward-looking statements are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. American Savings' and American
Financial's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
effect on the operations of American Savings and American Financial and their
subsidiaries include, but are not limited to, changes in interest rates, general
economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality and composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in American Savings' and American Financial's market area and
accounting principles. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. American Savings and American Financial do not undertake - and
specifically disclaim any obligation - to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of the statements or to reflect the occurrence
of anticipated or unanticipated events.
Operating Strategy
American Savings is an independent, community-oriented savings bank,
delivering quality customer service and offering a wide range of deposit, loan
and investment products to its customers. In recent years, American Savings'
strategy has been to enhance profitability by increasing sources of non-interest
income and by improving operating efficiencies while managing its capital
position and limiting its credit and interest rate risk exposure. To accomplish
these objectives, American Savings has sought to:
35
<PAGE>
. Provide superior customer service by expanding delivery systems
through the opening of new branches, establishing a customer call
center and increasing the functionality of its ATM network.
. Increase fee income by broadening non-depository product offerings and
services, including expansion of its trust services, and establishment
of a new subsidiary, American Investment Services, Inc., to provide a
wide array of investment offerings through financial service
specialists and representatives.
. Increase loan production through an expanded correspondent network and
market area.
. Control credit risk by focusing on the origination of single-family,
owner-occupied residential mortgage loans and consumer loans,
consisting primarily of home equity loans and lines of credit.
. Monitor and control interest rate risk primarily by selling longer-
term fixed rate loans as market interest rate conditions dictate and
investing in shorter-term mortgage-backed securities.
. Invest funds in excess of loan demand primarily in mortgage-backed
securities, investment grade debt and equity mutual funds.
. Invest in technological enhancements to increase productivity and
efficiency.
Comparison of Financial Condition at May 31, 1999 and December 31, 1998
Total assets increased $19.3 million, or 1.2%, to $1.61 billion at May 31,
1999 from $1.59 billion at December 31, 1998. This increase was primarily the
result of a $34.0 million increase in net loans and a $33.0 million increase in
mortgage-backed securities primarily funded by an increase in deposits and
Federal Home Loan Bank of Boston borrowings. These increases were partially
offset by a $47.3 million decrease in investment securities. The decrease in
investment securities was primarily due to the sale of investment securities to
fund loan growth and investments in mortgage-backed securities. The change in
the composition of the debt securities portfolio was due to a change in
management's strategy to attempt to enhance the yield on its interest earning
assets through restructuring its securities portfolio by reinvesting proceeds
from maturing shorter-term debt securities into mortgage-backed securities with
longer estimated maturities. See "Business of American Savings--Investment
Activities."
Deposits totaled $1.15 billion at May 31, 1999, representing an increase of
$7.9 million compared to $1.14 billion at December 31, 1998. The deposit growth
primarily reflects an $11.6 million, or 6.0%, increase in savings accounts, a
$3.9 million, or 5.7%, increase in NOW accounts and a $2.9 million, or 4.6%,
increase in money market accounts. These increases were offset by an $8.1
million, or 1.3%, decrease in certificates of deposit. The overall increase in
deposits and the slight change in the composition of the deposit base were due
primarily to the effects of the opening of three branch offices in late 1998 and
broadening of American Savings' deposit products offered to customers.
Advances from the Federal Home Loan Bank of Boston increased $9.5 million, or
7.9%, to $129.7 million at May 31, 1999 from $120.2 million at December 31,
1998. The Federal Home Loan Bank advances were used primarily to fund the
purchase of mortgage-backed securities and the origination of one- to four-
family mortgage loans.
Nonperforming assets totaled $3.5 million at May 31, 1999 compared to $4.7
million at December 31, 1998, a decrease of $1.2 million, or 25.9%. The
decrease was primarily due to a $1.1 million, or 31.0%, decrease in the amount
of nonaccruing one- to four-family loans from $3.7 million at December 31, 1998
to $2.5 million at May 31, 1999. The decrease in nonaccruing one- to four-
family loans during this period was primarily due to an improving local and
state economy and, to a lesser extent, the implementation of more focused loan
collection efforts.
Total equity increased $5.0 million to $286.0 million at May 31, 1999 as
compared to $281.0 million at December 31, 1998. This increase was due to net
income of $7.9 million for the five months ended May 31, 1999. This increase
was partially offset by a $2.9 million decrease in accumulated other
comprehensive income to $36.9 million at May 31, 1999 from $39.8 million at
December 31, 1998 caused by a decrease in the after-tax net unrealized gain on
available for sale securities.
36
<PAGE>
Comparison of Financial Condition at December 31, 1998 and 1997
Total assets increased $115.2 million, or 7.8%, to $1.59 billion at
December 31, 1998 as compared to $1.48 billion at December 31, 1997. This
increase was primarily a result of increases of $69.6 million in net loans due
to increased loan originations, $40.0 million in mortgage-backed securities due
to purchases of mortgage-backed securities, $8.9 million in cash and due from
banks and $6.9 million in federal funds sold. These increases were partially
offset by a $14.4 million decrease in investment securities resulting primarily
from the sale of equity securities. The growth in assets was funded by growth
in deposits and additional Federal Home Loan Bank advances. The growth in loans
was primarily due to an improving state and local economy, expansion of loan
products offered by American Savings, increased marketing efforts and expansion
of its market area in 1998 and lower market interest rates in 1998, which
resulted in an increase in loan refinancings.
Deposits totaled $1.14 billion at December 31, 1998, representing an
increase of $47.4 million compared to $1.10 billion at December 31, 1997. The
deposit growth reflects an increase of $11.6 million, or 6.4%, in savings
accounts, an increase of $15.9 million, or 30.3%, in NOW accounts, an increase
of $9.2 million, or 48.1%, in demand deposits, and an increase of $13.3 million,
or 2.2%, in certificates of deposit. The increase in deposits was primarily
attributable to the opening of three new branches in late 1998 and more
aggressive marketing of deposit products. In addition, borrowings from the
Federal Home Loan Bank of Boston increased $40.0 million or 49.8%, to $120.2
million at December 31, 1998 from $80.2 million at December 31, 1997, and were
used primarily to fund the origination of loans and the purchase of mortgage-
backed securities.
Nonperforming assets totaled $4.7 million at December 31, 1998 compared to
$7.6 million at December 31, 1997, a decrease of $2.9 million, or 38.2%. The
decrease was primarily due to a $2.8 million, or 43.2%, decrease in the amount
of nonaccruing one- to four-family loans from $6.5 million at December 31, 1997
to $3.7 million at December 31, 1998. The decrease in nonaccruing one- to four-
family loans during this period was primarily due to an improving state and
local economy and, to a lesser extent, the implementation of more focused loan
collection efforts.
Total equity increased $22.8 million to $281.0 million at December 31, 1998
compared to $258.1 million at December 31, 1997. This increase was due to net
income of $18.0 million and an increase of $4.8 million in accumulated other
comprehensive income, unrealized gains on available for sale securities, for the
year ended December 31, 1998.
Comparison of Operating Results for the Five Months Ended May 31, 1999 and 1998
Net Income. Net income decreased approximately $1.1 million, or 12.4%, to
$7.9 million for the five months ended May 31, 1999 from $9.0 million for the
five months ended May 31, 1998. The decrease was primarily attributable to a
$1.4 million combined reduction in the gains on sale and contribution of
securities. The reduction in the gain on contributions of securities was due to
the recognition of a $2.1 million gain in the five months ended May 31, 1998,
resulting from funding the 1998 contribution to the American Savings Bank
Foundation, Inc., with the transfer of investment securities owned by American
Savings. The gain represents the excess of the fair value of the transferred
securities over the cost basis at the date of the transfer. American Savings
recognizes an expense for the contribution in an amount equal to the fair value
of the securities transferred. There was no similar contribution made in the
five months ended May 31, 1999. The decrease in gains on contributions was
partially offset by an increase of $655,000 in gains on sales of equity
securities during the five months ended May 31, 1999 compared to the five months
ended May 31, 1998.
Net Interest Income. Net interest income for the five months ended May 31,
1999 increased by $51,000, or 0.3%, primarily as a result of increased interest
income resulting from an increase in the average balance of interest earning
assets due to increased loan originations and mortgage-backed securities
purchases and reduced interest expense on deposit accounts due to a lower
interest rate environment. These were offset, in part, by higher interest
expense on borrowings due to an increase in the average balance of Federal Home
Loan Bank advances.
37
<PAGE>
Interest and dividend income remained consistent at $41.3 million for the
five-month periods ended May 31, 1999 and 1998. The yield on interest-earning
assets was 6.72% and 7.17% for the five-month periods ended May 31, 1999 and
1998, respectively, due to a lower market interest rate environment. Interest
income on loans increased by $479,000, or 1.8%, to $27.8 million for the five
months ended May 31, 1999 from $27.4 million for the same period in 1998. The
increase was attributable to a $72.3 million increase in the average balance of
loans partially offset by a decrease in the average yield on loans from 7.77%
during the first five months of 1998 to 7.28% during the same period in 1999 due
to a lower interest rate environment. Interest and dividend income from
investment securities decreased $1.5 million, or 15.7%, to $7.9 million for the
five months ended May 31, 1999 from $9.4 million for the five months ended May
31, 1998 which was primarily attributable to a $33.3 million decrease in the
average balance of investment securities to $323.1 million for the five months
ended May 31, 1999, as well as a 38 basis point decrease in the average yield
earned on such investments due to a lower interest rate environment. Interest
income on mortgage-backed securities increased $873,000, or 22.0%, from $4.0
million for the five months ended May 31, 1998 to $4.8 million for the five
months ended May 31, 1999. The increase in interest income on mortgage-backed
securities resulted from a $44.4 million increase in the average balance of
mortgage-backed securities due to additional purchases of mortgage backed
securities, partially offset by a decrease in the average yield of 51 basis
points due to the lower interest rate environment.
Interest expense remained consistent at $22.4 million for the five-month
periods ended May 31, 1999 and 1998. The cost of interest bearing liabilities
decreased by 28 basis points from 4.62% for the five months ended May 31, 1998
to 4.34% for the same period in 1999 primarily due to a lower interest rate
environment. Interest on deposits decreased $889,000, or 4.4%, despite a $32.5
million, or 3.0%, increase in the average balance of deposits primarily due to a
33 basis point decrease in the average rate paid on deposits resulting from a
lower interest rate environment. The decrease in interest expense on deposits
was offset by an increase of $892,000 in interest on Federal Home Loan Bank of
Boston advances for the five months ended May 31, 1999 compared to the same
period in the prior year due to an increase in the average balance of Federal
Home Loan Bank advances which were used primarily to fund loan growth and the
purchase of mortgage-backed securities.
Provision for Loan Losses. The provision for loan losses decreased by
$200,000 to $800,000 for the five months ended May 31, 1999 from $1.0 million
for the five months ended May 31, 1998. The decrease in the provision for loan
losses reflects management's assessment of the losses inherent in the loan
portfolio. In this regard, in determining the provision for the five months
ended May 31, 1999, management considered the 48.2% decrease in non-performing
loans, which totaled $2.9 million and $5.6 million at May 31, 1999 and 1998,
respectively, and 0.30% and 0.65% of total loans at May 31, 1999 and 1998,
respectively. At May 31, 1999 and 1998, the allowance for loan losses was $8.0
million and $6.6 million, respectively, which represented 278% of non-performing
loans and 0.84% of total loans at May 31, 1999 as compared to 118% of non-
performing loans and 0.77% of total loans at May 31, 1998.
American Savings' management assesses the adequacy of the allowance for
loan losses based on known and inherent risks in the loan portfolio and upon
management's continuing analysis of the quality of the loan portfolio. While
management believes that, based on information currently available, American
Savings' allowance for loan losses is sufficient to cover probable losses
inherent in its loan portfolio at this time, no assurances can be given that
American Savings' level of allowance for loan losses will be sufficient to cover
loan losses incurred by American Savings or that future adjustments to the
allowance for loan losses will not be necessary if economic and other conditions
differ substantially from the economic and other conditions used by management
to determine the current level of the allowance for loan losses. Management may
increase its level of allowance for loan losses as a percentage of total loans
and non-performing loans if the level of multi-family, construction or consumer
lending as a percentage of its total loan portfolio increases. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review American Savings' allowance for loan losses. Such agencies
may require American Savings to provide additions to the allowance based on
judgments different from management. See "Business of American Savings--Lending
Activities--Allowance for Loan Losses."
38
<PAGE>
Non-interest Income. Non-interest income decreased $1.1 million, or 17.9%,
to $4.8 million for the five months ended May 31, 1999 from $5.9 million in the
same period in the prior year primarily due to a decrease in the combined gains
on the sale and contribution of securities of $1.4 million, or 33.3%, from $4.2
million for the five months ended May 31, 1998 to $2.8 million for the five
months ended May 31, 1999. The decrease was due to the funding in 1998, of part
of the contribution to American Savings Bank Foundation, Inc. which was
originally planned to be made in 1999. Such contribution in 1998 was made with
appreciated investment securities, which resulted in American Savings
recognizing a $2.1 million gain. The gain recognized on the contribution of
appreciated securities to American Savings Bank Foundation, Inc. was not subject
to income tax. There was no similar contribution during the five months ended
May 31, 1999. However, due to the planned establishment of American Savings
Charitable Foundation as part of the conversion, American Savings does not
intend to make further contributions of securities to American Savings Bank
Foundation, Inc. and, therefore, it is not expected that future gains on the
contribution of appreciated securities will be recognized. Gains on sales of
investment securities increased $655,000 during the five months ended May 31,
1999 compared to the five months ended May 31, 1998 due to increased sales of
equity securities in 1999 that took advantage of the favorable equity market
conditions. American Savings has reinvested the proceeds of sale of equity
securities primarily in actively traded diversified equity mutual funds in order
to diversify risk as the equity securities portfolio is heavily weighted toward
actively traded financial institution equities. As a result, the effect on
American Savings' liquidity has been neutral. See "Business of American
Savings--Investment Activities" for additional information. Depending on the
market value of investment securities in future periods at the time of any
sale, future gains may be reduced or eliminated or American Savings may
recognize losses. Service charges and fees increased $357,000 for the five
months ended May 31, 1999 compared to the prior year due to the
implementation of a new service charge structure, increased transaction
accounts and an increase in fees following the commencement of operations of
American Savings financial services subsidiary in June 1998.
Non-interest Expense. Non-interest expense for the five months ended May
31, 1999 was $10.9 million, an increase of $382,000, or 3.6%, compared to $10.5
million for the five months ended May 31, 1998. Salaries and employee benefits
increased $574,000, or 11.0%, to $5.8 million for the five months ended May 31,
1999 from $5.2 million for the same period in 1998. Occupancy expense for the
five months ended May 31, 1999 increased $169,000 to $995,000 from $826,000 in
the same period last year. Both the salary and occupancy expense increases are
primarily due to the opening of three new branches during the latter part of
1998 and the increased depreciation charges associated with capital improvements
to the main office completed in late 1998. Advertising expense increased
$172,000 to $592,000 for the five months ended May 31, 1999, compared to
$420,000 for the five months ended May 31, 1998. The increase is primarily
attributable to a direct mail program promoting American Savings' three new
branch offices, additional print advertising to support asset generation
strategies and timing of marketing promotions. These increases were offset in
part by lower foreclosure expenses, due to fewer foreclosures, and a decrease in
charitable contributions. Charitable contributions decreased $635,000, or 62.8%,
to $375,000 for the five months ended May 31, 1999 compared to $1.0 million in
the prior period. This decrease was due to American Savings funding a portion of
the contribution to the American Savings Bank Foundation, Inc. during the first
five months of 1998 and no similar contribution during the five months ended May
31, 1999.
Other expenses for the five months ended May 31, 1999 were $2.3 million
compared to $2.2 million for the five months ended May 31, 1998. The $107,000,
or 4.8%, increase was primarily attributable to an $83,000 increase in directors
fees and expenses. The increase in other expenses was offset by a $63,000
decrease in professional services due to higher expenses incurred by American
Savings in 1998 related to employee sales training and consulting related to
state income tax refund claims.
39
<PAGE>
Income Tax Expense. Income taxes were $4.2 million for the five months
ended May 31, 1999, compared to $4.3 million for the five months ended May 31,
1998. The effective tax rates were 34.7% and 33.1% for the five months ended May
31, 1999 and 1998, respectively. The decrease in income tax expense was
primarily attributed to the decrease of $1.2 million in pre-tax income. In
addition, state income taxes decreased in 1999 due to the operation of a passive
investment company which was established in order to benefit from changes in
Connecticut tax statutes enacted in 1998. American Savings expects that the
operation of the passive investment company will assist in minimizing American
Savings' overall effective tax rate for 1999. These decreases were partially
offset by a decrease in the tax benefit resulting from a lower gain on the
contribution of appreciated securities to American Savings Bank Foundation, Inc.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
Net Income. Net income decreased by $245,000, or 1.3%, to $18.0 million
for the year ended December 31, 1998 from $18.3 million for 1997. The decrease
was primarily attributable to a $4.8 million increase in non-interest expense, a
$246,000 increase in the provision for loan losses and a $1.0 million increase
in income taxes, partially offset by a $2.2 million increase in net interest
income and a $3.6 million increase in non-interest income.
Net Interest Income. Net interest income increased by $2.2 million, or
5.1%, primarily as a result of higher interest income from an increase in the
level of average interest-earning assets and a decrease in the average rate paid
on interest-bearing liabilities due to a lower interest rate environment.
Interest and dividend income increased $3.7 million, or 3.9%, to $99.0 million
for the year ended December 31, 1998 from $95.3 million for 1997. The average
yield on interest-earning assets declined to 7.06% in 1998 from 7.13% in 1997
primarily due to a decline in market interest rates. Interest income on loans
increased $4.6 million, or 7.3%, to $66.8 million for 1998, compared to $62.2
million for the prior year. This increase was due to an $81.8 million increase
in the
40
<PAGE>
average balance of loans outstanding, offset by a 22 basis point decrease in the
average yield on such loans primarily due to a decline in market interest rates.
In addition, interest income on mortgage-backed securities increased $1.8
million, or 24.5%, for the year ended December 31, 1998 compared to the prior
year due to a $28.7 million increase in the average balance of such securities,
partially offset by a decrease of 15 basis points in the yield earned on such
securities due to lower market interest rates. The increases in interest income
on loans and mortgage-backed securities were offset by a decrease in interest
and dividend income from investment securities of $2.8 million, or 11.6%, from
$24.4 million for 1997 to $21.6 million in 1998. The decrease in interest and
dividend income from investment securities was due to a decrease in the average
balance of investment securities of $55.5 million, or 13.8%, to $348.1 million
for the year ended December 31, 1998, and a 22 basis point decrease in the
average yield. The increase in mortgage-backed securities and the decrease in
investment securities reflects management's restructuring of its securities
portfolio and the sale of equity securities in 1998.
Interest expense increased $1.6 million, or 3.0%, to $54.1 million for the
year ended December 31, 1998 from $52.5 million for the prior year primarily due
to an increase in interest expense on Federal Home Loan Bank of Boston advances
of $1.9 million to $5.2 million for the year ended December 31, 1998 from $3.4
million for the year ended December 31, 1997. The average balance of such
advances was $52.5 million for 1997 and $83.3 million for 1998, an increase of
$30.8 million, or 58.7%. These advances were used primarily to fund the purchase
of mortgage-backed securities and, to a lesser extent, loan originations. The
rate paid on Federal Home Loan Bank of Boston advances decreased 16 basis points
to 6.29% in 1998 from 6.45% in 1997 due to a lower market interest rate
environment. The increase in Federal Home Loan Bank of Boston advances was
offset, in part, by a decrease in the cost of interest-bearing liabilities from
4.66% in 1997 to 4.61% for 1998. Interest on deposits decreased by $298,000 to
$48.8 million for the year ended December 31, 1998 from $49.1 million in the
prior year due to a decrease in the average rate paid on deposits of 9 basis
points during 1998 offset by an increase in the average balance of $15.7
million.
Provision for Loan Losses. The provision for loan losses increased by
$246,000 from $2.2 million for 1997 to $2.4 million for 1998. The increase in
the provision was primarily due to an overall increase in the loan portfolio,
particularly increases in consumer and construction loans. As a result, the
allowance for loan losses was 0.83% of total loans and 191% of non-performing
loans at December 31, 1998 compared to 0.74% and 91% , respectively, at December
31, 1997.
Non-interest Income. Non-interest income totaled $11.3 million and $7.7
million for 1998 and 1997, respectively. The $3.6 million increase in non-
interest income was attributable to an increase in service charges and fees of
$1.7 million, or 68.0%, to $4.1 million for 1998 from $2.4 million for 1997.
This increase was attributable primarily to increased fee income from the
expansion of American Savings' trust services, offering new consumer products
and forming a new subsidiary, American Investment Services, Inc. In addition,
the combined gains on sale and contribution of securities increased $2.0
million, or 43.8%, to $6.7 million for the year ended December 31, 1998 from
$4.7 million for the year ended December 31, 1997. The $2.0 million increase in
gains on securities was primarily due to additional sales of equity securities
during 1998 as compared to 1997 to take advantage of the strong performance of
the stock market and to restructure the securities portfolio. American Savings
has reinvested the proceeds of sale of equity securities primarily in actively
traded diversified equity mutual funds in order to diversify risk as the equity
securities portfolio is heavily weighted toward actively traded financial
institution equities. As a result, the effect on American Savings' liquidity has
been neutral. Depending on the market value of investment securities in future
periods at the time of any sale, future gains may be reduced or eliminated or
American Savings may recognize losses. See "Business of American Savings--
Investment Activities" for additional information.
Non-interest Expense. Non-interest expense increased by $4.8 million, or
21.7%, to $26.7 million for 1998 from $21.9 million for 1997. The increase in
non-interest expense was primarily attributable to an increase in salaries and
employee benefits of $2.2 million, or 21.6%, to $12.3 million for the year ended
December 31, 1998, from $10.1 million for the year ended December 31, 1997
resulting from the hiring of personnel in connection with the expansion of trust
and investment services, the establishment of a call center and the opening of
three new branches. In addition, charitable contributions increased by $1.6
million in 1998 compared to the prior year, while
41
<PAGE>
other non-interest expenses increased by $918,000 or 21.0%. These increases were
partially offset by a $427,000 decrease in real estate owned expenses in 1998
due primarily to reduced holding periods for foreclosed properties in 1998
compared to 1997. The increase in charitable contributions was due to American
Savings taking advantage of a provision in the tax code, that excludes from
taxable income gains recognized upon the contribution of securities to
charitable organizations, that was expected to expire, by making in 1998
approximately $1.5 million of the contribution planned to be made in 1999. The
increase in other non-interest expenses was primarily due to an increase in
general expenses associated with the operation of three additional branches and
training costs associated with American Savings' strategic goal of implementing
a sales and service culture.
Income Tax Expense. Income taxes increased $973,000 to $9.1 million for
the year ended December 31, 1998, compared to $8.1 million for the year ended
December 31, 1997. The effective tax rates were 33.5% and 30.7% for the years
ended December 31, 1998 and 1997, respectively. The increase in income taxes in
1998 was primarily the result of higher pre-tax income, higher state income
taxes and a decrease in the tax benefit resulting from a lower gain on the
contribution of appreciated securities to American Savings Bank Foundation, Inc.
Comparison of Operating Results for the Years Ended December 31, 1997 and 1996
Net Income. Net income increased $2.6 million, or 16.1%, to $18.3 million
for the year ended December 31, 1997 from $15.7 million for the prior year. The
increase was primarily attributable to a $3.3 million increase in net interest
income and a $1.0 million increase in non-interest income, partially offset by a
$2.4 million increase in non-interest expense.
Net Interest Income. Net interest income increased by $3.3 million, or
8.4%, from $39.4 million for 1996 to $42.7 million for 1997. The increase was
primarily due to increased interest income from an increase in the average
balance of interest-earning assets which was offset in part by higher interest
expense from Federal Home Loan Bank of Boston advances. Interest and dividend
income increased $6.8 million, or 7.6%, to $95.3 million for the year ended
December 31, 1997 from $88.5 million for the year ended December 31, 1996. The
increase in interest and dividend income was primarily attributable to a $5.4
million, or 9.5%, increase in interest income on loans to $62.2 million for the
year ended December 31, 1997 from $56.8 million in the prior year. The average
balance of loans increased $88.1 million, or 12.5%, from $704.5 million during
1996 to $792.6 million during 1997 due to a strong refinance market due to lower
interest rates, the expansion of American Savings' loan markets by adding loan
correspondents and a more aggressive consumer loan pricing strategy. The
increase in interest income due to the increase in loans was offset, in part, by
a 21 basis point decrease in the average yield earned on loans due to a lower
interest rate environment. Interest and dividends on investment securities
increased $2.4 million, or 10.8%, to $24.4 million in 1997 from $22.0 million in
1996 due to an increase in the average balance of investment securities of $36.1
million, or 9.8%, from $367.6 million for 1996 to $403.6 million for 1997 and a
37 basis point increase in the average yield earned on investment securities.
These increases were offset in part by a decrease in interest income on federal
funds sold of $841,000 from $2.2 million for 1996 to $1.4 million for 1997
primarily due to a $15.2 million decrease in the average balance.
Interest expense increased $3.5 million, or 7.0%, to $52.5 million for 1997
from $49.1 million for 1996. The increase in interest expense was primarily
attributable to a $3.3 million increase in interest on Federal Home Loan Bank of
Boston advances to $3.4 million for the year ended December 31, 1997, from
$62,000 for the year ended December 31, 1996 and, to a lesser extent, due to a
$132,000, or 0.3%, increase in interest expense on deposits due to an increase
in the average balance of interest-earning deposits. The average balance of
Federal Home Loan Bank of Boston advances increased from $1.0 million for 1996
to $52.4 million for 1997 and the average rate paid on such advances increased
39 basis points from 6.06% in 1996 to 6.45% in 1997. The additional Federal
Home Loan Bank advances were used primarily to fund loan growth.
Provision for Loan Losses. The provision for loan losses decreased $96,000
from $2.3 million for 1996 to $2.2 million for 1997. The decrease reflects a
decrease in non-performing loans as a percentage of total loans to 0.81% at
December 31, 1997 from 0.86% at December 31, 1996, and an increase in the level
of total loans, which increased to $837.7 million at December 31, 1997 from
$747.5 million at December 31, 1996. As a result, the
42
<PAGE>
allowance for loan losses represented 0.74% of total loans at December 31, 1997
and 1996, and represented 91% and 86% of non-performing loans at December 31,
1997 and 1996, respectively.
Non-interest Income. Non-interest income totaled $7.7 million and $6.7
million for the years ended December 31, 1997 and 1996, respectively. The $1.0
million increase in non-interest income was attributable to a $705,000 combined
increase in gains on sales and contributions of securities and an increase of
$197,000 in other non-interest income. The increase in gains on sales and
contributions of securities was primarily due to gains recognized upon the
contribution of appreciated investment securities to the American Savings Bank
Foundation, Inc. in 1997, partially offset by a decline in gains on sales of
securities. The contribution to the American Savings Bank Foundation, Inc. in
1996 was made in cash. The increase in other non-interest income was primarily
due to insurance recoveries in 1997.
Non-interest Expense. Non-interest expense increased $2.4 million, or
12.6%, to $22.0 million for the year ended December 31, 1997 from $19.5 million
for the year ended December 31, 1996. The increase in non-interest expense was
primarily attributable to an increase of $1.0 million in salaries and employee
benefits, a $212,000 increase in occupancy expense, a $414,000 increase in
furniture and fixture expense, a $202,000 increase in real estate owned
expenses, and a $430,000 increase in other non-interest expenses. The increase
in salaries and employee benefits was due to American Savings' strategic
objectives of expanding delivery systems and its trust services as well as
normal merit increases. The increase in occupancy expense and furniture and
fixture expense was due to an increase in depreciation and amortization related
to capital improvements made at American Savings' corporate and branch offices,
increases in rent related to a new branch opening and an increase in charges for
expenses related to maintenance and repairs. The increase in real estate owned
expenses was due to a higher level of foreclosures in 1997 compared to 1996.
Income Tax Expense. Income taxes were $8.1 million for the year ended
December 31, 1997 compared to $8.6 million for the year ended December 31, 1996.
The effective tax rate decreased to 30.7% in 1997 from 35.4% in 1996 primarily
as a result of the exclusion from 1997 taxable income of the gain on securities
that were contributed to the American Savings Bank Foundation, Inc.
43
<PAGE>
Average Balances, Interest and Average Yields/Cost
The following table presents certain information for the periods indicated
regarding average balances of assets and liabilities, as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and the resulting
average yields and costs. The yields and costs for the periods indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented. Average balances were
derived from daily balances.
<TABLE>
<CAPTION>
For the Five Months Ended May 31,
--------------------------------------------------------------------
At May 31, 1999 1999 1998
------------------- ----------------------------------- --------------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/
Balance Rate Balance Interest Rate Balance Interest Rate
------------------- ------------ ----------- ---------- ------------ ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)............................... $ 941,251 7.20% $ 917,625 $27,835 7.28% $ 845,375 $27,356 7.77%
Federal funds sold..................... 31,600 4.81 37,302 723 4.65 24,470 551 5.40
Investment securities.................. 307,351 5.80 323,078 7,577 5.63 356,408 8,977 6.04
Mortgage-backed securities............. 204,708 6.33 183,848 4,842 6.32 139,418 3,969 6.83
FHLB stock............................. 10,434 6.30 9,857 260 6.33 8,847 228 6.19
Interest-earning deposits.............. 5,290 5.15 3,608 77 5.12 7,367 179 5.83
---------- ---- ---------- ------- ------ ---------- ------- ------
Total interest-earning assets....... 1,500,634 6.73 1,475,318 41,314 6.72 1,381,885 41,260 7.17
Non-interest earning assets............ 109,075 106,782 99,910
---------- ---------- ----------
Total assets........................ $1,609,709 $1,582,100 $1,481,795
========== ========== ==========
Interest-bearing liabilities:
Deposits:
Money market accounts................ $ 66,277 2.73 $ 64,434 $ 723 2.69 $ 61,100 $ 692 2.72
NOW accounts......................... 72,123 1.39 67,464 379 1.35 54,890 304 1.33
Savings accounts(2).................. 212,912 2.09 202,058 1,711 2.03 188,509 1,603 2.04
Certificates of deposit and
retirement accounts................. 782,880 5.01 781,532 16,586 5.09 778,476 17,689 5.45
---------- ---- ---------- ------- ------ ---------- ------- ------
Total interest-bearing deposits..... 1,134,192 4.10 1,115,488 19,399 4.17 1,082,975 20,288 4.50
FHLB advances.......................... 129,744 5.85 121,942 2,995 5.89 80,244 2,103 6.29
---------- ---- ---------- ------- ------ ---------- ------- ------
Total interest-bearing liabilities.. 1,263,936 4.28 1,237,430 22,394 4.34 1,163,219 22,391 4.62
Non-interest-bearing demand
deposits............................. 25,731 24,319 23,371
Other non-interest-bearing
liabilities.......................... 34,014 38,579 33,354
---------- ---------- ----------
Total liabilities................... 1,323,681 1,300,328 1,219,944
Equity................................. 286,028 281,772 261,851
---------- ---------- ----------
Total liabilities and equity........ $1,609,709 $1,582,100 $1,481,795
========== ========== ==========
Net interest-earning assets............ $ 236,698 $ 237,888 $ 218,666
========== ========== ==========
Net interest income.................... $18,920 $18,869
======= =======
Interest rate spread................... 2.38% 2.55%
Net interest margin (net interest
income as a percentage of total
interest-earning assets)............. 3.08% 3.27%
Ratio of total interest-earning assets
to total interest-bearing liabilities 119.22% 118.80%
</TABLE>
_________________________________________
(1) Average balances include nonaccrual loans.
(2) Includes mortgagors' escrow accounts.
44
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- ------------------------------- -----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)......................... $ 874,373 $ 66,754 7.63% $ 792,578 $ 62,202 7.85% $ 704,501 $ 56,781 8.06%
Federal funds sold............... 29,683 1,600 5.39 25,072 1,379 5.50 40,295 2,219 5.51
Investment securities............ 348,089 20,585 5.91 403,636 23,855 5.91 367,573 20,360 5.54
Mortgage-backed securities....... 134,201 9,064 6.75 105,545 7,278 6.90 109,106 7,473 6.85
FHLB stock....................... 9,169 580 6.33 8,371 541 6.46 8,371 541 6.46
Interest-earning deposits........ 6,943 406 5.85 -- -- -- 20,191 1,114 5.52
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
Total interest-earning assets. 1,402,458 98,989 7.06 1,335,202 95,255 7.13 1,250,037 88,488 7.08
Non-interest earning assets...... 97,056 85,755 67,094
---------- ---------- ----------
Total assets.................. $1,499,514 $1,420,957 $1,317,131
========== ========== ==========
Interest-bearing liabilities:
Deposits:
Money market accounts......... $ 61,190 $ 1,678 2.74 $ 62,440 $ 1,694 2.71 $ 64,348 $ 1,757 2.73
NOW accounts.................. 58,551 785 1.34 44,852 712 1.59 32,474 569 1.75
Savings accounts(2)........... 192,212 3,962 2.06 189,360 3,871 2.04 183,757 3,983 2.17
Certificates of deposit and
retirement accounts........ 778,142 42,398 5.45 777,725 42,844 5.51 773,447 42,680 5.52
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
Total interest-bearing
deposits................ 1,090,095 48,823 4.48 1,074,377 49,121 4.57 1,054,026 48,989 4.65
FHLB advances.................... 83,312 5,244 6.29 52,490 3,386 6.45 1,023 62 6.06
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
Total interest-bearing
liabilities............. 1,173,407 54,067 4.61 1,126,867 52,507 4.66 1,055,049 49,051 4.65
Non-interest-bearing demand
deposits...................... 23,733 23,063 23,017
Other non-interest-bearing
liabilities................... 35,754 29,351 22,939
---------- ---------- ----------
Total liabilities.......... 1,232,894 1,179,281 1,101,005
Equity........................... 266,620 241,676 216,126
---------- ---------- ----------
Total liabilities and
equity.................. $1,499,514 $1,420,957 $1,317,131
========== ========== ==========
Net interest-earning assets...... $ 229,051 $ 208,335 $ 194,988
========== ========== ==========
Net interest income.............. $ 44,922 $ 42,748 $ 39,437
======== ======== ========
Interest rate spread............. 2.45% 2.47% 2.43%
Net interest margin (net interest
income as a percentage of
total interest-earning
assets)....................... 3.20% 3.20% 3.15%
Ratio of total interest-earning
assets to total interest-bearing
liabilities.................. 119.52% 118.49% 118.48%
</TABLE>
_________________________
(1) Average balances include nonaccrual loans.
(2) Includes mortgagors' escrow accounts.
45
<PAGE>
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on the
interest income and interest expense of American Savings. The rate column shows
the effects attributable to changes in rate (changes in rate multiplied by prior
volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). The net column represents the sum
of the prior columns. For purposes of this table, changes attributable to
changes in both rate and volume, which cannot be segregated, have been allocated
proportionately based on the absolute value of the change due to rate and the
change due to volume.
<TABLE>
<CAPTION>
Five Months Ended Year Ended Year Ended
May 31, 1999 December 31, 1998 December 31, 1997
Compared to Five Compared to Compared to
Months Ended Year Ended Year Ended
May 31, 1998 December 31, 1997 December 31, 1996
----------------------------- ------------------------------ ------------------------------
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
------------------- ------------------- -------------------
Rate Volume Net Rate Volume Net Rate Volume Net
-------- -------- -------- -------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans......................... $ (1,774) $ 2,253 $ 479 $ (1,729) $ 6,281 $ 4,552 $ (1,524) $ 6,945 $ 5,421
Federal funds sold............ (85) 257 172 (28) 249 221 (3) (837) (840)
Investment securities......... (762) (638) (1,400) (953) (2,317) (3,270) 891 2,604 3,495
Mortgage-backed securities.... (320) 1,193 873 (248) 2,034 1,786 45 (240) (195)
FHLB stock.................... 5 27 32 (12) 51 39 -- -- --
Interest-bearing deposits..... (20) (82) (102) -- 406 406 -- (1,114) (1,114)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest-earning
assets.................. (2,956) 3,010 54 (2,970) 6,704 3,734 (591) 7,358 6,767
-------- -------- -------- -------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
Money market accounts...... (6) 37 31 18 (34) (16) (11) (52) (63)
NOW accounts............... 4 71 75 (122) 195 73 (58) 201 143
Savings accounts........... (7) 115 108 32 59 91 (231) 119 (112)
Certificates of deposit
and retirement accounts... (1,172) 69 (1,103) (469) 23 (446) (72) 236 164
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total deposits......... (1,181) 292 (889) (541) 243 (298) (372) 504 132
Federal Home Loan
Bank advances.............. (140) 1,032 892 (84) 1,942 1,858 4 3,320 3,324
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities.......... (1,321) 1,324 3 (625) 2,185 1,560 (368) 3,824 3,456
-------- -------- -------- -------- -------- -------- -------- -------- --------
Increase (decrease) in net
interest income...... $ (1,635) $ 1,686 $ 51 $ (2,345) $ 4,519 $ 2,174 $ (223) $ 3,534 $ 3,311
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Management of Interest Rate Risk and Market Risk Analysis
Qualitative Aspects of Market Risk. American Savings' most significant form of
market risk is interest rate risk. The principal objectives of American Savings'
interest rate risk management are to evaluate the interest rate risk inherent in
certain balance sheet accounts, determine the level of risk appropriate given
American Savings' business strategy, operating environment, capital and
liquidity requirements and performance objectives, and manage the risk
consistent with the Board of Director's approved guidelines. American Savings
has an Asset/Liability Committee, responsible for reviewing its asset/liability
policies and interest rate risk position, which meets monthly and reports trends
and interest rate risk position to the Finance Committee of the Board of
Directors quarterly and the whole Board of Directors annually. The extent of the
movement of interest rates is an uncertainty that could have a negative impact
on the earnings of American Savings.
46
<PAGE>
In recent years, American Savings has used the following strategies to
manage interest rate risk: (1) emphasizing the origination of adjustable-rate
loans and generally selling longer term fixed-rate loans as market interest rate
conditions dictate; (2) emphasizing shorter term consumer loans; (3) maintaining
a high quality securities portfolio that provides adequate liquidity and
flexibility to take advantage of opportunities that may arise from fluctuations
in market interest rates, the overall maturity of which is monitored in relation
to the repricing of its loan portfolio; and (4) using Federal Home Loan Bank of
Boston advances to better structure maturities of its interest rate sensitive
liabilities. American Savings currently does not participate in hedging
programs, interest rate swaps or other activities involving the use of off-
balance sheet derivative financial instruments.
American Savings' market risk also includes equity price risk. American
Savings' marketable equity securities portfolio had gross unrealized gains of
$64.6 million at May 31, 1999 which is included, net of taxes, in accumulated
other comprehensive income, a separate component of American Savings' capital.
If equity security prices decline due to unfavorable market conditions or other
factors, American Savings' capital would decrease.
Quantitative Aspects of Market Risk. American Savings uses a simulation
model to measure the potential change in net interest income, incorporating
various assumptions regarding the shape of the yield curve, the pricing
characteristics of loans, deposits and borrowings, prepayments on loans and
securities and changes in balance sheet mix. The tables below set forth, as of
May 31, 1999 and December 31, 1998, estimated net interest income and the
estimated changes in American Savings' net interest income for the next twelve
month period which may result given instantaneous changes in market interest
rates of 200 basis points up and down.
<TABLE>
<CAPTION>
At May 31, 1999
Estimated Changes in
Annual Net Interest Income
-----------------------------------------------------
Increase/(Decrease)
in Market Interest Rates in
Basis Points (Rate Shock) Amount $ Change % Change
--------------------------- -----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
200 $49,754 983 2.02%
100 49,474 703 1.44
Static 48,771 -- --
(100) 47,605 (1,166) (2.39)
(200) 45,827 (2,944) (6.04)
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1998
Estimated Changes in
Annual Net Interest Income
----------------------------------------------------
Increase/(Decrease)
in Market Interest Rates in
Basis Points (Rate Shock) Amount $ Change % Change
--------------------------- ----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
200 $48,472 2,474 5.38%
100 47,408 1,410 3.07
Static 45,998 -- --
(100) 44,054 (1,944) (4.23)
(200) 42,060 (3,938) (8.56)
</TABLE>
47
<PAGE>
The above tables indicate that in the event of a sudden and sustained
decline in prevailing market interest rates, American Savings' net interest
income would be expected to decrease.
Computation of prospective effects of hypothetical interest rate changes
are based on a number of assumptions including the level of market interest
rates, the degree to which certain assets and liabilities with similar
maturities or periods to repricing react to changes in market interest rates,
the expected prepayment rates on loans and investments, the degree to which
early withdrawals occur on certificates of deposit and other deposit flows. As
a result, these computations should not be relied upon as indicative of actual
results. Further, the computations do not reflect any actions that management
may undertake in response to changes in interest rates.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations
of a short-term nature. American Savings further defines liquidity as the
ability to respond to the needs of depositors and borrowers as well as
maintaining the flexibility to take advantage of investment opportunities.
Primary sources of funds consist of deposit inflows, loan repayments,
maturities, paydowns, and sales of investment and mortgage-backed securities and
borrowings from the Federal Home Loan Bank of Boston. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit outflows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The primary investing activities of American Savings are (1) the
origination of residential one-to four-family mortgage loans and, to a lesser
extent, multi-family loans, single-family construction loans, home equity loans
and lines of credit and consumer loans and (2) the investment in mortgage-backed
securities, U.S. Government and agency obligations and corporate equity
securities and debt obligations. These activities are funded primarily by
principal and interest payments on loans, maturities of securities, deposit
growth and Federal Home Loan Bank of Boston advances. During the five months
ended May 31, 1999 and the years ended December 31, 1998 and 1997, American
Savings' loan originations totaled $212.3 million, $394.1 million, and $279.8
million, respectively. At May 31, 1999 and December 31, 1998 and 1997, American
Savings' investments in mortgage-backed securities, U.S. Government and agency
obligations and corporate equity securities and debt obligations totaled $576.3
million, $590.5 million and $564.8 million, respectively. American Savings
experienced a net increase in total deposits of $7.9 million, $47.4 million, and
$20.8 million for the five months ended May 31, 1999 and the years ended
December 31, 1998 and 1997, respectively, primarily as a result of the
introduction of new products and the opening of new branches. Deposit flows are
affected by the overall level of interest rates, the interest rates and products
offered by American Savings and its local competitors and other factors.
American Savings closely monitors its liquidity position on a daily basis. If
American Savings should require funds beyond its ability to generate them
internally, additional sources of funds are available through Federal Home Loan
Bank of Boston advances and through repurchase agreement borrowing facilities
with broker/dealers.
Outstanding commitments for all loans and unadvanced construction loans and
lines of credit totaled $254.2 million at May 31, 1999. Management of American
Savings anticipates that it will have sufficient funds available to meet its
current loan commitments. Certificates of deposit that are scheduled to mature
in one year or less from May 31, 1999 totaled $565.5 million. American Savings
relies primarily on competitive rates, customer service, and long-standing
relationships with customers to retain deposits. From time to time, American
Savings will also offer special competitive promotions to its customers to
increase retention and promote deposit growth. Based upon American Savings'
historical experience with deposit retention, management believes that, although
it is not possible to predict future terms and conditions upon renewal, a
significant portion of such deposits will remain with American Savings.
American Savings is subject to various regulatory capital requirements
administered by the federal banking agencies including a risk-based capital
measure. The risk-based capital guidelines include both a definition of capital
and a framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories. At May 31, 1999,
American Savings exceeded all of its regulatory capital requirements with (1) a
leverage capital level of $249.1 million, or 15.48% of average assets, which is
above the
48
<PAGE>
required level of $64.4 million, or 4%, and (2) risk-based capital of $286.1
million, or 29.56% of risk weighted assets, which is above the required level of
$77.4 million, or 8%. American Savings is considered "well capitalized" under
regulatory guidelines.
The capital from the conversion will significantly increase liquidity and
capital resources. Over time, the initial level of liquidity will be reduced as
net proceeds are used for general corporate purposes, including the funding of
lending activities. American Savings' financial condition and results of
operations will be enhanced by the capital from the conversion, resulting in
increased net interest-earning assets and net income. However, due to the large
increase in equity resulting from the capital injection, return on equity will
be adversely impacted following the conversion.
Year 2000 Readiness
The Year 2000 issue refers to the potential failure of computer systems and
applications as a result of programs using only two digits to identify a year in
the date field. If not corrected, many computer systems and applications could
fail or create erroneous results by, at or after the Year 2000. American
Savings established a Year 2000 Team to evaluate and assess American Savings'
exposure to the Year 2000 issue and developed a plan consisting of five phases.
These phases include awareness, risk assessment, renovation, validation or
testing, and implementation.
The awareness phase consists of defining the Year 2000 problem, developing
the necessary resources to perform compliance testing, establishing a Year 2000
program team, and developing an overall strategy that encompasses in-house
systems, service bureaus, vendors, customers and suppliers. American Savings
completed the awareness phase of the Year 2000 project in July of 1998.
The assessment phase requires American Savings to evaluate the size and
complexity of the problem and detail the magnitude of the effort necessary to
address Year 2000 issues. The objective of this phase is to identify all
hardware, software, networks, automated teller machines, other various
processing platforms and customer and vendor dependencies affected by the Year
2000 date change. The assessment phase goes beyond information systems and
includes environmental systems that are dependent on embedded microchips, such
as security systems, elevators, sprinkler systems, alarms and vaults. The
assessment phase was substantially completed on December 31, 1998, but is
continually monitored by American Savings.
American Savings maintains an internal computer system for its operating
functions and a substantial majority of American Savings' data processing is
provided by a core banking software system that is supported by a third party
vendor. American Savings recognizes that its ability to be Year 2000 compliant
is dependent upon the cooperation of its vendors and other third parties.
American Savings is requiring its computer systems and software vendors to
represent that the products provided are or will be Year 2000 compliant and have
planned a program for testing for compliance. American Savings utilizes these
representations from its computer system and software vendors for the purpose of
determining the vendors' Year 2000 readiness. Upon receiving such
representations, American Savings then determines the need for replacement of or
remediations to each particular vendor's system. Rather than solely relying on
representations from its vendors, American Savings also independently tests both
critical and non-critical vendor applications. American Savings has received
representations from its primary third party data processing vendor confirming
the Year 2000 compliance of that vendor's internally developed programs.
Remaining internal and external programs have been converted to Year 2000
compliant versions. American Savings began testing the core banking system
renovated programs in October 1998. American Savings has completed testing of
its critical vendors' computer applications and believes that all identified
Year 2000 issues were addressed by March 31, 1999. All remaining Year 2000
issues for American Savings, including testing of non-critical systems, were
completed and any problems identified were addressed by July 31, 1999.
The renovation phase includes the remediation of any systems identified in
the awareness phase as not Year 2000 compliant. For institutions relying on
outside servicers or third-party software providers, ongoing discussions and
monitoring of vendor progress is necessary. American Savings has substantially
completed
49
<PAGE>
activities related to the renovation phase and expects to complete such phase by
August 31, 1999. Most of American Savings' systems are vendor supplied or
supported and are being remediated by the vendors. American Savings' primary
software vendor has provided American Savings with a Year 2000 ready release
that has been installed. This release has been tested and validated by American
Savings.
American Savings has substantially completed its validation or testing
phase with the primary focus being on the core software that runs basic banking
applications. Testing of mission critical systems was substantially completed as
of December 31, 1998. Further testing with mission critical vendors and other
significant third party vendors was completed by July 31, 1999. To date,
American Savings has not identified any Year 2000 problems with any of its
systems that would have a material adverse impact upon its operations. Testing
will continue as needed on newly acquired applications and vendor upgrades. In
addition, American Savings has designated an internal independent group to
validate the test plan and test results and has retained an outside independent
party to validate the business resumption contingency plan. Both validations
were completed by June 30, 1999 without any material exceptions.
The implementation phase is the final Year 2000 activity. Only after
passing the validation phase where the hardware and software have been tested
and where the tests have been validated will the hardware and software be
certified as implemented and placed in service for the year 2000. If any system
fails the certification test, American Savings will assess the impact and
implement the contingency plan developed for that application. American
Savings' primary internal technological systems, including the core processing
system, teller equipment, and local area network have already been placed in
service. All critical systems were implemented by June 30, 1999.
The potential impact of Year 2000 on American Savings' borrowers has been
examined. Because American Savings' has only 13 borrowers with a commercial
lending relationship, management believes that Year 2000 issues will not
materially impair the ability of American Savings' borrowers to repay their
debts. In connection with American Savings' plans to enter commercial lending,
American Savings will assess the Year 2000 readiness of its potential commercial
borrowers.
American Savings has budgeted approximately $200,000 in connection with the
costs associated with achieving Year 2000 compliance. As of May 31, 1999,
American Savings expended approximately $120,000 on Year 2000 issues. American
Savings does not separately track the internal costs associated with its Year
2000 readiness project, and such costs are primarily the portion of an
employee's time spent on Year 2000 related issues.
The impact of Year 2000 on American Savings will depend not only on
corrective actions taken by American Savings, but also on the way in which Year
2000 issues are addressed by parties over which American Savings has no control,
such as governmental agencies, businesses and other third parties that provide
services or data to, or receive services or data from, American Savings, or
whose financial condition or operational capability is important to American
Savings. To reduce this exposure, American Savings has an ongoing process of
identifying and contacting mission critical third party vendors and other
significant third party vendors to determine their Year 2000 plans and target
dates. Notwithstanding American Savings' efforts, there can be no assurance
that mission critical third party vendors or other significant third party
vendors will adequately address their Year 2000 issues.
American Savings has developed contingency plans for implementation in the
event that mission critical third party vendors fail to adequately address Year
2000 issues. The contingency plans involve identifying alternate vendors or
internal remediation. There can be no assurance that these plans will eliminate
any failures or problems. Furthermore, there may be certain mission critical
third parties, such as utilities and telecommunications companies, where
alternate arrangements or sources are limited or unavailable.
50
<PAGE>
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in this
prospectus have been prepared in conformity with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation. Unlike many
industrial companies, substantially all of the assets and liabilities of
American Savings are monetary in nature. As a result, interest rates have a
more significant impact on American Savings' performance than the general level
of inflation. Over short periods of time, interest rates may not necessarily
move in the same direction or in the same magnitude as inflation.
Impact of New Accounting Standards
Reporting Comprehensive Income. Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and displaying of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income is the total
of net income and all other non-owner changes in equity that are not reflected
in net income. This statement is effective for fiscal years beginning after
December 15, 1997 and reclassification of financial statements of earlier
periods is required. This statement was adopted by American Savings during the
year ended December 31, 1998.
Disclosures About Segments. Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
establishes standards for the manner in which public business enterprises report
information about operating segments in the annual financial statements and
requires that those enterprises report selected information about operating
segments in interim reports issued to shareholders. This statement requires
that public business enterprises report quantitative and qualitative information
about its reportable segments, including profit or loss, certain specific
revenue and expense items and segment assets. This statement also requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets and other amounts disclosed for segments to corresponding amounts
in the consolidated financial statements. This statement is effective for
financial statements for periods beginning after December 31, 1997 and in the
initial year of application, comparative information for earlier years is
required. As a community-orientated financial institution, substantially all of
American Savings' operations involve the delivery of loan and deposit products
to customers. Management makes operating decisions and assesses performance
based on an ongoing review of these community-banking operations, which
constitutes the only operating segment for financial reporting purposes.
Employers' Disclosure About Pensions and Other Postretirement Benefits.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits," standardizes the disclosure
requirements for pensions and other postretirement benefits. This statement
does not address measurement or recognition of pensions or other postretirement
benefits. It addresses disclosure requirements only. This statement was
adopted by American Savings during the year ended December 31, 1998 and the
required disclosures were made for all periods presented.
Accounting for Derivative Instruments and Hedging Activities. Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts and hedging
activities. As recently amended, the statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. On that date,
hedging relationships shall be designed in accordance with the statement.
Earlier application is encouraged but is permitted only at the beginning of any
fiscal quarter that begins after issuance of the statement. Earlier application
of selected provisions of the statement is not permitted. The statement shall
not be applied retroactively to financial statements of prior periods. The
statement is not expected to affect American Savings because it does not
currently purchase derivative instruments or enter into hedging activities.
51
<PAGE>
BUSINESS OF AMERICAN FINANCIAL
General
American Financial was organized as a Delaware business corporation at the
direction of American Savings in July 1999 to become the holding company for
American Savings upon completion of the conversion. As a result of the
conversion, American Savings will be a wholly owned subsidiary of American
Financial and all of the issued and outstanding capital stock of American
Savings will be owned by American Financial.
Business
Before the completion of the conversion, American Financial will not engage
in any significant activities other than of an organizational nature. Upon
completion of the conversion, American Financial's business activity will be the
ownership of the outstanding capital stock of American Savings and management of
the investment of proceeds retained from the conversion. In the future,
American Financial may acquire or organize other operating subsidiaries. With
the exception of American Savings' strategic plan to acquire or establish an
insurance agency, there are no current plans, arrangements, agreements or
understandings, written or oral, to do so.
Initially, American Financial will neither own nor lease any property but
will instead use the premises, equipment and furniture of American Savings with
the payment of appropriate rental fees, as required by applicable law and
regulations.
Since American Financial will hold the outstanding capital stock of
American Savings after the conversion, the competitive conditions applicable to
American Financial will be the same as those confronting American Savings. See
"Business of American Savings--Competition."
BUSINESS OF AMERICAN SAVINGS
General
American Savings was founded in 1862 as a Connecticut-chartered mutual
savings bank under the name "Savings Bank of New Britain." American Savings
changed its name to "American Savings Bank" in 1976. American Savings is
regulated by the State of Connecticut Department of Banking and the Federal
Deposit Insurance Corporation. American Savings' deposits are insured to the
maximum allowable amount by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation. American Savings has been a member of the Federal Home
Loan Bank System since 1978.
American Savings is a traditional savings association, specializing in the
acceptance of retail deposits from the general public in the areas surrounding
its 17 full-service banking offices and using those funds, together with funds
generated from operations and borrowings, to originate residential mortgage
loans and consumer loans, primarily home equity loans and lines of credit.
American Savings originates loans primarily for investment. However, American
Savings also sells loans, primarily fixed-rate mortgage loans, in the secondary
market, while generally retaining the servicing rights. See "--Lending
Activities." American Savings also invests in mortgage-backed securities, debt
and equity securities and other permissible investments. American Savings'
revenues are derived principally from the generation of interest and fees on
loans originated and, to a lesser extent, interest and dividends on investment
and mortgage-backed securities. American Savings' primary sources of funds are
deposits, principal and interest payments on loans and investments and mortgage-
backed securities and advances from the Federal Home Loan Bank of Boston.
52
<PAGE>
Market Area
American Savings is headquartered in New Britain, Connecticut in Hartford
County. American Savings' primary deposit gathering area is concentrated in the
communities surrounding its 17 banking offices located in Hartford, Middlesex,
Tolland and Windham Counties. American Savings' primary lending area is
significantly broader than its deposit gathering area and includes all of the
State of Connecticut.
Hartford County is located approximately two hours from both Boston and New
York City and contains the City of Hartford. The region serves as the
governmental and financial center of Connecticut. Hartford County has a
diversified mix of industry groups, including insurance and financial services,
manufacturing, service, government and retail. The major employers in the area
include several prominent international and national insurance and manufacturing
companies, such as Aetna, Inc., The Hartford Financial Services, Inc., Travelers
Property Casualty Corp., United Technologies Corp., Stanley Works, as well as
many regional banks and the State of Connecticut. According to published
statistics, Hartford County's 1998 population was approximately 825,000 and
consisted of approximately 315,000 households. The population decreased
approximately 3.1% from 1990. Per capita income in 1998 for Hartford County was
approximately $24,000, which was less than the Connecticut average of
approximately $27,000 but significantly higher than the national average of
$18,000. Likewise, 1998 median household income for Hartford County was $48,000
compared to approximately $52,400 for Connecticut and $38,100 for the U.S.
Connecticut is in the midst of a broad based recovery from the severe
recession experienced in the New England region in the late 1980s and early
1990s. This is evidenced by the state's 3.4% unemployment rate and personal
income growth of 3.90%. Connecticut and Hartford County continue to reflect
personal wealth characteristics above national averages. Furthermore, the gross
domestic product growth figures for the state compare quite favorably with the
national numbers and single-family home sales increased 14.2% from 1997 to 1998.
However, Connecticut has a high number of finance, insurance, real estate and
export related manufacturing jobs. As a result, the state's employment may be
more affected by the national financial market and, to a lesser extent,
international economies.
Competition
American Savings faces intense competition for the attraction of deposits
and origination of loans in its primary market area. Its most direct competition
for deposits has historically come from the several commercial and savings banks
operating in American Savings' primary market area and, to a lesser extent, from
other financial institutions, such as brokerage firms, credit unions and
insurance companies. While those entities still provide a source of competition
for deposits, American Savings currently faces significant competition for
deposits from the mutual fund industry as customers seek alternative sources of
investment for their funds. In this regard, American Savings also faces
significant competition for investors' funds from their direct purchase of
short-term money market securities and other corporate and government
securities. While American Savings' faces competition for loans from the
significant number of financial institutions, primarily savings banks and
commercial banks in its market area, its most significant competition comes from
other financial service providers, such as the mortgage companies and mortgage
brokers operating in its primary market area. Additionally, competition may
increase as a result of the lifting of restrictions on the interstate operations
of financial institutions and due to the increasing trend for non-depository
financial service companies entering the financial services market, such as
insurance companies, securities companies and specialty financial companies.
Competition for deposits and the origination of loans may limit American
Savings' growth in the future. See "Risk Factors--Competition could hurt
American Savings' net interest income."
53
<PAGE>
Lending Activities
General. The types of loans that American Savings may originate are
limited by federal and state laws and regulations. Interest rates charged by
American Savings on loans are affected principally by American Savings' current
asset/liability strategy, the demand for such loans, the supply of money
available for lending purposes and the rates offered by competitors. These
factors are, in turn, affected by general and economic conditions, monetary
policies of the federal government, including the Federal Reserve Board,
legislative tax policies and governmental budgetary matters.
54
<PAGE>
Loan Portfolio Analysis. The following table presents the composition of
American Savings' loan portfolio at the dates indicated. American Savings had no
concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.
<TABLE>
<CAPTION>
At May 31, At December 31,
---------------------------------------------------------------
1999 1998 1997 1996
---------------------- ---------------------------------------------------------------
Percent of Percent of Percent of Percent of
Amount Total Amount Total Amount Total Amount Total
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family................ $653,016 69.0% $624,819 68.4% $588,050 69.8% $542,085 72.0%
Residential construction........... 15,745 1.7 17,177 1.9 11,755 1.4 8,979 1.2
Multi-family....................... 859 0.1 872 0.1 969 0.1 981 0.1
Commercial......................... 339 -- 351 -- 1,094 0.1 1,711 0.2
-------- ----- -------- ----- -------- ----- -------- -----
Total real estate loans........... 669,959 70.8 643,219 70.4 601,868 71.4 553,756 73.5
Consumer loans:
Home equity loans and lines of
credit............................. 255,985 27.0 243,102 26.6 216,814 25.7 184,370 24.5
Automobiles......................... 17,319 1.8 20,085 2.2 20,793 2.5 10,945 1.5
Other............................... 3,542 0.4 6,940 0.8 3,557 0.4 3,573 0.5
-------- ----- -------- ----- -------- ----- -------- -----
Total consumer loans............... 276,846 29.2 270,127 29.6 241,164 28.6 198,888 26.5
-------- ----- -------- ----- -------- ----- -------- -----
Total loans........................ 946,805 100.0% 913,346 100.0% 843,032 100.0% 752,644 100.0%
===== ===== ===== =====
Net deferred loan
origination costs (fees)........... 2,419 1,534 928 484
Allowance for loan losses........... (7,973) (7,626) (6,277) (5,588)
-------- -------- -------- --------
Total loans, net................... $941,251 $907,254 $837,683 $747,540
======== ======== ======== ========
<CAPTION>
At December 31,
---------------------------------------------
1995 1994
---------------------- --------------------
Percent of Percent of
Amount Total Amount Total
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family................ $507,023 74.2% $457,129 72.6%
Residential construction........... 2,821 0.4 370 0.1
Multi-family....................... 1,132 0.2 484 0.1
Commercial......................... 1,476 0.2 2,192 0.3
-------- ----- -------- -----
Total real estate loans........... 512,452 75.0 460,175 73.1
Home equity loans and lines of
credit............................. 160,372 23.5 163,521 26.0
Automobiles......................... 6,435 0.9 1,932 0.3
Other............................... 4,323 0.6 3,864 0.6
-------- ----- -------- -----
Total consumer loans............... 171,130 25.0 169,317 26.9
-------- ----- -------- -----
Total loans........................ 683,582 100.0% 629,492 100.0%
===== =====
Net deferred loan................... (276) (1,256)
origination costs (fees)
Allowance for loan losses........... (4,484) (2,793)
-------- --------
Total loans, net................... $678,822 $625,443
======== ========
</TABLE>
55
<PAGE>
One- to Four-Family Real Estate Loans. American Savings' primary lending
activity is the origination of loans secured by one- to four-family residences
located in its primary market area. At May 31, 1999, $653.0 million, or 69.0%,
of American Savings' total loans consisted of one- to four-family loans. Of the
one- to four-family loans outstanding at that date, 29% were fixed-rate mortgage
loans and 71% were adjustable-rate loans.
American Savings' originates fixed-rate fully amortizing loans with
maturities ranging between 10 and 30 years. Management establishes the loan
interest rate based on market conditions. American Savings offers mortgage
loans that conform to Fannie Mae and Freddie Mac guidelines, as well as jumbo
loans, which presently are loans in amounts over $240,000. Fixed-rate
conforming loans are generally originated for portfolio. However, such loans
may be sold by American Savings from time to time. The determination of whether
to sell loans is determined periodically by management in response to changes in
prevailing market interest rates. Loans that are sold are generally sold to
Freddie Mac, with the servicing rights retained. American Savings will
underwrite one- to four-family residential mortgage loan with a loan to value
ratio of 95%, provided that a borrower obtains private mortgage insurance on
loans that exceed 80% of the appraised value or sales price, whichever is less,
of the secured property.
American Savings also currently offers adjustable-rate mortgage loans, with
an interest rate based on the one year Constant Maturity Treasury Bill index,
which adjust annually from the outset of the loan or which adjust annually after
a three, five, seven or ten year initial fixed period and with terms up to 30
years. Interest rate adjustments on such loans are limited to no more than 2%
during any adjustment period and 6% over the life of the loan. Additionally,
American Savings offers an adjustable-rate loan with a conversion option,
whereby the borrower, at his or her option, can convert the loan to a fixed
interest rate after a predetermined period of time, generally within the first
60 months of the loan term.
Adjustable-rate mortgage loans help reduce American Savings' exposure to
changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by the borrower. It is possible that during periods of rising interest rates the
risk of default on adjustable-rate mortgage loans may increase as a result of
repricing and the increased payments required by the borrower. In addition,
although adjustable-rate mortgage loans allow American Savings to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the annual and lifetime interest rate
adjustment limits. Because of these considerations American Savings has no
assurance that yields on adjustable-rate mortgage loans will be sufficient to
offset increases in American Savings' cost of funds during periods of rising
interest rates. American Savings believes these risks, which have not had a
material adverse effect on American Savings to date, generally are less than the
risks associated with holding fixed-rate loans in its portfolio in a rising
interest rate environment.
American Savings also requires fire, casualty, title, hazard insurance and,
if appropriate, flood insurance be maintained on all properties securing real
estate loans made by American Savings. An independent licensed appraiser
generally appraises all properties.
Residential Construction Loans. American Savings originates construction
loans to individuals for the construction and acquisition of personal
residences. At May 31, 1999, residential construction loans amounted to $15.7
million, or 1.7% of American Savings' total loans. At May 31, 1999, the
unadvanced portion of construction loans totalled $9.6 million.
American Savings' construction loans generally provide for the payment of
interest only during the construction phase, which is usually twelve months. At
the end of the construction phase, the loan converts to a permanent mortgage
loan. Loans can be made with a maximum loan to value ratio of 90%, provided that
the borrower obtains private mortgage insurance on the loan if the loan balance
exceeds 80% of the appraised value or sales price, whichever is less, of the
secured property. At May 31, 1999, the largest outstanding construction loan
commitment was for $700,000, $164,500 of which was outstanding. This loan was
performing according to its terms at May 31, 1999. Construction loans to
individuals are made on the same terms as American Savings' one- to four-family
mortgage loans.
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<PAGE>
Before making a commitment to fund a construction loan, American Savings
requires an appraisal of the property by an independent licensed appraiser.
American Savings also reviews and inspects each property before disbursement of
funds during the term of the construction loan. Loan proceeds are disbursed
after inspection based on the percentage of completion method.
Construction lending generally involves a higher degree of risk than
single-family permanent mortgage lending because of the greater potential for
disagreements between borrowers and builders and the failure of builders to pay
subcontractors. Additional risk often exists because of the inherent difficulty
in estimating both a property's value and the estimated cost of the property. If
the estimate of construction cost proves to be inaccurate, American Savings may
be required to advance funds beyond the amount originally committed to protect
the value of the property. If the estimate of value upon completion proves to
be inaccurate, American Savings may be confronted with a property whose value is
insufficient to assure full repayment. American Savings has attempted to
minimize the foregoing risks by, among other things, limiting its construction
lending to residential properties, not making loans to builders and by having
all construction loans convert to permanent mortgage loans at the end of the
construction phase.
Home Equity Loans and Lines of Credit. American Savings offers home equity
lines of credit and fully amortized home equity loans, both of which are secured
by owner-occupied one- to four-family residences. At May 31, 1999, home equity
loans and lines of credit totalled $256.0 million, or 27.0% of American Savings'
total loans and 92.5% of consumer loans. Additionally, at May 31, 1999, the
unadvanced amounts of home equity lines of credit totalled $170.0 million. The
underwriting standards employed by American Savings for home equity loans and
lines of credit include a determination of the applicant's credit history, an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan and the value of the collateral securing the loan. Home
equity lines of credit have adjustable rates of interest which are indexed to
the prime rate as reported in The Wall Street Journal. Interest rate
adjustments on home equity lines of credit are limited to no more than 6% over
the life of the loan. Generally, the maximum loan-to-value ratio on home equity
lines of credit is 75% for a one- to four-family residence and 70% for a
condominium. A home equity line of credit may be drawn down by the borrower for
a period of ten years from the date of the loan agreement. During this period,
the borrower has the option of paying, on a monthly basis, either principal and
interest or only the interest. The borrower has to pay back the amount
outstanding under the line of credit at the end of the ten year period.
American Savings also offers fixed- and adjustable-rate home equity loans
with terms up to 15 and 20 years, respectively. The loan-to-value ratios of
both fixed-rate and adjustable-rate home equity loans are generally limited to
80% for loans of five years or less, 75% for loans secured by one- to four-
family properties and 70% for loans secured by condominiums.
Automobile and Other Consumer Lending. American Savings offers fixed-rate
automobile loans with terms of up to 60 months and loan-to-value ratios of 80%
for new cars. For used cars, the maximum loan-to-value ratio is 80% of the
lesser of the retail value shown in the NADA Used Car Guide or the purchase
price, and the maximum terms for used automobile loans range from up to 48
months for automobiles up to four years old to up to 36 months for older
vehicles. At May 31, 1999, automobile loans totalled $17.3 million, or 1.8% of
American Savings' total loans and 6.3% of consumer loans. For the five months
ended May 31, 1999 and for fiscal 1998, American Savings originated $2.2 million
and $10.0 million of automobile loans, respectively.
Other consumer loans at May 31, 1999 amounted to $3.5 million, or 0.4% of
American Savings' total loans and 1.3% of consumer loans. These loans include
unsecured personal loans, collateral loans and education loans. Unsecured
personal loans generally have a fixed-rate, a maximum borrowing limitation of
$5,000 and a maximum term of three years. Collateral loans are generally
secured by a passbook account, a certificate of deposit or marketable
securities.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In these cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan
57
<PAGE>
balance as a result of the greater likelihood of damage, loss or depreciation.
The remaining deficiency often does not warrant further substantial collection
efforts against the borrower beyond obtaining a deficiency judgment. In
addition, consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by job
loss, divorce, illness or personal bankruptcy.
Commercial Business Loans. American Savings has historically not
originated or purchased commercial business loans but is currently planning to
offer such loans to small businesses located in its primary market area.
Commercial business loans are generally secured by business assets other than
real estate, such as business equipment, inventory and accounts receivable.
American Savings is actively interviewing candidates to staff a commercial
business loan department. Once staffed, the department will be charged with
designing and implementing the necessary systems, policies and procedures.
Commercial business loans generally involve higher credit risks than loans
secured by real estate. Unlike mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment or
other income, and which are secured by real property whose value tends to be
more easily ascertainable, commercial loans are of higher risk and typically are
made on the basis of the borrower's ability to make repayment from the cash flow
of the borrower's business. As a result, the availability of funds for the
repayment of commercial loans may be substantially dependent on the success of
the business itself. Further, any collateral securing such loans may depreciate
over time, may be difficult to appraise and may fluctuate in value based on the
success of the business. See "Risk Factors--American Savings' plans to enter
commercial business lending may hurt both asset and net income."
Loans to One Borrower. The maximum amount that American Savings may lend
to one borrower is limited by regulation. At May 31, 1999, American Savings'
regulatory limit on loans to one borrower was $37.4 million, which equaled 15%
of its Tier 1 capital at that date. At that date, American Savings' largest
amount of loans to one borrower, including the borrower's related interests, was
approximately $857,000 and consisted of one residential mortgage loan and one
home equity line of credit. These loans were performing according to their
original terms at May 31, 1999.
Maturity of Loan Portfolio. The following table presents certain
information at May 31, 1999 regarding the dollar amount of loans maturing in
American Savings' portfolio based on their contractual terms to maturity or
scheduled amortization, but does not include potential prepayments. Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as becoming due within one year. Loan balances do not
include undisbursed loan proceeds, net deferred loan origination costs and
allowance for loan losses.
<TABLE>
<CAPTION>
At May 31, 1999
-------------------------------------------------------------------------------------------------------
One Home equity
-to-four Residential Multi- loans and lines
family construction family Commercial of credit Automobiles Other Total
----------- -------------- ---------- ---------- ----------------- ------------- ------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Due in one year or less.... $ 20,568 $13,784 $ 18 $ 28 $ 14,913 $ 7,386 $3,262 $ 59,959
Due in one to two years.... 21,175 1,961 19 29 14,328 5,606 178 43,296
Due in two to three years.. 22,187 -- 21 30 13,876 3,124 102 39,340
Due in four to five years.. 45,086 -- 45 28 25,715 1,203 -- 72,077
Due in six to ten years.... 115,789 -- 451 58 174,675 -- -- 290,973
Due in eleven to
fifteen years........... 124,705 -- 173 101 11,439 -- -- 136,418
Due in over fifteen years.. 303,506 -- 132 65 1,039 -- -- 304,742
-------- ------- ---- ---- -------- ------- ------ --------
Total amount due........ $653,016 $15,745 $859 $339 $255,985 $17,319 $3,542 $946,805
======== ======= ==== ==== ======== ======= ====== ========
</TABLE>
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<PAGE>
The following table presents the dollar amount of all loans due after May
31, 2000, which have fixed interest rates and floating or adjustable interest
rates.
<TABLE>
<CAPTION>
Due After May 31, 2000
------------------------------------------------------
Fixed Adjustable Total
--------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C>
One- to four-family......................... $179,606 $452,842 $632,448
Residential construction.................... -- 1,961 1,961
Multi-family................................ 408 433 841
Commercial.................................. 311 -- 311
Home equity loans and lines of credit....... 140,635 100,437 241,072
Automobile.................................. 9,933 -- 9,933
Other....................................... 280 -- 280
-------- -------- --------
Total amount due.................... $331,173 $555,673 $886,846
======== ======== ========
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give American Savings the right to declare loans immediately due
and payable if, among other things, the borrower sells the real property with
the mortgage and the loan is not repaid. The average life of a mortgage loan
tends to increase, however, when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
tends to decrease when rates on existing mortgage loans are substantially higher
than current mortgage loan market rates.
Loan Approval Procedures and Authority. American Savings' lending
activities follow written, non-discriminatory, underwriting standards and loan
origination procedures established by American Savings' Board of Directors and
management.
American Savings' policies and loan approval limits are established by the
Chief Executive Officer and the Chief Lending Officer and are approved by the
Board of Directors. In connection with mortgage loans, any two members of the
Mortgage Loan Committee, which currently consists of the Chief Executive
Officer, the Chief Lending Officer, two members of senior management and
officers of American Savings, may approve a loan up to $300,000. For loans
greater than that, all loans must be approved by two members of the Mortgage
Loan Committee, one of whom must be the Vice President of Mortgage Loans, for
loans up to $500,000, the Chief Lending Officer for loans up to $900,000 and the
Chief Executive Officer for loans up to $1.0 million. All loans over $1.0
million require the prior approval of the Board of Directors.
With respect to consumer loans, four individuals have been delegated
significant approval authority. The Chief Executive Officer may approve any
consumer loan up to $800,000. The Chief Lending Officer may individually
approve any consumer loan up to $250,000. The additional approval of any member
of the Consumer Loan Committee, which currently consists of the Chief Executive
Officer, the Chief Lending Officer and four other members of American Savings'
senior management and officers, is required on loans between $250,000 and
$700,000. A vice president in the lending department also has authority to
individually approve consumer loans up to $250,000; however loans between
$250,000 and $700,000 require the additional signature of the Chief Executive
Officer or the Chief Lending Officer. Lastly, an officer of American Savings
has authority to approve automobile loans up to $35,000 and home equity loans up
to $100,000. Loans greater than those limits require the approval of another
member of the Consumer Loan Committee and home equity loans between $250,000 and
$700,000 require the additional signature of either the Chief Executive Officer
or the Chief Lending Officer. All consumer loans greater than $800,000 require
the prior approval of the Board of Directors.
59
<PAGE>
Additionally, various bank personnel have been delegated various levels of
authority to approve new and used automobile loans and unsecured loans. These
individuals' authority ranges from $15,000 to $25,000 for automobile loans and
between $1,500 and $5,000 for unsecured loans.
Loan Originations, Purchases and Sales. American Savings lending activities
are conducted by its salaried and commissioned loan personnel and through the
use of non-bank third-party correspondents. Currently, American Savings utilizes
12 loan correspondents who solicit and originate mortgage loans on behalf of
American Savings. Such loan correspondents accounted for approximately 75% of
the adjustable-rate and none of the fixed-rate mortgage loans originated by
American Savings in the first five months of 1999. Loan correspondents are
compensated by a commission that is based upon the origination fee charged to
the borrower less payment of a portion of such origination fee to American
Savings, which currently is 50 basis points of the loan amount. All loans
originated by loan correspondents are underwritten in conformance with American
Savings' loan underwriting policies and procedures. Additionally, American
Savings uses a non-bank third-party to solicit and originate automobile loans on
behalf of American Savings. This arrangement accounted for approximately 26.6%
of the automobile loans originated in the first five months of 1999. All of the
loans originated by the third party are underwritten by American Savings in
accordance with American Savings' underwriting policies and procedures. American
Savings does not use loan correspondents or other third-parties to originate its
other consumer loans and is not an active purchaser of loans. At May 31, 1999,
American Savings serviced $165.9 million of loans for others.
American Savings generally originates fixed-rate mortgage loans for
portfolio but from time to time will sell such loans in the secondary market
based on prevailing market interest rate conditions. Sales are generally to
Freddie Mac, with servicing rights retained. Loan sale decisions are made by the
Mortgage Pipeline Committee of American Savings and are generally based on
prevailing market interest rates. American Savings occasionally obtains forward
or standby commitments from the prospective loan purchaser.
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<PAGE>
The following table presents total loans originated, sold and repaid during
the periods indicated. American Savings did not purchase any loans during the
periods indicated.
<TABLE>
<CAPTION>
For the Five Months
Ended May 31, For the Year Ended December 31,
---------------------------- -------------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans at beginning of period..................... $913,346 $843,032 $843,032 $752,644 $683,582
Originations:
Real estate:
One-to four-family...................... 103,052 79,397 182,982 117,109 114,464
Residential construction................ 13,810 11,525 27,536 18,998 15,624
Multi-family............................ -- -- -- 216 313
-------- -------- -------- -------- --------
Total real estate loans.............. 116,862 90,922 210,518 136,323 130,401
-------- -------- -------- -------- --------
Consumer:
Home equity loans and lines of credit...... 81,013 48,765 136,761 88,221 72,002
Other...................................... 14,464 20,576 46,831 55,285 45,856
-------- -------- -------- -------- --------
Total consumer loans................. 95,477 69,341 183,592 143,506 117,858
-------- -------- -------- -------- --------
Total loans originated..................... 212,339 160,263 394,110 279,829 248,259
-------- -------- -------- -------- --------
Deduct:
Principal loan repayments,.................... 166,629 128,758 306,392 178,793 159,272
prepayments and other, net
Loan sales.................................... 10,442 6,462 13,475 6,327 16,838
Net loan charge-offs.......................... 453 629 1,051 1,465 1,146
Transfers to REO.............................. 1,356 2,328 2,878 2,856 1,941
-------- -------- -------- -------- --------
Total deductions........................... 178,880 138,177 323,796 189,441 179,197
-------- -------- -------- -------- --------
Net increase in loans............................ 33,459 22,086 70,314 90,388 69,062
-------- -------- -------- -------- --------
Loans at end of period........................ $946,805 $865,118 $913,346 $843,032 $752,644
======== ======== ======== ======== ========
</TABLE>
Loan Commitments. American Savings issues loan commitments to its
prospective borrowers conditioned on the occurrence of certain events.
Commitments are made in writing on specified terms and conditions and are
honored for up to 120 days from approval. At May 31, 1999, American Savings had
loan commitments and unadvanced loans and lines of credit totaling $254.2
million. See Note 12 of the Notes to Consolidated Financial Statements included
in this prospectus.
Loan Fees. In addition to interest earned on loans, American Savings
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions. On loans
originated by correspondents, American Savings will at times pay a premium to
compensate a correspondent for loans where the borrower is paying a higher rate
on the loan.
American Savings charges loan origination fees for fixed-rate loans which
are calculated as a percentage of the amount borrowed. As required by applicable
accounting principles, loan origination fees, discount points and certain loan
origination costs are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis. At May 31, 1999, American
Savings had $2.4 million of net deferred loan costs. American Savings amortized
$235,000 and $228,000 of net deferred loan costs during the five months ended
May 31, 1999 and the year ended December 31, 1998, respectively.
Nonperforming Assets and Delinquencies. All loan payments are due on the
first day of each month. When a borrower fails to make a required loan payment,
American Savings attempts to cure the deficiency by contacting the borrower and
seeking the payment. A late notice is mailed on the 16/th/ day of the month. In
most
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<PAGE>
cases, deficiencies are cured promptly. If a delinquency continues beyond the
30/th/ day of the month, the account is referred to an in-house collector. While
American Savings generally prefers to work with borrowers to resolve problems,
American Savings will institute foreclosure or other proceedings after the 90th
day of a delinquency, as necessary, to minimize any potential loss.
Management informs the Board of Directors monthly of the amount of loans
delinquent more than 60 days, all loans in foreclosure, and all foreclosed and
repossessed property that American Savings owns.
American Savings ceases accruing interest on mortgage loans when principal
or interest payments are delinquent 90 days or more. Once the accrual of
interest on a loan is discontinued, all interest previously accrued is reversed
against current period interest income once management determines that interest
is uncollectible.
The following table presents information with respect to American Savings'
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
At May 31, At December 31,
------------------------------- ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------------- --------------- ----------- ---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccruing loans:
One- to four-family real estate......... $2,542 $5,183 $3,683 $6,480 $6,119 $4,899 $3,561
Consumer................................ 330 453 303 394 389 836 505
------ ------ ------ ------ ------ ------ ------
Total................................. 2,872 5,636 3,986 6,874 6,508 5,735 4,066
Real estate owned....................... 617 1,359 720 739 1,094 1,943 2,179
------ ------ ------ ------ ------ ------ ------
Total nonperforming assets............ $3,489 $6,995 $4,706 $7,613 $7,602 $7,678 $6,245
====== ====== ====== ====== ====== ====== ======
Total nonperforming loans as a
percentage of total loans................ 0.30% 0.65% 0.44% 0.81% 0.86% 0.84% 0.65%
Total nonperforming assets as a
percentage of total assets............... 0.22% 0.46% 0.30% 0.52% 0.55% 0.60% 0.54%
</TABLE>
Interest income that would have been recorded for the five months ended May
31, 1999 and the year ended December 31, 1998 had nonaccruing loans been current
according to their original terms amounted to approximately $117,000 and
$180,000, respectively. No interest was included in interest income in either
period related to these loans.
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<PAGE>
The following tables set forth the delinquencies in American Savings' loan
portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At May 31, 1999 At December 31, 1998
------------------------------------------------- -------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
----------------------- ----------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family... 14 $ 1,163 32 $ 2,542 17 $ 1,169 44 $ 3,683
Multi-family.......... -- -- -- -- -- -- -- --
Consumer loans:
Equity lines of credit 2 40 3 185 -- -- 1 36
All other............. 9 40 10 145 13 96 21 267
-------- --------- -------- --------- -------- --------- -------- ---------
Total.............. 25 $ 1,243 45 $ 2,872 30 $ 1,265 66 $ 3,986
======== ========= ======== ========= ======== ========= ======== =========
Delinquent loans to
total loans.......... 0.13% 0.30% 0.14% 0.44%
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
------------------------------------------------- -------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
----------------------- ----------------------- ----------------------- -----------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family... 14 $ 610 73 $ 6,480 17 $ 1,734 62 $ 5,254
Multi-family.......... -- -- -- -- 1 5 2 865
Consumer loans:
Equity lines of credit 1 98 3 84 -- -- 4 68
All other............. 2 112 11 310 5 171 14 321
-------- --------- -------- --------- -------- --------- -------- ---------
Total.............. 17 $ 820 87 $ 6,874 23 $ 1,910 82 $ 6,508
======== ========= ======== ========= ======== ========= ======== =========
Delinquent loans to
total loans........... 0.10% 0.81% 0.25% 0.85%
</TABLE>
Real Estate Owned. Real estate acquired by American Savings as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until sold. When property is acquired it is recorded at fair market value at the
date of foreclosure, establishing a new cost basis. Holding costs and declines
in fair value result in changes to expense after acquisition are expensed. At
May 31, 1999, American Savings had $617,000 of real estate owned, net,
consisting primarily of 17 one- to four-family residences.
Asset Classification. Regulators have adopted various regulations and
practices regarding problem assets of savings institutions. Under such
regulations, federal and state examiners have authority to identify problem
assets during examinations and, if appropriate, require them to be classified.
There are three classifications for problem assets: substandard, doubtful and
loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
63
<PAGE>
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover probable losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention." American Savings does not perform an internal
analysis of its loan portfolio and assets to classify such loans and assets
similar to the manner in which such loans and assets are classified by the
federal banking regulations. American Savings does, however, regularly analyze
the losses inherent in its loan portfolio and its non-performing loans in
determining the appropriate level of the allowance for loan losses.
Allowance for Loan Losses. In originating loans, American Savings recognizes
that losses will be experienced on loans and that the risk of loss will vary
with, among other things, the type of loan being made, the creditworthiness of
the borrower over the term of the loan, general economic conditions and, in the
case of a secured loan, the quality of the security for the loan. American
Savings maintains an allowance for loan losses to absorb losses inherent in the
loan portfolio. The allowance for loan losses represents management's estimate
of probable losses based on information available as of the date of the
financial statements. The allowance for loan losses is based on management's
evaluation of the collectibility of the loan portfolio, including past loan loss
experience, known and inherent risks in the nature and volume of the portfolio,
information about specific borrower situations and estimated collateral values,
and economic conditions.
The loan portfolio and other credit exposures are regularly reviewed by
management to evaluate the adequacy of the allowance for loan losses. The
methodology for assessing the appropriateness of the allowance includes
comparison to actual losses, peer group comparisons, industry data and economic
conditions. In addition, the regulatory agencies, as an integral part of their
examination process, periodically review American Savings' allowance for loan
losses. Such agencies may require American Savings to make additional provisions
for estimated losses based upon judgments different from those of management.
In connection with assessing the allowance, loss factors are applied to
various pools of outstanding loans and certain unused commitments. American
Savings segregates the loan portfolio according to risk characteristics (i.e.,
mortgage loans, home equity, consumer). Loss factors are derived using American
Savings' historical loss experience and may be adjusted for significant factors
that, in management's judgment, affect the collectibility of the portfolio as of
the evaluation date.
In addition, management assesses the allowance using factors that cannot be
associated with specific credit or loan categories. These factors include
management's subjective evaluation of local and national economic and business
conditions, portfolio concentration and changes in the character and size of the
loan portfolio. The allowance methodology reflects management's objective that
the overall allowance appropriately reflects a margin for the imprecision
necessarily inherent in estimates of expected credit losses.
At May 31, 1999, American Savings had an allowance for loan losses of $8.0
million which represented 0.84% of total loans and 277.61% of nonperforming
loans at such date. Although management believes that it uses the best
information available to establish the allowance for loan losses, future
adjustments to the allowance for loan losses may be necessary and results of
operations could be adversely affected if circumstances differ substantially
from the assumptions used in making the determinations. Furthermore, while
American Savings believes it has established its existing allowance for loan
losses in conformity with generally accepted accounting principles, there can be
no assurance that regulators, in reviewing American Savings' loan portfolio,
will not request American Savings to increase its allowance for loan losses. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that increases will not be necessary should the
quality of any loans deteriorate as a result of the factors
64
<PAGE>
discussed above. Any material increase in the allowance for loan losses may
adversely affect American Savings' financial condition and results of
operations.
The following table presents an analysis of American Savings' allowance for
loan losses.
<TABLE>
<CAPTION>
At or For the Five
Months Ended May 31, At or For the Year Ended December 31,
-------------------- --------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan losses,...................... $ 7,626 $ 6,277 $ 6,277 $ 5,588 $ 4,484 $ 2,793 $ 1,620
beginning of period
Charged-off loans:
One- to four-family.......................... 531 723 1,145 1,481 1,117 713 369
Multi-family................................. -- -- -- 39 -- -- --
Commercial real estate....................... -- -- -- -- 37 -- --
Consumer..................................... 8 1 9 20 16 1 3
-------- -------- -------- -------- -------- -------- --------
Total charged-offs loans.................. 539 724 1,154 1,540 1,170 714 372
-------- -------- -------- -------- -------- -------- --------
Recoveries on loans previously charged off...... 86 95 103 74 24 -- 5
-------- -------- -------- -------- -------- -------- --------
Net loans charged-offs.......................... 453 629 1,051 1,466 1,146 714 367
Provision for loan losses....................... 800 1,000 2,400 2,155 2,250 2,405 1,540
-------- -------- -------- -------- -------- -------- --------
Allowance for loan losses, end of period........ $ 7,973 $ 6,648 $ 7,626 $ 6,277 $ 5,588 $ 4,484 $ 2,793
======== ======== ======== ======== ======== ======== ========
Ratios:
Net loans charged-off to average
interest-earning loans.................... 0.12% 0.18% 0.12% 0.19% 0.16% 0.11% 0.05%
Allowance for loan losses to total loans..... 0.84% 0.77% 0.83% 0.74% 0.74% 0.66% 0.44%
Allowance for loan losses to non-
performing loans.......................... 277.61% 117.96% 191.32% 91.32% 85.86% 78.19% 68.69%
Net loans charged-off to allowance
for loan losses........................... 13.64% 22.74% 13.78% 23.36% 20.51% 15.92% 13.14%
Recoveries to charge-offs.................... 15.96% 12.98% 8.93% 4.81% 2.05% -- 1.34%
</TABLE>
For additional discussion regarding the provision for loan losses in recent
periods, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Operating Results for the Five Months Ended
May 31, 1999 and 1998--Provision for Loan Losses."
65
<PAGE>
The following table presents the approximate allocation of the allowance for
loan losses by loan category at the dates indicated. Management believes that
the allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not indicative of future losses
and does not restrict the use of any of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
At May 31, 1999
------------------------------------------------------
Percent of
Allowance Percent
in Each of Loans
Category in Each
to Total Category to
Amount Allowance Total Loans
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Real estate loans............................................... $ 6,989 87.7% 70.8%
Consumer loans.................................................. 984 12.3 29.2
------------- ------------- -------------
Total allowance for loan losses........................... $ 7,973 100.0% 100.0%
============= ============= =============
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------------------------------------- -----------------------------------
Percent of Percent of Percent of
Allowance Percent Allowance Percent Allowance Percent
in Each of Loans in Each of Loans in Each of Loans
Category in Each Category in Each Category in Each
to Total Category to to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans
-------- ---------- ----------- -------- ---------- ----------- -------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans....... $6,874 90.1% 70.4% $6,102 97.2% 71.4% $5,450 97.5% 73.5%
Consumer loans.......... 752 9.9 29.6 176 2.8 28.6 138 2.5 26.5
------ ------ ----- ------ ----- ----- ------ ----- -----
Total allowance
for loan losses..... $7,626 100.0% 100.0% $6,278 100.0% 100.0% $5,588 100.0% 100.0%
====== ====== ===== ====== ===== ===== ====== ===== =====
<CAPTION>
-----------------------------------------------------------------------
1995 1994
-----------------------------------------------------------------------
Percent of Percent of
Allowance Percent Allowance Percent
in Each of Loans in Each of Loans
Category in Each Category in Each
to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans
-------- ---------- ----------- -------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans....... $4,319 96.3% 75.0% $2,671 95.6% 73.1%
Consumer loans.......... 165 3.7 25.0 122 4.4 26.9
------ ------- ------ ------ ----- ------
Total allowance
for loan losses..... $4,484 100.0% 100.0% $2,793 100.0% 100.0%
====== ======= ====== ====== ===== ======
</TABLE>
67
<PAGE>
Investment Activities
General. Under Connecticut law, American Savings has authority to purchase a
wide range of investment securities. As a result of recent changes in federal
banking laws, however, financial institutions such as American Savings may not
engage as principals in any activities that are not permissible for a national
bank, unless the Federal Deposit Insurance Corporation has determined that the
investments would pose no significant risk to Bank Insurance Fund and American
Savings is in compliance with applicable capital standards. In 1993, the
Regional Director of the Federal Deposit Insurance Corporation approved a
request by American Savings to invest in certain listed stocks and/or registered
stocks subject to certain conditions. See "Regulation and Supervision."
The Investment Subcommittee of the Asset/Liability Committee is responsible
for developing and reviewing American Savings' investment policy, which is
designed to diversify American Savings' assets, improve liquidity, provide
interest, dividend and capital gain income while optimizing American Savings'
tax position. The Investment Subcommittee meets weekly to evaluate potential
investments. Investment decisions are made in accordance with American Savings'
investment policy and are based upon the quality of a particular investment, its
inherent risks, the composition of the balance sheet, market expectations,
American Savings' liquidity, income and collateral needs and how the investment
fits within American Savings' interest rate risk strategy. In recent periods,
American Savings has attempted to enhance the average yield on the investment
securities portfolio by reinvesting the proceeds of securities that have matured
or repaid into mortgage-backed securities.
Currently, American Savings' investment policy does not permit engaging
directly in hedging activities or purchasing high risk mortgage derivative
products or other derivative investments. American Savings may amend its
investment policy after the conversion to permit limited investment in
derivative products, such as investment grade tranches of credit card
receivables or other asset-backed securities.
American Savings' investment policy divides investments into two categories,
fixed income and equity portfolios. The fixed income portfolio is limited to
debt issues, including mortgage-backed securities. American Savings generally
invests in securities which have an "A" rating. All of American Savings'
mortgage-backed securities are issued or guaranteed by agencies of the U.S.
Government. Accordingly, they carry lower credit risk than mortgage-backed
securities of a private issuer. However, mortgage-backed securities still carry
market risk, the risk that increases in market interest rates may cause a
decrease in market value, and prepayment risk, the risk that the securities will
be repaid before maturity and that American Savings will have to reinvest the
funds at a lower interest rate. American Savings may make limited investments
in private issue mortgage-backed securities after the conversion in an effort to
enhance the average yield of the mortgage-backed securities portfolio.
The marketable equity securities portfolio has the objective of producing
capital gains through price appreciation and lowering taxable income through
deductions permitted for a portion of dividends received. The total market
value of the marketable equity securities portfolio, excluding Federal Home Loan
Bank stock and auction market preferred stock, is limited by the investment
policy to the lesser of 50% of total capital or 100% of Tier 1 capital. At May
31, 1999, the marketable equity securities portfolio totaled $77.5 million or
54% of its authorized limit. At May 31, 1999, the gross unrealized gains
associated with the marketable equity securities portfolio were $64.6 million.
In future periods and subject to market conditions and other factors, American
Savings intends to reduce its marketable equity securities portfolio through
periodic sales to realize a portion of these gains and to help diversify risk as
the marketable equity securities portfolio is heavily weighted toward financial
institution equities that actively trade on national securities exchanges.
American Savings currently intends to reinvest the proceeds of sale into
diversified equity mutual funds.
In addition to marketable equity securities, American Savings invests in
short-term auction market preferred stock, whose income is treated as a dividend
for tax purposes thus reducing American Savings' federal and state taxable
income through the allowable deductions on such income. American Savings'
investment policy allows for investments in auction market preferred stock of up
to 50% of its Tier 1 capital. In 1997, the Federal Deposit Insurance
Corporation approved the request of American Savings to invest up to 50% of Tier
1 capital in auction market preferred stock, which exceeds the regulatory limit
of 15% of Tier 1 capital.
68
<PAGE>
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," requires that investments be
categorized as "held to maturity," "trading securities" or "available for sale,"
based on management's intent as to the ultimate disposition of each security.
Statement of Financial Accounting Standards No. 115 allows debt securities to be
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." These securities are reported at fair value, and
unrealized gains and losses on the securities would be included in earnings.
American Savings does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." These securities are
reported at fair value, and unrealized gains and losses on the securities are
excluded from earnings and reported, net of deferred taxes, as a separate
component of equity.
All of American Savings' debt and mortgage-backed securities carry market risk
insofar as increases in market rates of interest may cause a decrease in their
market value. They also carry prepayment risk insofar as they may be called or
repaid before maturity in times of low market interest rates, so that American
Savings may have to invest the funds at a lower interest rate. The marketable
equity securities portfolio also carries equity price risk in that, if equity
prices decline due to unfavorable market conditions or other factors, American
Savings' capital would decrease.
At May 31, 1999, all of American Savings' investment securities and mortgage-
backed securities were classified as "available for sale." The following table
presents the amortized cost and fair value of American Savings' securities, by
type of security, at the dates indicated.
<TABLE>
<CAPTION>
At May 31, At December 31,
----------------------------------------------------------------
1999 1998 1997 1996
-------------------- -------------------- -------------------- ------------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
---------- --------- ---------- -------- ---------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Investment securities:
Obligations of U.S. Treasury
and U.S. Government agencies..... $ 65,563 $ 65,520 $105,073 $105,834 $247,754 $248,207 $215,671 $215,695
Corporate bonds and notes........... 185,109 183,754 138,258 138,725 114,660 114,828 101,511 101,572
Other bonds and notes............... 43,699 43,615 55,633 55,683 1,303 1,455 400 385
Marketable equity securities........ 12,980 77,501 12,027 77,431 8,671 67,542 4,853 48,749
Auction market preferred stock...... -- -- 40,000 40,000 -- -- 75,000 75,000
-------- -------- -------- -------- -------- -------- -------- --------
Total investment securities...... 307,351 370,390 350,991 417,673 372,388 432,032 397,435 441,401
-------- -------- -------- -------- -------- -------- -------- --------
Mortgage-backed securities:
Freddie Mac......................... 154,981 155,800 132,294 134,406 90,964 91,977 55,145 55,499
Fannie Mae.......................... 49,727 50,068 38,096 38,449 40,746 40,840 48,647 48,178
-------- -------- -------- -------- -------- -------- -------- --------
Total mortgage-backed securities. 204,708 205,868 170,390 172,855 131,710 132,817 103,792 103,677
-------- -------- -------- -------- -------- -------- -------- --------
Total securities................. $512,059 $576,258 $521,381 $590,528 $504,098 $564,849 $501,227 $545,078
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
At May 31, 1999, American Savings did not own any investment or mortgage-
backed securities of a single issuer, other than U.S. government and agency
securities, which had an aggregate book value in excess of 10% of American
Savings' equity at that date.
69
<PAGE>
The following presents the activity in the investment securities and mortgage-
backed securities portfolios for the periods indicated, all of which are
available for sale.
<TABLE>
<CAPTION>
For the Five Months
Ended May 31, For the Year ended December 31,
----------------------------- ----------------------------------------------
1999 1998 1998 1997 1996
------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Investment securities:
Investment securities, beginning of period..... $ 417,673 $ 432,032 $ 432,032 $ 441,401 $ 368,146
Purchases......................................... 146,699 177,277 323,038 356,261 306,580
Sales............................................. (2,489) (107) (125) (1,152) (195)
Maturities and calls.............................. (188,548) (169,089) (346,388) (382,750) (242,620)
Net (premium)/discount............................ (1,640) 3,716 2,078 2,595 1,530
(Decrease)/Increase in unrealized gain............ (1,305) 633 7,038 15,677 7,960
--------- --------- --------- --------- ---------
Net (decrease)/increase in investment
securities.................................. (47,283) 12,430 (14,359) (9,369) 73,255
Investment securities, end of period........... 370,390 444,462 417,673 432,032 441,401
--------- --------- --------- --------- ---------
Mortgage-backed securities:
Mortgage-backed securities,
beginning of period......................... 172,855 132,817 132,817 103,677 111,046
Purchases...................................... 57,458 21,621 81,008 45,779 14,639
Sales.......................................... (39) (24) (41) (31) --
Repayments and prepayments..................... (23,079) (16,570) (42,335) (17,828) (20,353)
Net discount/(premium)............................ 2,317 (2,853) 48 (3) (12)
(Decrease)/Increase in unrealized gain............ (3,644) 3,427 1,358 1,223 (1,643)
--------- --------- --------- --------- ---------
Net increase/(decrease) in mortgage-backed
securities.................................. 33,013 5,601 40,038 29,140 (7,369)
Mortgage-backed securities, end of period...... 205,868 138,418 172,855 132,817 103,677
--------- --------- --------- --------- ---------
Total securities, end of period................... $ 576,258 $ 582,880 $ 590,528 $ 564,849 $ 545,078
========= ========= ========= ========= =========
</TABLE>
70
<PAGE>
The following table presents certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of
American Savings' debt securities at May 31, 1999, all of which are available
for sale.
<TABLE>
<CAPTION>
At May 31, 1999
--------------------------------------------------------------------------------
More than More than
One Year One Year to Five Years to
or Less Five Years Ten Years
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Investment securities:
Obligations of U.S. Treasury and
U.S. Government agencies...... $ 30,457 5.41% $ 29,729 5.50% $ 5,334 7.19%
Corporate bonds and notes....... 82,460 6.02 96,442 5.94 4,852 5.94
Other bonds and notes........... 39,230 5.16 2,999 5.95 1,386 6.65
Mortgage-backed securities:
Freddie Mac..................... 19,909 6.84 -- -- -- --
Fannie Mae...................... 18,245 6.64 -- -- -- --
--------- ---- --------- ---- --------- ----
Total securities $ 190,301 5.89% $ 129,170 5.84% $ 11,572 6.60%
========= ==== ========= ==== ========= ====
<CAPTION>
---------------------------------------------------
More than
Ten Years Totals
----------------------- -----------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Investment securities:
Obligations of U.S. Treasury and
U.S. Government agencies...... $ -- --% $ 65,520 5.59%
Corporate bonds and notes....... -- -- 183,754 5.97
Other bonds and notes........... -- -- 43,615 5.43
Mortgage-backed securities:
Freddie Mac..................... 135,891 6.31 155,800 6.37
Fannie Mae...................... 31,823 5.91 50,068 6.18
--------- ---- --------- ----
Total securities $ 167,714 6.23% $ 498,757 6.02%
========= ==== ========= ====
</TABLE>
71
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for American
Savings' lending and other investment activities. In addition, American Savings
also generates funds internally from loan principal repayments and prepayments
and maturing investment securities. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and money market
conditions. American Savings may use borrowings from the Federal Home Loan Bank
of Boston to compensate for reductions in the availability of funds from other
sources. Presently, American Savings has no other borrowing arrangements aside
from Federal Home Loan Bank of Boston advances which totalled $129.7 million at
May 31, 1999.
Deposit Accounts. Nearly all of American Savings' depositors reside
in Connecticut. American Savings offers a wide variety of deposit accounts with
a range of interest rates and terms. American Savings' deposit accounts consist
of interest-bearing checking, non-interest-bearing checking, regular savings,
money market savings and certificates of deposit. The maturities of American
Savings' certificate of deposit accounts range from three months to five years.
In addition, American Savings offers retirement accounts, including IRAs, Keogh
accounts and simplified employee pension plan accounts. Going forward, American
Savings intends to offer commercial business products to small businesses
operating within its primary market area. Deposit account terms vary with the
principal differences being the minimum balance deposit, early withdrawal
penalties, limits on the number of transactions and the interest rate. American
Savings reviews its deposit mix and pricing weekly.
American Savings, through extensive market research, determined that
customers consider their primary financial institution to be where they maintain
their checking accounts. Consequently, American Savings began an aggressive
marketing strategy to attract checking accounts through many programs
culminating in the introduction of the "American Rewards" program in 1997. This
program provides various benefits such as free checking, discounts on certain
loans and premium rates on certificates of deposits for those customers that
maintain multiple relationships, one of which is an interest-bearing checking
account, with American Savings. The level of benefits offered under the program
corresponds to the size of the deposit relationship with American Savings. As a
result of American Savings' efforts, the number of checking accounts increased
165% from 11,140 before the beginning of the market analysis to 29,561 at May
31, 1999. Additionally, during that period, American Savings determined that the
percentage of its customers' households that held checking accounts more than
doubled.
American Savings believes it is competitive in the interest rates it offers
on its deposit products. American Savings determines the rates paid based on a
number of factors, including rates paid by competitors, American Savings' need
for funds and cost of funds, borrowing costs and movements of market interest
rates. American Savings does not utilize brokers to obtain deposits and at May
31, 1999 had no brokered deposits.
In the unlikely event American Savings is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to American Financial as the sole stockholder of American
Savings.
The following table presents the deposit activity of American Savings for
the periods indicated.
<TABLE>
<CAPTION>
For the Five Months
Ended May 31, For the Year Ended December 31,
------------------------ -----------------------------------
1999 1998 1998 1997 1996
-------- ------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Increase/(decrease) before interest credited..... $(10,825) $ 7,357 $(1,503) $(28,439) $(26,982)
Interest credited................................ 18,719 20,439 48,859 49,278 49,077
-------- ------- ------- -------- --------
Net increase..................................... $ 7,894 $27,796 $47,356 $ 20,839 $ 22,095
======== ======= ======= ======== ========
</TABLE>
72
<PAGE>
The following table indicates the amount of American Savings' jumbo
certificates of deposits by time remaining until maturity as of May 31, 1999.
Jumbo certificates of deposits have principal balances of $100,000 or more.
<TABLE>
<CAPTION>
Weighted
Amount Average
Maturity Period (In thousands) Rate
----------------- -------------- --------
<S> <C> <C>
Three months or less............ $ 26,031 5.16%
Over 3 through 6 months......... 13,878 4.83
Over 6 through 12 months........ 19,394 5.84
Over 12 months.................. 20,251 5.35
-------------- --------
Total..................... $ 79,554 5.32%
============== ========
</TABLE>
73
<PAGE>
The following table presents information concerning average balances and
rates paid on American Savings' deposit accounts for the periods indicated.
<TABLE>
<CAPTION>
For the Five Months Ended For the Year Ended December 31,
-------------------------------
May 31, 1999 1998
---------------------------------- -------------------------------
Percent
Percent Weighted of Total Weighted
Average of Total Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
---------- -------- -------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Money market accounts............................. $ 64,434 5.7% 2.69% $ 61,190 5.5% 2.74%
NOW accounts...................................... 67,464 5.9 1.35 58,551 5.3 1.34
Savings(1)........................................ 202,058 17.7 2.03 192,212 17.2 2.06
Certificates of deposit and retirement accounts... 781,532 68.6 5.09 778,142 69.9 5.45
Demand deposits................................... 24,319 2.1 -- 23,733 2.1 --
---------- -------- -------- ---------- -------- --------
Total....................................... $1,139,807 100.0% 4.17% $1,113,828 100.0% 4.48%
========== ======== ========== ========
<CAPTION>
----------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Percent Percent
of Total Weighted of Total Weighted
Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
---------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Money market accounts............................. $ 62,440 5.7% 2.71% $ 64,348 6.0% 2.73%
NOW accounts...................................... 44,852 4.1 1.59 32,474 3.0 1.75
Savings(1)........................................ 189,360 17.2 2.04 183,757 17.1 2.17
Certificates of deposit and retirement accounts... 777,725 70.9 5.51 773,447 71.8 5.52
Demand deposits................................... 23,063 2.1 -- 23,017 2.1 --
---------- ----- ---- ---------- -------- --------
Total....................................... $1,097,440 100.0% 4.57% $1,077,043 100.0% 4.65%
========== ===== ========== ========
</TABLE>
__________________________________________
(1) Includes mortgagors' escrow accounts.
74
<PAGE>
Certificates of Deposit by Rates and Maturities. The following table
presents the amount of certificates of deposits in American Savings categorized
by rates and maturities at the dates indicated.
<TABLE>
<CAPTION>
Period to Maturity from May 31, 1999 Total at Total at December 31,
---------------------------------------------- ---------------------
Less than 1 - 2 2 - 3 After May 31,
One Year Years Years 4 Years 1999 1998 1997
---------- -------- -------- --------- ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
0.00 - 4.00%............ $ 49,404 $ 20 $ -- $ -- $ 49,424 $ 25,199 $ 10,335
4.01 - 5.00%............ 219,587 91,915 3,183 1,141 315,826 250,881 92,215
5.01 - 6.00%............ 152,396 35,391 2,532 3,705 194,024 234,673 399,300
6.01 - 7.00%............ 45,620 2,571 -- -- 48,191 104,767 100,387
-------- -------- ------ ------ -------- -------- --------
Total................ $467,007 $129,897 $5,715 $4,846 $607,465 $615,520 $602,237
======== ======== ====== ====== ======== ======== ========
</TABLE>
Borrowings. American Savings has the ability to use advances from the
Federal Home Loan Bank of Boston to supplement its supply of lendable funds and
to meet deposit withdrawal requirements. The Federal Home Loan Bank of Boston
functions as a central reserve bank providing credit for savings banks and
certain other member financial institutions. As a member of the Federal Home
Loan Bank of Boston, American Savings is required to own capital stock in the
Federal Home Loan Bank of Boston and is authorized to apply for advances on the
security of the capital stock and certain of its mortgage loans and other
assets, principally securities that are obligations of, or guaranteed by, the
U.S. Government or its agencies, provided certain creditworthiness standards
have been met. Advances are made under several different credit programs. Each
credit program has its own interest rate and range of maturities. Depending on
the program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit. At May 31, 1999, American Savings had the ability to borrow a
total of approximately $750 million from the Federal Home Loan Bank of Boston.
At that date, American Savings had outstanding advances of $129.7 million.
The following tables presents certain information regarding American
Savings' use of Federal Home Loan Bank of Boston advances during the periods and
at the dates indicated.
<TABLE>
<CAPTION>
Five Months
Ended May 31, Year Ended December 31,
--------------------------- ------------------------------------------
1999 1998 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Maximum amount of advances
outstanding at any month end.......... $130,225 $80,725 $120,725 $80,725 $50,725
Approximate average advances
outstanding........................... 121,942 80,244 83,312 52,490 1,023
Approximate weighted average rate paid
on advances........................... 5.89% 6.29% 6.29% 6.45% 6.06%
</TABLE>
<TABLE>
<CAPTION>
At May 31, At December 31,
-------------------------------------
1999 1998 1997 1996
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance outstanding at end of period..... $129,744 $120,244 $80,244 $50,244
Weighted average rate paid on advances... 5.85% 5.87% 6.26% 6.39%
</TABLE>
75
<PAGE>
Trust Services
In 1996, American Savings established American Savings Trust Services as a
department within American Savings which provides trust and investment services
to individuals, partnerships, corporations and institutions. American Savings
believes that the trust department allows it to provide investment opportunities
and fiduciary services to both current and prospective customers. Consistent
with American Savings' operating strategy, American Savings will continue to
emphasize the growth of its trust service operations to grow assets and increase
fee-based income. American Savings has implemented several policies governing
the practices and procedures of the trust department, including policies
relating to maintaining confidentiality of trust records, investment of trust
property, handling conflicts of interest, and maintaining impartiality. At May
31, 1999, the trust department managed 66 accounts with aggregate assets of
$112.0 million, of which two accounts belonging to one customer totaled $48.2
million, or 43% of the trust department's total assets, at May 31, 1999.
Subsidiary Activities
The following are descriptions of American Savings' wholly owned
subsidiaries, which following the conversion, will be indirectly owned by
American Financial.
American Investment Services, Inc. American Investment Services, Inc.,
which was incorporated in December 1997, is the vehicle through which
alternative financial products and services are offered to customers of American
Savings. Through an arrangement with a third party registered broker-dealer,
American Investment Services offers a complete range of investment products,
including mutual funds, debt, equity and government securities and fixed and
variable annuities. American Investment Services receives a portion of the
commissions generated by the third party broker-dealer from sales to American
Savings' customers. American Investment Services may apply to become a
registered broker-dealer, which would allow it to offer broker services
directly, eliminating the need for a third party broker-dealer. American
Investment Services is also licensed as an insurance producer with the State of
Connecticut. In this capacity, American Investment Services engages directly in
certain insurance sales activities, offering a wide variety of insurance
products as well as the sale of fixed and variable annuities. For 1998 and the
five months ended May 31, 1999, American Investment Services generated net
income before taxes of $325,000 and $150,000, respectively.
ASB Mortgage Servicing Company. ASB Mortgage Servicing Company was
established in February 1999 to service and hold loans secured by real property.
ASB Mortgage was established to qualify as a "passive investment company" for
Connecticut income tax purposes. Income earned by a qualifying passive
investment company is exempt from Connecticut income tax. Income tax savings to
American Savings from the use of a passive investment company was approximately
$650,000 for the five months ended May 31, 1999.
American Savings Bank Foundation, Inc.
In 1995, American Savings established a private charitable foundation,
American Savings Bank Foundation, Inc. This foundation, which is not a
subsidiary of American Savings, provides grants to charitable organizations that
focus primarily on children and education and scholarships to qualified students
in the communities in which American Savings operates. American Savings Bank
Foundation was funded initially by a $500,000 donation from American Savings. In
fiscal 1998, American Savings contributed to American Savings Bank Foundation
marketable equity securities with a cost basis and fair value of approximately
$85,000 and $3.6 million, respectively, at the date of donation and transfer.
American Savings also contributed appreciated investment securities with a fair
value of $4.3 million to American Savings Bank Foundation during 1997. At May
31, 1999, American Savings Bank Foundation had assets of approximately $11.2
million. The foundation's current 12 member Board of Trustees consists of
current directors, officers and employees of American Savings. After the
conversion, American Savings will continue to maintain American Savings Bank
Foundation. However, after the conversion, American Savings Bank Foundation may
decide to dedicate its funding exclusively to provide scholarships to qualified
students in its local community. Additionally, American Savings does not expect
to make any further contributions to American Savings Bank Foundation. It is not
expected that the existence of American
76
<PAGE>
Savings' current foundation will impact the business and affairs of the American
Savings Charitable Foundation which is being established in connection with
American Savings' conversion. See "The Conversion--Establishment of the
Charitable Foundation" and Note 15 of the Notes to Consolidated Financial
Statements.
77
<PAGE>
Properties
American Savings currently conducts its business through its main office
located in New Britain, Connecticut, and 16 other full-service banking offices.
American Financial believes that American Savings' facilities will be adequate
to meet the then present and immediately foreseeable needs of the American
Savings and American Financial.
<TABLE>
<CAPTION>
Net Book Value
Original of Property
Leased Year or Leasehold
or Leased Date of Lease Improvements
Location Owned or Acquired Expiration at May 31, 1999
- ----------------------------------------------- ------------ -------------- --------------- ----------------
Administrative Office: (In thousands)
<S> <C> <C> <C> <C>
102 West Main Street Owned 1995 -- $2,385
New Britain, Connecticut 06051
Banking Offices:
178 Main Street Owned 1959 -- 2,598
New Britain, Connecticut 06051
655 West Main Street Owned 1961 -- 309
New Britain, Connecticut 06053
1133 Main Street Owned 1965 -- 765
Newington, Connecticut 06111
123 Main Street Owned 1966 -- 266
Plainville, Connecticut 06062
Route 195 Leased 1975 2000 (1) 56
Mansfield, Connecticut 06250
25 New London Turnpike Owned 1976 -- 152
Glastonbury, Connecticut 06033
185 Route 81 Leased 1977 2002 (1) 45
Killingworth, Connecticut 06419
143 South Main Street Leased 1980 2000 (2) 83
West Hartford, Connecticut 06107
587 Hartford Road Leased 1980 2000 (2) 99
New Britain, Connecticut 06053
25 Wells Road Leased 1986 2006 90
Wethersfield, Connecticut 06109
252 Allen Street Leased 1988 2003 (1) 77
New Britain, Connecticut 06053
714 Hopmeadow Street Leased 1988 2008 (3) 49
Simsbury, Connecticut 06070
29 South Main Street Leased 1996 2001 (2) 17
West Hartford, Connecticut 06107
315 West Main Street Leased 1997 2005 308
Avon, Connecticut 06001
1127 Farmington Avenue Leased 1998 2018 (4) 509
Berlin, Connecticut 06037
747 Farmington Avenue Leased 1998 2003 (3) 161
New Britain, Connecticut
632 Cromwell Avenue Leased 1998 2003 (2) 286
Rocky Hill, Connecticut 06067 ------
Total....................................... $8,255
======
</TABLE>
_________________________________
(1) American Savings has an option to renew this lease for an additional five-
year period.
(2) American Savings has an option to renew this lease for two additional five-
year periods.
(3) American Savings has an option to renew this lease for three additional
five-year periods.
(4) American Savings has option to renew this lease for four additional five-
year periods.
78
<PAGE>
Personnel
As of May 31, 1999, American Savings had 233 full-time employees and 100
part-time employees, none of whom is represented by a collective bargaining
unit. American Savings believes its relationship with its employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving
American Savings, such as claims to enforce liens, condemnation proceedings on
properties in which American Savings holds security interests, claims involving
the making and servicing of real property loans and other issues incident to
American Savings' business. American Savings is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of American Savings.
MANAGEMENT OF AMERICAN FINANCIAL
Directors shall be elected by the stockholders of American Financial for
staggered three-year terms, or until their successors are elected and qualified.
American Financial's Board of Directors consists of eight persons divided into
three classes, each of which contains approximately one-third of the Board. One
class, consisting of Messrs. Fred M. Hollfelder, Harry N. Mazadoorian and
Jeffrey T. Witherwax, has a term of office expiring at the first annual meeting
of stockholders; a second class, consisting of Messrs. Robert T. Kenney and
Steven T. Martin, has a term of office expiring at the second annual meeting of
stockholders; and a third class, consisting of Messrs. Adolf G. Carlson and Mark
E. Karp and Ms. Marie S. Gustin, has a term of office expiring at the third
annual meeting of stockholders. American Financial anticipates that its first
annual meeting of stockholders will be held in May 2000.
The executive officers of American Financial are elected annually and serve
at the Board's discretion. The executive officers of American Financial are:
Name Position
----- --------
Robert T. Kenney Chairman, President and Chief Executive Officer
Charles J. Boulier III Executive Vice President, Treasurer and Chief
Financial Officer
Richard J. Moore Senior Vice President and Secretary
Charles P. Ahern Senior Vice President
Sheri C. Pasqualoni Senior Vice President
Peter N. Perugini Senior Vice President
Diane C. Dunn Assistant Secretary
79
<PAGE>
MANAGEMENT OF AMERICAN SAVINGS
Directors and Executive Officers
The Board of Directors of American Savings is presently composed of 14
members who are elected for terms of three years, approximately one third of
whom are elected annually as required by the Bylaws of American Savings. The
executive officers of American Savings are elected annually by the Board of
Directors and serve at the Board's discretion. The following table presents
information with respect to the directors and executive officers of American
Savings.
Directors
<TABLE>
<CAPTION>
Position Held With American Director Term
Name Age (1) Savings Since Expires
- ----- ----------- ---------------------------------- ---------- ---------
<S> <C> <C> <C> <C>
Charles S. Beach 78 Director 1971 2000
Adolf G. Carlson 68 Director 1972 2002
Donald Davidson 78 Director 1965 2000
Norman E.W. Erickson 74 Director 1965 2000
Marie S. Gustin 64 Director 1996 2002
Fred M. Hollfelder 65 Director 1981 2000
Joseph T. Hughes 77 Director 1975 2000
Mark E. Karp 52 Director 1995 2002
Robert T. Kenney 56 Chairman of the Board, President and Chief 1991 2001
Executive Officer
Steven T. Martin 58 Director 1979 2001
Harry N. Mazadoorian 61 Director 1993 2000
Geddes Parsons 81 Director 1959 2000
Stanley W. Shepard 76 Director 1978 2001
Jeffrey T. Witherwax 53 Director 1996 2000
</TABLE>
Executive Officers Who Are Not Directors
<TABLE>
<CAPTION>
Position Held With American
Name Age (1) Savings
- ----- ----------- ----------------------------------
<S> <C> <C>
Charles P. Ahern 48 Senior Vice President-Retail Banking
Charles J. Boulier III 43 Executive Vice President and Chief Financial Officer
Richard J. Moore 57 Senior Vice President-Human Resources and Secretary
Sheri C. Pasqualoni 41 Senior Vice President-Marketing, Trust & Investment Management
Peter N. Perugini 55 Senior Vice President and Chief Lending Officer
</TABLE>
____________________________
(1) As of May 31, 1999.
American Savings' executive officers are appointed annually and hold office
until their respective successors are chosen and qualified or until their death,
earlier resignation or removal from office.
Biographical Information
Below is certain information regarding the directors and executive officers
of American Savings. Unless otherwise stated, each director and executive
officer has held his or her current occupation for the last five years. There
are no family relationships among or between the directors or executive
officers.
80
<PAGE>
Charles S. Beach was a vice president of the Connecticut Light and Power
Company before his retirement in 1985.
Adolf G. Carlson was President of Adolf Carlson Insurance agency before its
merger with Sinclair Insurance Group in December 1992. Following the merger, Mr.
Carlson served as a consultant until his retirement in December 1998.
Donald Davidson is a Director and Chairman of the executive committee of
the Board of Directors of D & L Venture Corp., a retail merchandising firm
located in New Britain, Connecticut.
Norman E.W. Erickson was the former Chairman of the Board of Directors of
American Savings before his retirement in 1992.
Marie S. Gustin, Ph.D., was the superintendent of schools in New Britain,
Connecticut before her retirement in 1993.
Fred M. Hollfelder retired in 1990 as President of Corbin and Russwin
Architectural Hardware located in Berlin, Connecticut.
Joseph T. Hughes is a retired certified public accountant.
Mark E. Karp was President and Chief Executive Officer of Moore Medical
Corp., a pharmaceutical company, located in New Britain, Connecticut, before his
retirement in 1998.
Robert T. Kenney joined American Savings in August 1991 as President,
Treasurer and Chief Operating Officer. In August 1992, he was appointed Chief
Executive Officer while maintaining his positions of President and Treasurer.
Mr. Kenney was named Chairman of the Board of Directors in July 1995. Mr. Kenney
also serves as a director of Mutual Investment Fund of Connecticut, Inc. located
in Hartford, Connecticut, a director and Chairman of Savings Bank Life Insurance
Company in Connecticut and a director and Vice Chairman of the Federal Home Loan
Bank of Boston. Mr. Kenney also serves on the board of directors of many area
civic and charitable organizations.
Steven T. Martin has served as Executive Vice President of Ingersoll Rand
Co., an international diversified industrial company located in Woodcliff Lake,
New Jersey, since 1998. Between 1995 and 1998, Mr. Martin was President of the
Production Equipment Group of Ingersoll Rand. Before his involvement with
Ingersoll Rand, Mr. Martin was Vice President of Torrington Company and a
General Manager of Fafnir Bearing, both industrial companies, located in New
Britain, Connecticut.
Harry N. Mazadoorian is assistant general counsel for CIGNA Corporation, a
leading provider of health care, employee benefits, insurance and financial
services, located in Bloomfield, Connecticut.
Geddes Parsons was a business manager and assistant treasurer of St.
Margaret's School in Waterbury, Connecticut before his retirement in 1978.
Stanley W. Shepard is the former President and Chief Executive Officer of
New Britain General Hospital.
Jeffrey T. Witherwax is President of The Naugatuck Glass Company in
Naugatuck, Connecticut.
81
<PAGE>
Executive Officers Who Are Not Directors
Charles P. Ahern joined American Savings in April 1996 and is Senior Vice
President-Retail Banking. Prior to joining American Savings, Mr. Ahern was Vice
President of Branch Administration at Lafayette American Bank from 1994 to 1996
and Vice President of Branch Administration at Centerbank from 1993 to 1994.
Charles J. Boulier III joined American Savings in 1993 as Senior Vice
President and Chief Financial Officer. In 1994, Mr. Boulier was also named
Treasurer. In 1997, he was appointed Executive Vice President, Treasurer and
Chief Financial Officer. In June 1999 he was named Executive Vice President and
Chief Financial Officer.
Richard J. Moore joined American Savings in May 1998 and serves as Senior
Vice President of Human Resources and Corporate Secretary. From 1997 until
joining American Savings, Mr. Moore worked at Howell & Moore, a human resources
consulting firm. From 1986 until 1997, Mr. Moore was Senior Vice President of
Human Resources at Centerbank.
Sheri C. Pasqualoni joined American Savings in January 1995 as Vice
President of Sales and Marketing. In January 1997, Ms. Pasqualoni was appointed
Senior Vice President of Marketing, Trust & Investment Management. Prior to
joining American Savings, Ms. Pasqualoni worked for fifteen years at Great
County Bank. Before her departure, she served as Senior Vice President and Chief
Communications Officer.
Peter N. Perugini joined American Savings in 1986 as Vice President of
Mortgage Loans. He was named Senior Vice President and Chief Lending Officer in
1997.
Meetings and Committees of the Board of Directors of American Savings and
American Financial
The business of American Savings is conducted through meetings and
activities of the Board of Directors and its committees. During the fiscal year
ended December 31, 1998 the Board of Directors held 14 regular meetings and one
special meeting. No director attended fewer than 75% of the total meetings of
the Board of Directors and committees on which the director served.
The Board of Directors has established the following committees:
The Audit Committee consists of Messrs. Martin (Chairman), Beach, Carlson,
Hughes and Parsons. This committee reviews American Savings' financial
statements, supervises the internal auditor and engages the external auditors.
The committee meets quarterly and also in March to review the annual financial
statements and met five times in fiscal 1998.
The Finance Committee consists of Messrs. Hughes (Chairman), Erickson,
Karp, Kenney, Mazadoorian, Shepard and Witherwax. The Finance Committee oversees
the interest rate risk management of American Savings and approves all
investment and asset/liability policies. The committee meets quarterly and met
four times in fiscal 1998.
The Human Resources Committee consists of Messrs. Hollfelder (Chairman),
Karp, Kenney, Martin and Parsons and Ms. Gustin. This committee is responsible
for all matters regarding compensation and fringe benefits for executive
officers. The committee meets quarterly and met four times in fiscal 1998. The
review and evaluation of the Chief Executive Officer is the responsibility of
the CEO Evaluation Committee which consists of Messrs. Davidson, Hollfelder,
Hughes, Martin and Mazadoorian. The CEO Evaluation Committee meets annually.
82
<PAGE>
The Trust, Investment Management & Insurance Committee, which consists of
Messrs Mazadoorian (Chairman), Carlson, Davidson, Erickson, Kenney and
Witherwax, oversees American Savings' trust, investment management and insurance
activities. Such oversight includes the review and approval of the trust
department's policies, the coordination of an annual trust department audit and
the review of examination reports of the trust department. Additionally, the
committee adopts and reviews the policies and procedures of the investment
management and insurance activities and assesses the risk involved in their
operations. The committee meets quarterly and met four times in fiscal 1998.
The Board of Directors has also established a Nominating Committee and a
Director Evaluation Committee.
The Board of Directors of American Financial has established the following
committees: the Audit Committee consisting of Messrs. Carlson, Martin and
Witherwax; the Pricing Committee consisting of the entire Board of Directors of
American Financial; the Compensation Committee consisting of Messrs. Hollfelder
and Karp and Ms. Gustin; and the Nominating Committee consisting of Messrs.
Kenney and Martin and Ms. Gustin.
Directors' Compensation
Fees. Directors of American Savings each receive an annual retainer of
$4,500 and $600 for each board meeting attended. Additionally, each director
receives an annual retainer of $2,000 for their membership on a committee,
except that each committee chairman receives an annual retainer of $3,500, and
each director receives $450 for each committee meeting attended. Effective
January 1, 2000, directors of American Savings will each receive an annual
retainer of $12,000 and $700 for each board meeting attended. The annual
retainers for committee membership will not change, however each director will
receive $500 for each committee meeting attended.
Directors' Retirement Plan. American Savings has adopted a retirement
program for incumbent nonemployee directors to provide a retirement income
supplement for directors with long service. Current directors will receive an
annual benefit of approximately $12,000 at the normal retirement age of 75. Upon
a retired director's death, the director's surviving spouse will receive a
lifetime benefit equal to 50% of the retirement benefit. American Savings had
accrued $102,000 with respect to its anticipated liability under the director
retirement program. American Savings expects to accrue an additional $58,000 in
1999 with respect to its anticipated liability under the program.
Directors' Deferred Compensation Plans. American Savings sponsors deferred
compensation plans for directors as a vehicle for the deferral of fees and
retainers by directors. Deferrals are credited with interest at the Treasury
Constant Maturities yield for 52-week U.S. Treasury bills. As of May 31, 1999,
these plans have had only limited participation and American Savings' total
accrued liability with respect to such plans is $350,000. It is anticipated that
the deferral plans will terminate in connection with the conversion. For a
discussion of additional benefits currently provided to Directors, see
"Benefits-- Performance Appreciation Unit Plan."
83
<PAGE>
Executive Compensation
Summary Compensation Table. The following information is furnished for the
Chief Executive Officer and the four other highest paid executive officers of
American Savings who received a salary and bonus of $100,000 or more during the
year ended December 31, 1998.
<TABLE>
<CAPTION>
Annual
Compensation
--------------------------------------------
Name and Other Annual All Other
Position Year(1) Salary Bonus(2) Compensation (3) Compensation (4)
- ----------- -------------- ----------- ------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Robert T. Kenney
Chairman of the Board, President and
Chief Executive Officer................. 1998 $365,000 $182,500 -- $20,000
Charles J. Boulier III
Executive Vice President and
Chief Financial Officer................. 1998 $155,000 $ 62,000 -- $12,221
Peter N. Perugini
Senior Vice President and
Chief Lending Officer................... 1998 $117,000 $ 35,100 -- $ 9,225
Sheri C. Pasqualoni
Senior Vice President-Marketing,
Trust & Investment Management........... 1998 $100,000 $ 30,000 -- $ 7,885
Charles P. Ahern
Senior Vice President-Retail Banking.... 1998 $ 96,000 $ 28,800 -- $ 7,569
</TABLE>
________________________
(1) Compensation information for the years ended December 31, 1997 and 1996 has
been omitted as American Savings was neither a public company nor a
subsidiary of a public company at that time.
(2) Represents the total amount awarded under the American Savings' Executive
Incentive Compensation Plan in fiscal 1998. Under such plan, 60% of the
total is paid in January of the year after it is earned and 40% is
deferred. For a description of the plan, see "-- Benefits -- Executive
Incentive Compensation Plan."
(3) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than $50,000 or 10% of the total annual salary and
bonus reported.
(4) Represents matching and discretionary contributions made under American
Savings' 401(k) Plan. Does not reflect units awarded under American
Savings' Performance Appreciation Unit Incentive Plan. In fiscal 1998,
American Savings awarded 10,000, 5,000, 4,000, 3,000 and 5,000 units to
Messrs. Kenney, Boulier, Perugini, Ahern and Ms. Pasqualoni, respectively.
For a description of the plan, see "-- Benefits -- Performance Appreciation
Unit Plan."
Employment Agreements. Effective January 1, 1995, American Savings entered
into employment agreements with Messrs. Kenney and Boulier. These agreements
will be terminated upon conversion and replaced with substantially similar
agreements. Upon the completion of the conversion, American Savings and American
Financial each intend to enter into employment agreements with Messrs. Kenney,
Ahern, Boulier, Moore, Perugini and Ms. Pasqualoni (individually, the
"Executive") (collectively, the "Employment Agreements"). The Employment
Agreements are intended to ensure that American Savings and American Financial
will be able to maintain a stable and competent management base after the
conversion. The continued success of American Savings and American Financial
depends to a significant degree on the skills and competence of the above
referenced officers.
The Employment Agreements will provide for a three-year term. The term of
the American Financial Employment Agreements shall be extended on a daily basis
unless written notice of non-renewal is given by the Board of Directors and the
term of American Savings Employment Agreements shall be renewable on an annual
basis. The Employment Agreements provide that the Executive's base salary will
be reviewed annually. The base salaries which will be effective for such
Employment Agreements for Messrs. Kenney, Ahern, Boulier, Moore,
84
<PAGE>
Perugini and Ms. Pasqualoni, will be $430,000, $120,000, $185,000, $125,000,
$132,000 and $125,000, respectively. In addition to the base salary, the
Employment Agreements provide for, among other things, participation in stock
benefits plans and other fringe benefits applicable to executive personnel. The
Employment Agreements provide for termination by American Savings or American
Financial for cause, as defined in the Employment Agreements, at any time. If
American Savings or American Financial chooses to terminate the Executive's
employment for reasons other than for cause, or if the Executive resigns from
American Savings or American Financial after a: (1) failure to re-elect the
Executive to his/her current offices; (2) material change in the Executive's
functions, duties or responsibilities; (3) relocation of the Executive's
principal place of employment by more than 25 miles; (4) reduction in the
benefits and perquisites being provided to the Executive in the Employment
Agreement; (5) liquidation or dissolution of American Savings or American
Financial; or (6) breach of the Employment Agreement by American Savings or
American Financial; the Executive or, if the Executive dies, his/her
beneficiary, would be entitled to receive an amount equal to the remaining base
salary payments due to the Executive for the remaining term of the Employment
Agreement and the contributions that would have been made on the Executive's
behalf to any employee benefit plans of American Savings and American Financial
during the remaining term of the Employment Agreement. American Savings and
American Financial would also continue and/or pay for the Executive's life,
health, dental and disability coverage for the remaining term of the Employment
Agreement. Upon termination of the Executive for reasons other than a change in
control, the Executive must adhere to a one year non-competition agreement.
Under the Employment Agreements, if voluntary or involuntary termination
follows a change in control of American Savings or American Financial, the
Executive or, if the Executive dies, his/her beneficiary, would be entitled to a
severance payment equal to the greater of: (1) the payments due for the
remaining terms of the agreement; or (2) three times the average of the five
preceding taxable years' annual compensation. American Savings and American
Financial would also continue the Executive's life, health, and disability
coverage for thirty-six months. Even though both American Savings and American
Financial Employment Agreements provide for a severance payment if a change in
control occurs, the Executive would only be entitled to receive a severance
payment under one agreement. The Executive would also be entitled to receive an
additional tax indemnification payment if payments under the Employment
Agreements or otherwise triggered liability under the Internal Revenue Code for
the excise tax applicable to "excess parachute payments." Under applicable law,
the excise tax is triggered by change in control-related payments which equal or
exceed three times the Executive's average annual compensation over the five
years preceding the change in control. The excise tax equals 20% of the amount
of the payment in excess of one times the Executive's average compensation over
the preceding five-year period. If a change in control of American Savings and
American Financial occurred, the total amount of payments due under the
Agreements, based solely on the Executive's 1998 cash compensation (and without
regard to future base salary adjustments or bonuses and excluding any benefits
under any employee benefit plan which may be payable) would be approximately
$3.9 million.
Payments to the Executive under American Savings' Employment Agreement will
be guaranteed by American Financial if payments or benefits are not paid by
American Savings. Payment under American Financial's Employment Agreement would
be made by American Financial. All reasonable costs and legal fees paid or
incurred by the Executive under any dispute or question of interpretation
relating to the Employment Agreements shall be paid by American Savings or
American Financial, respectively, if the Executive is successful on the merits
in a legal judgment, arbitration or settlement. The Employment Agreements also
provide that American Savings and American Financial shall indemnify the
Executive to the fullest extent legally allowable.
Benefits
General. American Savings currently pays 70% of the premiums for medical
insurance benefits and 100% of premiums for life and disability insurance
benefits for full-time employees.
Pension Plan. American Savings maintains a non-contributory pension plan
for its employees. Generally, employees of American Savings begin participation
in the pension plan once they reach age 21 and complete 1,000
85
<PAGE>
hours of service in a consecutive 12-month period. A participant in the pension
plan becomes vested in his accrued benefit under the pension plan upon
completing five years of service. Participants also become 100% vested in their
accrued benefit upon attainment of their "normal retirement age" (as described
in the pension plan) and upon incurring a disability.
A participant's accrued benefit under the pension plan is determined by
multiplying 2% of the participant's final average pay (as described in the
pension plan) by the number of years of service the participant has with
American Savings and then subtracting from this total 2% of the participant's
annual social security benefit multiplied by the number of years of service the
participant has with American Savings. Social security benefits are used to
calculate the pension benefits. Participants receive their entire social
security benefit in addition to the pension plan benefit. However, pension
benefits are reduced in the event a participant retires before his or her
"normal retirement age." Participants in the pension plan may elect to receive
their benefits in the form of a 50% or 100% joint and survivor annuity or a life
only payment option.
The following table indicates the annual retirement benefits that would be
payable under the pension plan and the related supplemental executive retirement
plan (see below) upon retirement at age 65 to a participant electing to receive
his pension benefit in the standard form of benefit, assuming various specified
levels of plan compensation and various specified years of credited service.
Under the Internal Revenue Code, maximum annual benefits under the pension plan
are limited to $130,000 per year and annual compensation for calculation
purposes is limited to $160,000 per year for the 1999 calendar year.
<TABLE>
<CAPTION>
Average Annual Years of Service
------------------------------------------------------------------------------------------------
Compensation 5 10 15 20 25 30+
-------------- ------------ ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 25,000 $ 1,431 $ 2,862 $ 4,292 $ 5,723 $ 7,154 $ 8,585
50,000 3,470 6,940 10,410 13,880 17,350 20,820
75,000 5,851 11,702 17,554 23,405 29,256 35,107
100,000 8,351 16,702 25,054 33,405 41,756 50,107
125,000 10,851 21,702 32,554 43,405 54,256 65,107
150,000 13,351 26,702 40,054 53,405 66,756 80,107
175,000 15,851 31,702 47,554 63,405 79,256 95,107
200,000 18,351 36,702 55,054 73,405 91,756 110,107
250,000 23,351 46,702 70,054 93,405 116,756 140,107
300,000 28,351 56,702 85,054 113,405 141,756 170,107
350,000 33,351 66,702 100,054 133,405 166,756 200,107
</TABLE>
At May 31, 1999, which is the date of the most recent pension plan
statement, the pension plan's assets exceeded the benefit obligation by
approximately $369,000.
Supplemental Executive Retirement Plans. American Savings maintains a non-
tax-qualified, supplemental retirement plan to provide key executives with
pension benefits that cannot be provided directly through American Savings' tax-
qualified employee pension plan as result of Internal Revenue Code limitations
on the benefits available through a tax-qualified plan. Benefits under the
supplemental plan are based on the same formula as the employee pension plan,
but are determined without regard to the limitations on the amount of salary
that may be taken into account for benefits purposes under the pension plan or
the level of contributions permitted under the pension plan. The benefits
available under the supplemental plan are reduced by the benefits actually
payable under the pension plan. Supplemental plan benefits are payable at the
same times and in the same forms as benefits payable under the pension plan.
Currently, three officers and one retired officer of American Savings
participate in the supplemental plan. At May 31, 1999, the supplemental plan's
benefit obligation was $851,000.
86
<PAGE>
Robert T. Kenney, the President and Chief Executive Officer of American
Savings and American Financial, currently participates in the existing
supplemental retirement plan and a separate supplemental arrangement which
requires that Mr. Kenney reduce his current compensation in exchange for
additional service credit under the supplemental plan. In order to ensure that
Mr. Kenney's overall compensation reflects his significant role at American
Savings and to provide an incentive for his continued employment, the Board is
considering the adoption of a new supplemental retirement program for Mr. Kenney
under which his existing supplemental benefits would be replaced with an
arrangement that would provide Mr. Kenney with an annual retirement benefit
during his lifetime equal to a maximum benefit of 60% of his final average
compensation less benefits available to him under American Savings' tax-
qualified pension plan and a similar plan sponsored by his prior employer. It
is anticipated that the new program would provide Mr. Kenney with the option of
electing retirement at or after attaining age 62. In addition, the program
would provide his surviving spouse with a survivor benefit equal to 50% of the
payment received by Mr. Kenney during his lifetime. It is expected that the new
supplemental program for Mr. Kenney will be implemented during the fourth
quarter of 1999. In connection with the new program, American Savings estimates
that it will accrue additional compensation expense of $130,000 in 1999 and
$650,000 in each of the next five fiscal years to reflect its obligation to Mr.
Kenney.
Upon conversion, American Savings also intends to implement a new plan to
provide for similar supplemental benefits with respect to the 401(k) Plan and
the employee stock ownership plan, as well as benefits otherwise limited by
other provisions of the Internal Revenue Code or the terms of the employee stock
ownership plan loan (see below). Specifically, the new plan will provide
benefits to eligible individuals (designed by the Board of Directors of American
Savings or its affiliates) that cannot be provided under the 401(k) Plan and/or
the employee stock ownership plan as a result of the limitations imposed by the
Internal Revenue Code, but that would have been provided under the 401(k) Plan
and/or the employee stock ownership plan but for such limitations. In addition
to providing for benefits lost under tax-qualified plans as a result of
limitations imposed by the Internal Revenue Code, the new plan will also provide
supplemental benefits to designated individuals who retire, who terminate
employment in connection with a change in control, or whose participation in the
employee stock ownership plan ends due to termination of the employee stock
ownership plan (regardless of whether the individual terminates employment)
prior to the complete scheduled repayment of the employee stock ownership plan
loan. Generally, upon the retirement of an eligible individual or upon a change
in control of American Savings or American Financial prior to complete repayment
of the employee stock ownership plan loan, the supplemental executive retirement
plan will provide the individual with a benefit equal to what the individual
would have received under the employee stock ownership plan had he remained
employed throughout the term of the employee stock ownership plan or had the
employee stock ownership plan not been terminated prior to the scheduled
repayment of the employee stock ownership plan loan less the benefits actually
provided under the employee stock ownership plan on behalf of such individual.
An individual's benefits under the supplemental executive retirement plan will
generally become payable upon the participant's retirement (in accordance with
the standard retirement policies of American Savings), upon the change in
control of American Savings or American Financial or as determined under the
applicable tax-qualified retirement plans sponsored by American Savings.
American Savings may establish a grantor trust in connection with the new
supplemental executive retirement plans to satisfy the obligations of American
Savings with respect to the supplemental executive retirement plans. The assets
of the grantor trust would remain subject to the claims of American Savings'
general creditors in the event of American Savings' insolvency until paid to the
individual pursuant to the terms of the supplemental executive retirement plans.
401(k) Plan. American Savings has implemented the Thrift and Profit Sharing
Plan for Employees of American Savings (the "401(k) Plan"), a tax-qualified
profit sharing plan with a qualified cash or deferred arrangement under Section
401(k) of the Internal Revenue Code for the benefit of its eligible employees.
The 401(k) Plan currently provides participants with savings and retirement
benefits based on employee deferrals of compensation, as well as matching and
other discretionary contributions made by American Savings. Eligible employees
may begin participating in the 401(k) Plan upon the completion of one year of
service (as defined in the 401(k) Plan) and attainment of age twenty-one.
Participants currently may make annual salary reduction
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contributions to the 401(k) Plan in amounts from 1% to 15% of their base
compensation, within a legally permissible limit ($10,000 for 1999). American
Savings makes a regular matching contribution equal to 50% of the elective
deferrals made by each participant up to 3% of a participant's base
compensation. A participant is always 100% vested in his or her elective
deferrals of compensation under the 401(k) Plan. Participants vest in the
regular matching contributions on the first of the month following two years of
participation in the plan.
Currently, participants may invest their accounts under the 401(k) Plan in
seven funds with varying investment characteristics. American Savings intends
to add, as an investment option, an employer stock fund in which participants
may invest a portion of their account balances primarily in American Financial
common stock, within the limitations set forth in the plan document. In
connection with the conversion, a participant's ability to invest in the
employer stock fund is based on his or her status as an eligible account holder
or supplemental eligible account holder in the conversion. Regardless of the
source of fund, no eligible account holders or supplemental eligible account
holders may elect to invest in excess of $500,000 in common stock.
Generally, distributions from the 401(k) Plan may commence upon a
participant's separation from service for any reason. However, participants may
request in-service distributions from the 401(k) Plan in the form of hardship
withdrawals, withdrawals of rollover contributions and the withdrawal of
unmatched after-tax contributions. Distributions from the 401(k) Plan generally
must comply with federal and state income taxes and distributions made before a
participant attains age 59 1/2 also must comply with a federal excise tax.
Incentive Compensation Program. American Savings has maintained an
incentive compensation program for executive and senior officers which provides
participants with cash bonuses based on the attainment of American Savings and
individual performance targets. A range of American Savings and individual
performance targets are set for the calendar year by the Human Resources
Committee of the Board of Directors. American Savings targets are set by
reference to the performance of a selected peer group of financial institutions
reflecting geographic, type and size criteria and by reference to American
Savings' actual performance relative to its annual budget. Based on the level of
attainment of American Savings and individual targets, awards range from 50% of
base pay for the Chief Executive Officer to 15% of base pay for more junior
officers. 60% of the individual award is payable during the first quarter of the
year following the year to which the award relates. The balance of the award, or
40% of the total award, is payable on a deferred basis and vests on the third
anniversary of the award. In the event of an officer's death, disability or
retirement, deferred incentive awards are fully vested and payable. In
anticipation of American Savings' development of an incentive compensation
program appropriate to a publicly traded financial institution for the year 2000
and subsequent years, American Savings will terminate the existing incentive
compensation program during the fourth quarter of 1999. It is anticipated that
all previously deferred awards will be fully vested and participants will have
the opportunity to elect a current cash payment or continued deferral. An
officer who elects continued deferral may also elect to direct the investment of
their benefits to the purchase of stock in the conversion in the same manner as
participants in American Savings' performance appreciation unit plans (see
below). It is anticipated that American Savings will also provide incentive
compensation payments to eligible employees based on the institution's financial
performance during 1999. However, no specific determinations have been made
regarding the size of such payments.
Performance Appreciation Unit Plans. Since 1996, American Savings has
sponsored Performance Appreciation Unit Plans for senior officers and
nonemployee directors. Benefits under the plans are determined by reference to
the performance of American Savings as reflected in year-to-year changes in
American Savings' net worth. The program is intended to provide participants
with benefits and incentives that are comparable to the benefits and incentives
provided by more traditional stock-based compensation programs such as a stock
option or stock appreciation rights plans.
American Savings has made annual awards under the plan to officers and
nonemployee directors of units corresponding to an interest in the appreciation
over the term of the award of a hypothetical "share" of American Savings'
capital. However, the recipient has no right to, or interest in, American
Savings' actual capital. Each award has a term of five years. At May 31, 1999,
awards representing 246,750 units were outstanding. Awards to
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officers are earned or "vest" in equal installments over a five-year period.
Awards to directors are fully vested at the date of grant. During the five-year
term of each award, American Savings credits to each unit a value reflecting the
increase or decrease in American Savings' equity capital during the year,
assuming that certain minimum performance targets are satisfied. Upon the
expiration of the award, the participant's benefit equals the difference between
the unit value at the end of the five-year period and the unit value on the date
of grant. The initial awards were based on American Savings' equity capital at
December 31, 1994 when each unit was valued at $18.33. At December 31, 1998,
each unit had a value of $24.06. A participant may elect to receive the
accumulated appreciation in cash or defer receipt of the value until the
participant's termination of service as an officer or director. Deferrals are
credited with interest at the Treasury Constant Maturities yield for 52-week
U.S. Treasury bills.
In connection with the conversion, American Savings has determined that it
is appropriate to terminate the existing performance appreciation unit program
in anticipation of the introduction of stock-based compensation programs, such
as the employee stock ownership plan and the stock-based incentive plan (see
below) that will enable American Savings to provide officers and directors with
performance incentives directly linked to the performance of American
Financial's common stock. The existing program will terminate during the fourth
quarter of 1999 and, as provided under the program, all outstanding awards will
be fully vested and nonforfeitable. In addition, to compensate award
participants for the potential reduction in benefits attributable to the early
termination of the program, American Savings will credit an additional value to
outstanding awards at a rate consistent with the rate of increase in American
Savings' capital since 1996. It is anticipated that American Savings' will
recognize additional compensation expense of approximately $620,000 in
connection with the termination of the program.
In connection with the termination of the program, participants will have
the opportunity to elect to receive a cash payment equal to the value of their
awards or to defer such payments until termination of service or other
distribution date selected by the participant. Award participants who elect to
defer their benefits will also have the opportunity to elect to direct the
investment of their benefits to the purchase of stock in the conversion. To
facilitate such investments, American Savings will fund a trust with an amount
reflecting the level of the participants' investment directions to purchase
stock. For purposes of the conversion's stock purchase priorities, stock
purchased by a participant will be treated in the same manner as an individual
stock purchase and will be subject to the participant's individual eligibility
to purchase stock. If a participant does not elect to direct the investment of
his or her account to the purchase of stock, deferred amounts will be credited
with interest as described above until the account balance is fully paid.
Employee Stock Ownership Plan. American Savings' Board of Directors has
authorized the adoption of an employee stock ownership plan for employees of
American Savings to be effective upon the completion of the conversion.
Employees who are employed by American Savings on the conversion effective date
will be eligible to participate in the plan immediately. Thereafter, new
employees of American Financial and American Savings who have been credited with
at least 1,000 hours of service during a 12-month period and who have attained
age 21 will be eligible to participate in the employee stock ownership plan.
The employee stock ownership plan intends to purchase 5% of the shares
issued in the conversion through the offering. Following the conversion, a
number of shares equal to 3% of the shares issued in the conversion will be
acquired in open market purchases. In total, the employee stock ownership plan
expects to acquire 8% of the shares issued in the conversion or between
2,309,688 shares, assuming 28,871,100 shares are issued in the conversion, and
3,124,872 shares assuming 39,060,900 shares are issued in the conversion. If the
number of shares to be issued in the conversion is increased to 44,920,035
shares, the employee stock ownership plan expects to acquire 3,593,602 shares.
It is anticipated that the employee stock ownership plan will borrow funds from
American Financial to purchase its stock. The loan will equal 100% of the
aggregate purchase price of the common stock. The loan to the employee stock
ownership plan will be repaid from American Savings' contributions to the
employee stock ownership plan and, to a lesser extent, from dividends payable on
American Financial common stock held by the employee stock ownership plan over
the anticipated 20-year term of the loan. The interest rate for the employee
stock ownership plan loan is expected to be the prime rate as published in The
Wall Street Journal on
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the closing date of the conversion. See "Pro Forma Data." If the employee stock
ownership plan is unable to acquire 5% of the common stock issued in the
conversion through the offering, it is anticipated that these additional shares
will also be acquired following the conversion through open market purchases.
In any plan year, American Savings may make additional discretionary
contributions to the employee stock ownership plan for the benefit of plan
participants in either cash or shares of American Financial common stock, which
may be acquired through the purchase of outstanding shares in the market or from
individual stockholders or which constitute authorized but unissued shares or
shares held in treasury by American Financial. The timing, amount, and manner
of discretionary contributions will be affected by several factors, including
applicable regulatory policies, the requirements of applicable laws and
regulations, and market conditions.
Shares purchased by the employee stock ownership plan with the proceeds of
the loan will be held in a suspense account and released on a pro rata basis as
the loan is repaid. Discretionary contributions to the employee stock ownership
plan and shares released from the suspense account will be allocated among
participants on the basis of each participant's proportional share of total
compensation. Any forfeitures will be reallocated among the remaining plan
participants.
Participants who are employed at the effective date of the conversion will
be fully vested upon the completion of one year of service. Participants who are
hired after the conversion effective date will vest in their accrued benefits
under the employee stock ownership plan upon the completion of five years of
service. A participant is fully vested at retirement, upon death or disability
or upon termination of the employee stock ownership plan. Benefits are
distributable upon a participant's retirement, early retirement, death,
disability, or termination of employment. American Savings' contributions to the
employee stock ownership plan are not fixed, so benefits payable under the
employee stock ownership plan cannot be estimated.
It is anticipated that the Board of Directors of American Savings will
appoint an independent trustee for the employee stock ownership plan. The
trustee votes all allocated shares held in the employee stock ownership plan as
instructed by the plan participants and unallocated shares and allocated shares
for which no instructions are received are voted in the same ratio on any matter
as those shares for which instructions are given.
Under applicable accounting requirements, compensation expense for a
leveraged employee stock ownership plan is recorded at the fair market value of
the employee stock ownership plan shares when committed to be released to
participants' accounts. See "Pro Forma Data."
The employee stock ownership plan must meet the requirements of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
of the Internal Revenue Service and the Department of Labor. American Savings
intends to request a determination letter from the Internal Revenue Service
regarding the tax-qualified status of the employee stock ownership plan.
American Savings expects to receive a favorable determination letter, but cannot
guarantee it.
Employee Severance Compensation Plan. American Savings' Board of Directors
intends to adopt the American Savings Bank Employee Severance Compensation Plan
to provide benefits to eligible employees upon a change in control of American
Financial or American Savings. Eligible employees are those with a minimum of
one year of service with American Savings. Generally, all eligible employees,
other than officers who will enter into separate employment agreements with
American Financial and American Savings, will be eligible to participate in the
severance plan. Under the severance plan, if a change in control of American
Financial or American Savings occurs, eligible employees who are terminated or
who terminate employment, but only upon the occurrence of events specified in
the severance plan, within 24 months of the effective date of a change in
control will be entitled to a payment based on years of service with American
Savings with a maximum payment equal to 24 months of compensation, which would
be earned after 24 years of service. Employees of American Savings as of the
effective date of the conversion will be eligible to receive a minimum benefit
equal to 12 months of compensation without regard to their length of service.
In addition, certain designated officers and key employees
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will be eligible to receive severance benefits without regard to length of
service. Employees in this category will receive a cash payment of three times
the average of their last five years' compensation and continued coverage for 36
months under American Savings' employee benefit programs. The plan also provides
that former American Savings employees who are terminated during the 12-month
period beginning on the second anniversary of the change in control will be
eligible to receive severance compensation at a level not less than they would
have been eligible to receive under American Savings' severance policy as in
effect immediately prior to the change in control. Assuming that a change in
control had occurred at December 31, 1998, and all eligible employees were
terminated, the maximum aggregate payment due under the severance plan would be
approximately $10.5 million.
Stock-Based Incentive Plan. Following the conversion, the Board of
Directors of American Financial intends to adopt a stock-based incentive plan
which will provide for the granting of options to purchase common stock ("Stock
Options") and restricted stock ("Stock Awards"), to eligible officers,
employees, and directors of American Financial and American Savings. If the
stock-based incentive plan is adopted within one year after conversion,
applicable regulations require such plan to be approved by a majority of
American Financial's stockholders at a meeting of stockholders to be held no
earlier than six months after the completion of the conversion.
Under the stock-based incentive plan, American Financial intends to grant
Stock Options in an amount equal to 10% of the shares of common stock issued in
the conversion. The amount granted would range from 2,887,110 shares, assuming
28,871,100 shares are issued in the conversion to 3,906,090 shares, assuming
39,060,900 shares are issued in the conversion. If the number of shares to be
issued in the conversion is increased to 44,920,035 shares, the amount of
options granted would equal 4,492,003 shares. Additionally, American Financial
intends to grant Stock Awards in an amount equal to 4% of the shares of common
stock issued in the conversion. The amount granted would range from 1,154,844
shares, assuming 28,871,100 shares are issued in the conversion to 1,562,436
shares, assuming 39,060,900 shares are issued in the conversion. If the number
of shares to be issued in the conversion is increased to 44,920,035 shares, the
amount of awards granted would equal 1,796,801 shares. Any common stock awarded
under the stock-based incentive plan will be awarded at no cost to the
recipients. The plan may be funded through the purchase of common stock by a
trust established in connection with the stock-based incentive plan or from
authorized but unissued shares. American Financial intends to appoint an
independent fiduciary to serve as trustee of a trust to be established in
connection with the stock-based incentive plan. If additional authorized but
unissued shares are acquired by the stock-based incentive plan after the
conversion, the interests of existing shareholders would be diluted. See "Pro
Forma Data."
The grants of Stock Options and Stock Awards will be designed to attract
and retain qualified personnel in key positions, provide officers and key
employees with a proprietary interest in American Financial as an incentive to
contribute to the success of American Financial and reward key employees for
outstanding performance. All employees of American Financial and its
subsidiaries, including American Savings, will be eligible to participate in the
stock-based incentive plan. It is expected that the committee administering the
plan will determine the terms of awards granted to officers and employees. The
committee will also determine whether Stock Options will be incentive or non-
statutory Stock Options, as defined below, the number of shares available for
each Stock Option and Stock Award, the exercise price of each non-statutory
Stock Option, whether Stock Options may be exercised by delivering other shares
of common stock, and when Stock Options become exercisable or Stock Awards vest.
Only employees may receive grants of Incentive Stock Options. Therefore, under
the stock-based incentive plan, directors may receive only grants of non-
statutory Stock Options. If such plan is adopted within one year after
conversion, applicable regulations provide that no individual officer or
employee of American Savings may receive more than 25% of the stock options
available under the stock-based incentive plan (or any separate plan for
officers and employees) and non-employee directors may not receive more than 5%
individually, or 30% in the aggregate, of the stock options available under the
stock-based incentive plan (or any separate plan for directors). Federal
regulations also provide that no individual officer or employee of American
Savings may receive more than 25% of the restricted stock awards available under
the stock-based incentive plan (or any separate plan for officers and
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employees) and non-employee directors may not receive more than 5% individually,
or 30% in the aggregate, of the restricted stock awards available under the
stock-based incentive plan (or any separate plan for directors).
The stock-based incentive plan will provide for the grant of: (1) Stock
Options intended to qualify as incentive Stock Options under Section 422 of the
Internal Revenue Code ("Incentive Stock Options"); and (2) Stock Options that do
not so qualify ("Non-Statutory Stock Options"). It is anticipated that all
Stock Options granted contemporaneously with stockholder approval of the stock-
based incentive plan will qualify as Incentive Stock Options to the extent
permitted under Section 422 of the Internal Revenue Code. Unless sooner
terminated, the stock-based incentive plan will be in effect for a period of ten
years from the earlier of adoption by the American Financial board of directors
or approval by American Financial stockholders. If the stockholders approve the
Plan, American Financial intends to grant Stock Options under the plan at an
exercise price equal to at least the fair market value of the underlying common
stock on the date of grant.
An individual will not be deemed to have received taxable income upon the
grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received in connection with
the stock option exercise and two years after the date of grant of the stock
option (a "disqualifying disposition"). No compensation deduction will be
available to American Financial as a result of the grant or exercise of
Incentive Stock Options unless there has been a disqualifying disposition. In
the case of a Non-Statutory Stock Option and in the case of a disqualifying
disposition of an Incentive Stock Option, an individual will realize ordinary
income upon exercise of the stock option (or upon the disqualifying disposition)
in an amount equal to the amount by which the exercise price exceeds the fair
market value of the common stock purchased by exercising the stock option on the
date of exercise. The amount of any ordinary income realized by an optionee
upon the exercise of a Non-Statutory Stock Option or due to a disqualifying
disposition of an Incentive Stock Option will be a deductible expense to
American Financial for income tax purposes.
The stock-based incentive plan will provide for the granting of Stock
Awards. Grants of Stock Awards to officers and employees may be made in the form
of base grants and/or performance grants (the vesting of which would be
contingent upon performance goals established by the committee administering the
plan). In establishing any performance goals, the committee may utilize the
annual financial results of American Savings, actual performance of American
Savings as compared to targeted goals such as the ratio of American Savings' net
worth to total assets, American Savings' return on average assets, or such other
performance standards as determined by the committee with the approval of the
American Financial board of directors.
When a participant becomes vested with respect to Stock Awards, the
participant will realize ordinary income equal to the fair market value of the
common stock at the time of vesting (unless the participant made an election
under Section 83(b) of the Internal Revenue Code). The amount of income
recognized by the participants will be a deductible expense for tax purposes for
American Financial. When restricted Stock Awards become vested and shares of
common stock are actually distributed to participants, the participants would
receive amounts equal to any accrued dividends with respect thereto. Before
vesting, recipients of Stock Awards may direct the voting of the shares awarded
to them. Shares not subject to grants and shares allocated subject to the
achievement of performance goals will be voted by the trustee in proportion to
the directions provided with respect to shares subject to grants. Vested shares
will be distributed to recipients as soon as practicable following the day on
which they vest.
The vesting periods for awards under the stock-based incentive plan will be
determined by the committee administering the plan. If the stock-based
incentive plan is adopted within one year after conversion, awards would become
vested and exercisable within the limits of applicable regulations, which such
regulations require that any awards begin vesting no earlier than one year from
the date of shareholder approval of the plan and, thereafter, vest at a rate of
no more than 20% per year and may not be accelerated except in the case of death
or disability. Stock Options could be exercisable for three months following
the date on which the employee or director ceases to perform services for
American Savings or American Financial, except that if an employee or director
dies or
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becomes disabled, Stock Options accelerate and become fully vested and could be
exercisable for up to one year thereafter or such longer period as determined by
American Financial. In the case of death or disability, Stock Options may be
exercised for a period of 12 months. However, any Incentive Stock Options
exercised more than three months following the date the employee ceases to
perform services as an employee would be treated as a Non-Statutory Stock
Option. If the optionee continues to perform services as a director or
consultant on behalf of American Savings, American Financial or an affiliate
after retirement, unvested Stock Options would continue to vest in accordance
with their original vesting schedule until the optionee ceases to serve as a
consultant or director. If a participant dies, is disabled or retires, American
Financial, if requested by the optionee, or the optionee's beneficiary, could
elect, in exchange for vested options, to pay the optionee, or the optionee's
beneficiary if the optionee dies, the amount by which the fair market value of
the common stock exceeds the exercise price of the Stock Options on the date of
the employee's termination of employment.
Within the limits of any applicable regulatory requirements, the stock-
based incentive plan may be amended after the first anniversary date of the
conversion to provide for accelerated vesting of previously granted Stock
Options or Stock Awards if a change in control of American Financial or American
Savings occurs. A change in control would generally be considered to occur when
a person or group of persons acting in concert acquires beneficial ownership of
20% or more of any class of equity security of American Financial or American
Savings or if a tender or exchange offer, merger or other form of business
combination, sale of all or substantially all of the assets of American
Financial or American Savings or similar transaction occurs or a contested
election of directors which resulted in the replacement of a majority of the
American Financial board of directors by persons not nominated by the directors
in office before the contested election occurs.
Transactions with American Savings
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee, and must not involve more than the normal risk of repayment or present
other unfavorable features. American Savings' policy is not to make any new
loans or extensions of credit to American Savings' executive officers and
directors at different rates or terms than those offered to the general public.
In addition, loans made to a director or executive officer in an amount that,
when aggregated with the amount of all other loans to the person and his or her
related interests, are in excess of the greater of $25,000 or 5% of American
Savings' capital and surplus, up to a maximum of $500,000, must be approved in
advance by a majority of the disinterested members of the Board of Directors.
See "Regulation and Supervision--Federal Regulations--Transactions with
Affiliates." The aggregate amount of loans by American Savings to its executive
officers and directors was approximately $68,000 at May 31, 1999. These loans
were performing according to their original terms at May 31, 1999.
REGULATION AND SUPERVISION
General
As a savings bank chartered by the State of Connecticut, American Savings
is extensively regulated under state law with respect to many aspects of its
banking activities; this state regulation is administered by the Connecticut
Banking Commissioner. In addition, as a bank whose deposits are insured by the
Federal Deposit Insurance Corporation under the Bank Insurance Fund, American
Savings must pay deposit insurance assessments and is examined and supervised by
the Federal Deposit Insurance Corporation. These laws and regulations have been
established primarily for the protection of depositors, customers and borrowers
of American Savings, not bank stockholders.
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American Financial will also be required to file reports with, and
otherwise comply with the rules and regulations of, the Office of Thrift
Supervision, the Connecticut Banking Commissioner and the Securities and
Exchange Commission under the federal securities laws. The following discussion
of the laws and regulations material to the operations of American Financial and
American Savings is a summary and is qualified in its entirety by reference to
such laws and regulations.
Connecticut Banking Laws and Supervision
The Connecticut Banking Commissioner regulates American Savings' internal
organization as well as its deposit, lending and investment activities. The
approval of the Connecticut Banking Commissioner is required, among other
things, for the establishment of branch offices and business combination
transactions. The Connecticut Banking Commissioner conducts periodic
examinations of American Savings. The Federal Deposit Insurance Corporation
also regulates many of the areas regulated by the Connecticut Banking
Commissioner and federal law may limit some of the authority provided to
American Savings by Connecticut law.
Lending Activities. Connecticut banking laws grant banks broad lending
authority. Subject to certain limited exceptions, however, total secured and
unsecured loans made to any one obligor pursuant to this statutory authority may
not exceed 25% of American Savings' equity capital and reserves for loan and
lease losses.
A savings bank may pay cash dividends out of its net profits. For purposes
of this restriction, "net profits" means the remainder of all earnings from
current operations. Further, the total of all dividends declared by a savings
bank in any calendar year may not exceed the sum of the bank's net profits for
the year in question combined with its retained net profits from the preceding
two calendar years. Additionally, earnings appropriated to reserves for loan
losses and deducted for federal income tax purposes are not available for cash
dividends without the payment of taxes at the then current income tax rates on
the amount used. Federal law also prevents an institution from paying dividends
or making other capital distributions if doing so would cause it to become
"undercapitalized." See "--Federal Regulations" and "--Prompt Corrective
Regulatory Action." The Federal Deposit Insurance Corporation may limit a
savings bank's ability to pay dividends. No dividends may be paid to American
Savings' stockholders if such dividends would reduce stockholders' equity below
the amount of the liquidation account required by the Connecticut conversion
regulations.
Branching Activities. Any Connecticut-chartered bank meeting certain
statutory requirements may, with the Connecticut Banking Commissioner's
approval, establish and operate branches in any town or towns within the state.
In 1996, legislation was enacted which permits banks to establish mobile
branches with the Connecticut Banking Commissioner's approval.
Investment Activities. In 1996, legislation was enacted which requires the
board of directors of each Connecticut bank to adopt annually and to
periodically review an investment policy governing investments by such bank,
which policy must establish standards for the making of prudent investments. In
addition, Connecticut law now permits Connecticut banks to sell fixed and
variable rate annuities if licensed to do so by the Connecticut Insurance
Commissioner.
Further, legislation was enacted in 1996 which expands the ability of
Connecticut banks to invest in debt securities. Prior to the legislation,
Connecticut banks could invest in debt securities without regard to any other
liability to the Connecticut bank of the maker or issuer of the debt securities,
if the securities were rated in the three highest rating categories or otherwise
deemed to be a prudent investment, and so long as the total amount of debt
securities of any one issuer did not exceed 15% of American Savings' total
equity capital and reserves for loan and lease losses and the total amount of
all its investments in debt securities did not exceed 15% of its assets. In
1996, these percentages each were increased to 25%. In addition, prior to 1996,
the percentage limitation described above also applied to certain government and
agency obligations. As a result of the 1996 legislation, this limitation was
deleted for such obligations.
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The 1996 legislation also expanded the ability of Connecticut banks to
invest in equity securities. Connecticut banks now may invest in such securities
without regard to any other liability to the Connecticut bank of the issuer of
such securities, so long as the total amount of equity securities of any one
issuer does not exceed 25% of the bank's total equity capital and reserves for
loan and lease losses and the total amount of the bank's investment in all
equity securities does not exceed 25% of its assets. Prior to the enactment of
this legislation, Connecticut banks could invest up to 15% of their assets in
the equity securities of corporations incorporated and doing a major portion of
their business in the U.S.
Recent Legislation. Connecticut legislation enacted in 1999 authorizes a new
form of Connecticut bank to be known as an uninsured bank. An uninsured bank
does not accept retail deposits and is not required to insure deposits with the
Federal Deposit Insurance Corporation. The 1999 legislation also authorizes
Connecticut banks with the prior approval of the Connecticut Banking
Commissioner to engage in a broad range of activities related to the business of
banking, or that are financial in nature or that are permitted under the Federal
Bank Holding Company Act or the Home Owners' Loan Act or the regulations
promulgated thereunder. The legislation also authorizes a Connecticut bank to
engage in any activity permitted for a national bank or a federal savings
association upon filing notice with the Connecticut Banking Commissioner unless
the Connecticut Banking Commissioner disapproves the activity.
Enforcement. Under Connecticut law, the Connecticut Banking Commissioner
has extensive enforcement authority over Connecticut banks and, under certain
circumstances, affiliated parties, insiders, and agents. The Connecticut Banking
Commissioner's enforcement authority includes: cease and desist orders,
receivership, conservatorship, removal of officers and directors, emergency
closures, dissolution, and liquidation. Fines for violations range up to $7,500.
Federal Regulations
Capital Requirements. Under Federal Deposit Insurance Corporation
regulations, federally insured state-chartered banks that are not members of the
Federal Reserve System ("state non-member banks"), such as American Savings, are
required to comply with minimum leverage capital requirements. For an
institution determined by the Federal Deposit Insurance Corporation to not be
anticipating or experiencing significant growth and to be in general a strong
banking organization, rated composite 1 under the Uniform Financial Institutions
Ranking System (the rating system) established by the Federal Financial
Institutions Examination Council, the minimum capital leverage requirement is a
ratio of Tier 1 capital to total assets of 3%. For all other institutions, the
minimum leverage capital ratio is not less than 4%. Tier 1 capital is the sum of
common stockholders' equity, noncumulative perpetual preferred stock (including
any related surplus) and minority investments in certain subsidiaries, less
intangible assets (except for certain servicing rights and credit card
relationships).
The Federal Deposit Insurance Corporation has also adopted risk-based
capital guidelines to which American Savings is subject. The Federal Deposit
Insurance Corporation guidelines require state non-member banks to maintain
certain levels of regulatory capital in relation to regulatory risk-weighted
assets. The ratio of regulatory capital to regulatory risk-weighted assets is
referred to as American Savings' "risk-based capital ratio." Risk-based capital
ratios are determined by allocating assets and specified off-balance sheet items
to four risk-weighted categories ranging from 0% to 100%, with higher levels of
capital being required for the categories perceived as representing greater
risk. For example, under the Federal Deposit Insurance Corporation's risk-
weighting system, cash and securities backed by the full faith and credit of the
U.S. government are given a 0% risk weight, loans secured by one- to four-family
residential properties generally have a 50% risk weight and commercial loans
have a risk weighting of 100%.
State non-member banks must maintain a minimum ratio of total capital to
risk-weighted assets of at least 8%, of which at least one-half must be Tier 1
capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary
capital items, which include allowances for loan losses in an amount of up to
1.25% of risk-weighted
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assets, cumulative preferred stock, a portion of the net unrealized gain on
equity securities and other capital instruments. The includable amount of Tier 2
capital cannot exceed the amount of the institution's Tier 1 capital.
The Federal Deposit Insurance Corporation Improvement Act required each
federal banking agency to revise its risk-based capital standards for insured
institutions to ensure that those standards take adequate account of interest-
rate risk, concentration of credit risk, and the risk of nontraditional
activities, as well as to reflect the actual performance and expected risk of
loss on multi-family residential loans. The Federal Deposit Insurance
Corporation, along with the other federal banking agencies, has adopted a
regulation providing that the agencies will take into account the exposure of a
bank's capital and economic value to changes in interest rate risk in assessing
a bank's capital adequacy. See "Historical and Pro Forma Regulatory Capital
Compliance."
As a savings and loan holding company regulated by the Office of Thrift
Supervision, American Financial will not be subject to any separate regulatory
capital requirements.
Standards for Safety and Soundness. As required by statute, the federal
banking agencies adopted final regulations and Interagency Guidelines
Establishing Standards for Safety and Soundness to implement safety and
soundness standards. The guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
guidelines address internal controls and information systems, internal audit
system, credit underwriting, loan documentation, interest rate risk exposure,
asset growth, asset quality, earnings and compensation, and fees and benefits.
Most recently, the agencies have issued guidelines for Year 2000 computer
compliance. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard.
Investment Activities
Since the enactment of the Federal Deposit Insurance Corporation
Improvement Act, all state-chartered Federal Deposit Insurance Corporation
insured banks, including savings banks, have generally been limited to
activities as principal and equity investments of the type and in the amount
authorized for national banks, notwithstanding state law. Federal Deposit
Insurance Corporation Improvement Act and the Federal Deposit Insurance
Corporation regulations thereunder permit exceptions to these limitations. For
example, state chartered banks, such as American Savings, may, with Federal
Deposit Insurance Corporation approval, continue to exercise state authority to
invest in common or preferred stocks listed on a national securities exchange or
the Nasdaq National Market and in the shares of an investment company registered
under the Investment Company Act of 1940, as amended. In addition, the Federal
Deposit Insurance Corporation is authorized to permit such institutions to
engage in state authorized activities or investments that do not meet this
standard (other than non-subsidiary equity investments) for institutions that
meet all applicable capital requirements if it is determined that such
activities or investments do not pose a significant risk to the Bank Insurance
Fund. The Federal Deposit Insurance Corporation has recently adopted revisions
to its regulations governing the procedures for institutions seeking approval to
engage in such activities or investments. These revisions, among other things,
streamline the application procedures for healthy banks and impose quantitative
and qualitative restrictions on a bank's dealings with its subsidiaries engaged
in activities not permitted for national bank subsidiaries. All non-subsidiary
equity investments, unless otherwise authorized or approved by the Federal
Deposit Insurance Corporation, must have been divested by December 19, 1996,
under a Federal Deposit Insurance Corporation-approved divestiture plan, unless
such investments were grandfathered by the Federal Deposit Insurance
Corporation. American Savings received grandfathering authority from the
Federal Deposit Insurance Corporation in March 1993 to invest in listed stocks
and/or registered shares. However, the maximum permissible investment is 100%
of Tier 1 capital, as specified by the Federal Deposit Insurance Corporation's
regulations, or the maximum amount permitted by Connecticut law, whichever is
less. Such grandfathering authority may be terminated upon the Federal Deposit
Insurance Corporation's determination that such investments pose a safety and
soundness risk to American Savings or if American Savings converts its charter,
other than a mutual to stock conversion, or undergoes a change in control.
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As of May 31, 1999, American Savings had $77.5 million of securities which were
held under such grandfathering authority. See "Business of American Savings--
Investment Activities."
Interstate Branching
Until recently, branching across state lines was not generally available to
a state bank such as American Savings. Out-of-state branches of banking
institutions are authorized under the Connecticut Banking Law, but similar
authority does not exist generally under the laws of most other states. The
Interstate Banking Act permitted, beginning June 1, 1997, the responsible
federal banking agencies to approve merger transactions between banks located in
different states, regardless of whether the merger would be prohibited under the
law of the two states. The Interstate Banking Act also permitted a state to
"opt in" to the provisions of the Interstate Banking Act before June 1, 1997,
and permitted a state to "opt out" of the provisions of the Interstate Banking
Act by adopting appropriate legislation before that date. In 1995, Connecticut
affirmatively "opted-in" to the provisions of the Interstate Banking Act.
Accordingly, the Interstate Banking Act, beginning June 1, 1997, permitted a
bank, such as American Savings, to acquire branches in a state other than
Connecticut unless the other state had opted out of the Interstate Banking Act.
The Interstate Banking Act also authorizes de novo branching into another state
if the host state enacts a law expressly permitting out of state banks to
establish such branches within its borders.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes five
capital categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The Federal Deposit Insurance Corporation has adopted regulations to
implement the prompt corrective action legislation. An institution is deemed to
be "well capitalized" if it has a total risk-based capital ratio of 10% or
greater, a tier 1 risk-based capital ratio of 6% or greater and a leverage ratio
of 5% or greater. An institution is "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of
4% or greater, and generally a leverage ratio of 4% or greater. An institution
is "undercapitalized" if it has a total risk-based capital ratio of less than
8%, a Tier I risk-based capital ratio of less than 4%, or generally a leverage
ratio of less than 4%. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is considered to be "critically undercapitalized" if it
has a ratio of tangible equity (as defined in the regulations) to total assets
that is equal to or less than 2%. As of May 31, 1999, American Savings was a
"well capitalized" institution and immediately upon completion of the Conversion
expects to be a "well capitalized" institution.
"Undercapitalized" banks must adhere to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institution in an
amount equal to the lesser of 5% of the institution's total assets when deemed
undercapitalized or the amount necessary to achieve the status of adequately
capitalized. If an "undercapitalized" bank fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized." "Significantly
undercapitalized" banks must comply with one or more of a number of additional
restrictions, including but not limited to an order by the Federal Deposit
Insurance Corporation to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cease receipt of deposits
from correspondent banks or dismiss directors or officers, and restrictions on
interest rates paid on deposits, compensation of executive officers and capital
distributions by the parent holding company. "Critically undercapitalized"
institutions must comply with additional sanctions including, subject to a
narrow exception, the appointment of a receiver or conservator within 270 days
after it obtains such status.
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Transactions with Affiliates
Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. In a holding company context, at a minimum, the parent holding company of a
savings institution and any companies which are controlled by such parent
holding company are affiliates of the savings institution. Generally, Section
23A limits the extent to which the savings institution or its subsidiaries may
engage in "covered transactions" with any one affiliate to 10% of such savings
institution's capital stock and surplus, and contains an aggregate limit on all
such transactions with all affiliates to 20% of capital stock and surplus. The
term "covered transaction" includes, among other things, the making of loans or
other extensions of credit to an affiliate and the purchase of assets from an
affiliate. Section 23A also establishes specific collateral requirements for
loans or extensions of credit to, or guarantees, acceptances on letters of
credit issued on behalf of an affiliate. Section 23B requires that covered
transactions and a broad list of other specified transactions be on terms
substantially the same, or no less favorable, to the savings institution or its
subsidiary as similar transactions with nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts an institution
with respect to loans to directors, executive officers, and principal
stockholders ("insiders"). Under Section 22(h), loans to insiders and their
related interests may not exceed, together with all other outstanding loans to
such persons and affiliated entities, the institution's total capital and
surplus. Loans to insiders above specified amounts must receive the prior
approval of the board of directors. Further, under Section 22(h), loans to
directors, executive officers and principal shareholders must be made on terms
substantially the same as offered in comparable transactions to other persons,
except that such insiders may receive preferential loans made under a benefit or
compensation program that is widely available to American Savings' employees and
does not give preference to the insider over the employees. Section 22(g) of the
Federal Reserve Act places additional limitations on loans to executive
officers.
Enforcement
The Federal Deposit Insurance Corporation has extensive enforcement
authority over insured savings banks, including American Savings. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease and desist orders and to remove directors and
officers. In general, these enforcement actions may be initiated in response to
violations of laws and regulations and unsafe or unsound practices.
The Federal Deposit Insurance Corporation has authority under Federal law
to appoint a conservator or receiver for an insured bank under limited
circumstances. The Federal Deposit Insurance Corporation is required, with
certain exceptions, to appoint a receiver or conservator for an insured state
non-member bank if that bank was "critically undercapitalized" on average during
the calendar quarter beginning 270 days after the date on which the institution
became "critically undercapitalized." See "--Prompt Corrective Regulatory
Action." The Federal Deposit Insurance Corporation may also appoint itself as
conservator or receiver for an insured state non-member institution under
specific circumstances on the basis of the institution's financial condition or
upon the occurrence of other events, including: (1) insolvency; (2) substantial
dissipation of assets or earnings through violations of law or unsafe or unsound
practices; (3) existence of an unsafe or unsound condition to transact business;
and (4) insufficient capital, or the incurring of losses that will deplete
substantially all of the institution's capital with no reasonable prospect of
replenishment without federal assistance.
Insurance of Deposit Accounts
The Federal Deposit Insurance Corporation has adopted a risk-based
insurance assessment system. The Federal Deposit Insurance Corporation assigns
an institution to one of three capital categories based on the institution's
financial information consisting of (1) well capitalized, (2) adequately
capitalized or (3) undercapitalized, and one of three supervisory subcategories
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the Federal Deposit
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Insurance Corporation by the institution's primary federal regulator and
information which the Federal Deposit Insurance Corporation determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance funds. An institution's assessment rate depends on the capital
category and supervisory category to which it is assigned. Assessment rates for
insurance fund deposits currently range from 0 basis points for the strongest
institution to 27 basis points for the weakest. Bank Insurance Fund members are
also required to assist in the repayment of bonds issued by the Financing
Corporation in the late 1980's to recapitalize the Federal Savings and Loan
Insurance Corporation. Bank Insurance Fund members are currently assessed about
1.2 basis points, which is generally 20% of the amount charged Savings
Association Insurance Fund members. Effective January 1, 2000, full pro rata
sharing of the payments between Bank Insurance Fund and Savings Association
Insurance Fund members will occur. The Federal Deposit Insurance Corporation is
authorized to raise the assessment rates. The Federal Deposit Insurance
Corporation has exercised this authority several times in the past and may raise
insurance premiums in the future. If such action is taken by the Federal Deposit
Insurance Corporation, it could have an adverse effect on the earnings of
American Savings.
Insurance of deposits may be terminated by the Federal Deposit Insurance
Corporation upon a finding that the institution is in an unsafe or unsound
condition to continue operations, has engaged in unsafe or unsound practices, or
has violated any applicable law, regulation, rule, order or condition imposed by
the Federal Deposit Insurance Corporation. The management of American Savings
does not know of any practice, condition or violation that might lead to
termination of deposit insurance.
Federal Reserve System
The Federal Reserve Board regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $46.5 million or less (which may be adjusted by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $46.5
million, the reserve requirement is $1.4 million plus 10% (which may be adjusted
by the Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $46.5 million. The first $4.9 million of
otherwise reservable balances (which may be adjusted by the Federal Reserve
Board) are exempted from the reserve requirements. American Savings is in
compliance with the foregoing requirements.
Community Reinvestment Act
Under the Community Reinvestment Act, as implemented by Federal Deposit
Insurance Corporation regulations, a state non-member bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The Community Reinvestment Act does not establish specific
lending requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the
Community Reinvestment Act. The Community Reinvestment Act requires the Federal
Deposit Insurance Corporation, in connection with its examination of an
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of
applications by such institution. The Community Reinvestment Act requires
public disclosure of an institution's Community Reinvestment Act rating.
American Savings' latest Community Reinvestment Act rating, received from the
Federal Deposit Insurance Corporation was "outstanding."
Federal Home Loan Bank System
American Savings is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. American
Savings, as a member of the Federal Home Loan Bank of Boston, is required to
acquire and hold shares of capital stock in the Federal Home Loan Bank of Boston
in an amount at least equal to 1% of the
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aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the Federal Home Loan Bank of Boston, whichever is greater. American
Savings was in compliance with this requirement with an investment in Federal
Home Loan Bank of Boston stock at May 31, 1999 of $10.4 million. At May 31,
1999, American Savings had $129.7 million in Federal Home Loan Bank of Boston
advances.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts and to contribute funds for affordable housing
programs. These requirements could reduce the amount of dividends that the
Federal Home Loan Banks pay to their members and result in the Federal Home Loan
Banks imposing a higher rate of interest on advances to their members. For the
five months ended May 31, 1999 and 1998 and the years ended December 31, 1998,
1997 and 1996, cash dividends from the Federal Home Loan Bank of Boston to
American Savings amounted to approximately $301,000, $273,000, $572,000,
$540,000 and $543,000, respectively. Further, there can be no assurance that
the impact of recent or future legislation on the Federal Home Loan Banks will
not also cause a decrease in the value of the Federal Home Loan Bank stock held
by American Savings.
Holding Company Regulation
Federal law allows a state savings bank that qualifies as a "Qualified
Thrift Lender," discussed below, to elect to be treated as a savings association
for purposes of the savings and loan holding company provisions of the Home
Owners' Loan Act. Such election results in its holding company being regulated
as a savings and loan holding company by the Office of Thrift Supervision rather
than as a bank holding company by the Federal Reserve Board. American Savings
has made such election and expects to receive approval from the Office of Thrift
Supervision to become a savings and loan holding company. American Financial
will be regulated as a non-diversified unitary savings and loan holding company
within the meaning of the Home Owners' Loan Act. As such, American Financial
will be required to register with the Office of Thrift Supervision and will have
to adhere to the Office of Thrift Supervision's regulations and reporting
requirements. In addition, the Office of Thrift Supervision may examine and
supervise American Financial and the Office of Thrift Supervision has
enforcement authority over American Financial and its non-savings institution
subsidiaries. Among other things, this authority permits the Office of Thrift
Supervision to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings institution. Additionally, American
Savings will be required to notify the Office of Thrift Supervision at least 30
days before declaring any dividend to American Financial.
Under current law, as a unitary savings and loan holding company, American
Financial generally would not be restricted under existing laws as to the types
of business activities in which it may engage. Upon any non-supervisory
acquisition by American Financial of another savings association as a separate
subsidiary, American Financial would become a multiple savings and loan holding
company and would have extensive limitations on the types of business activities
in which it could engage. The Home Owners' Loan Act limits the activities of a
multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act, provided the prior
approval of the Office of Thrift Supervision is obtained, and to other
activities authorized by Office of Thrift Supervision regulation. Multiple
savings and loan holding companies are generally prohibited from acquiring or
retaining more than 5% of a non-subsidiary company engaged in activities other
than those permitted by the Home Owners' Loan Act.
The Home Owners' Loan Act prohibits a savings and loan holding company
from, directly or indirectly, acquiring more than 5% of the voting stock of
another savings association or savings and loan holding company or from
acquiring such an institution or company by merger, consolidation or purchase of
its assets, without prior written approval of the Office of Thrift Supervision.
In evaluating applications by holding companies to acquire savings associations,
the Office of Thrift Supervision considers the financial and managerial
resources and future prospects of American Financial and the institution
involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.
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The Office of Thrift Supervision is prohibited from approving any
acquisition that would result in a multiple savings and loan holding company
controlling savings institutions in more than one state, except: (1) interstate
supervisory acquisitions by savings and loan holding companies; and (2) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions.
To be regulated as a savings and loan holding company by the Office of
Thrift Supervision (rather than as a bank holding company by the Federal Reserve
Board), American Savings must qualify as a Qualified Thrift Lender. To qualify
as a Qualified Thrift Lender, American Savings must maintain compliance with the
test for a "domestic building and loan association," as defined in the Internal
Revenue Code, or with a Qualified Thrift Lender Test. Under the Qualified
Thrift Lender Test, a savings institution is required to maintain at least 65%
of its "portfolio assets" (total assets less: (1) specified liquid assets up to
20% of total assets; (2) intangibles, including goodwill; and (3) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 months out of each 12
month period. As of May 31, 1999 American Savings maintained in excess of 81%
of its portfolio assets in qualified thrift investments. American Savings also
met the Qualified Thrift Lender test in each of the prior 12 months and,
therefore, met the Qualified Thrift Lender test.
Connecticut Holding Company Regulations. Under Connecticut banking law, no
person may acquire beneficial ownership of more than 10% of any class of voting
securities of a Connecticut-chartered bank, or any bank holding company of such
a bank, without prior notification of, and lack of disapproval by, the
Connecticut Banking Commissioner. The Connecticut Banking Commissioner will
disapprove the acquisition if the bank or holding company to be acquired has
been in existence for less than five years, unless the Connecticut Banking
Commissioner waives this requirement, or if the acquisition would result in the
acquirer controlling 30% or more of the total amount of deposits in insured
depository institutions in Connecticut. Similar restrictions apply to any
person who holds in excess of 10% of any such class and desires to increase its
holdings to 25% or more of such class.
Prospective Legislation
American Savings is, and American Financial, as a savings and loan holding
company, will be extensively regulated and supervised. Regulations, which
affect American Savings on a daily basis, may be changed at any time, and the
interpretation of the relevant law and regulations may also change because of
new interpretations by the authorities who interpret those laws and regulations.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Connecticut Banking Commissioner, the State of
Connecticut, the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation or the Congress, could have a material impact on American Financial,
American Savings, its operations or the Conversion.
Legislation enacted several years ago provided that the Bank Insurance Fund
and the Savings Association Insurance Fund would have merged on January 1, 1999
if there had been no more savings associations as of that date. Congress did
not enact legislation eliminating the savings association charter by that date.
Bills that were passed by both the House and Senate would subject unitary
savings and loan holding companies to the activities restrictions generally
applicable to multiple savings and loan holding companies. A grandfathering
provision would allow existing unitary savings and loan holding companies to
continue to engage in activities permitted a unitary savings and loan holding
company under existing law and that grandfathering could be transferred to
acquirers under certain circumstances. Unless the grandfather date in the bill
is changed, American Financial would not qualify for the grandfathering if the
legislation is enacted. American Savings is unable to predict whether the
legislation will be enacted or, given such uncertainty, determine the extent to
which the legislation, if enacted, would affect its business. American Savings
is also unable to predict whether the Savings Association Insurance Fund and
Bank Insurance Fund will eventually be merged.
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Federal Securities Laws
American Financial has filed with the Securities and Exchange Commission a
registration statement under the Securities Act for the registration of the
common stock to be issued in the conversion. Upon completion of the conversion,
American Financial's common stock will be registered with the Securities and
Exchange Commission under the Exchange Act. American Financial will then have
to observe the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The registration under the Securities Act of shares of the common stock to
be issued in the conversion does not cover the resale of such shares. Shares of
the common stock purchased by persons who are not affiliates of American
Financial may be resold without registration. The resale restrictions of Rule
144 under the Securities Act govern shares purchased by an affiliate of American
Financial. If American Financial meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of American
Financial who complies with the other conditions of Rule 144 (including those
that require the affiliate's sale to be aggregated with those of other persons)
would be able to sell in the public market, without registration, a number of
shares not to exceed, in any three-month period, the greater of (1) 1% of the
outstanding shares of American Financial or (2) the average weekly volume of
trading in such shares during the preceding four calendar weeks. Provision may
be made in the future by American Financial to permit affiliates to have their
shares registered for sale under the Securities Act under specific
circumstances.
FEDERAL AND STATE TAXATION ON INCOME
Federal Income Taxation
General. American Financial and American Savings intend to report their
income on a calendar year basis using the accrual method of accounting. The
federal income tax laws apply to American Financial and American Savings in the
same manner as to other corporations with some exceptions, including
particularly American Savings' reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to
American Savings or American Financial. American Savings' federal income tax
returns have been either audited or closed under the statute of limitations
through tax year 1994. For its 1998 tax year, American Savings' maximum federal
income tax rate was 35%.
Bad Debt Reserves. For fiscal years beginning before December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986, as amended, were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans, generally secured
by interests in real property improved or to be improved, under the percentage
of taxable income method or the experience method. The reserve for
nonqualifying loans was computed using the experience method.
Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts and the percentage of taxable income method for tax
years beginning after 1995 and require savings institutions to recapture or take
into income certain portions of their accumulated bad debt reserves.
Approximately $24.6 million of American Savings accumulated bad debt reserves
would not be recaptured into taxable income unless American Savings makes a
"non-dividend distribution" to American Financial as described below.
Distributions. If American Savings makes "non-dividend distributions" to
American Financial, they will be considered to have been made from American
Savings' unrecaptured tax bad debt reserves, including the balance of its
reserves as of December 31, 1987, to the extent of the "non-dividend
distributions," and then from American Savings' supplemental reserve for losses
on loans, to the extent of those reserves, and an amount based on the amount
distributed, but not more than the amount of those reserves, will be included in
American Savings' taxable
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income. Non-dividend distributions include distributions in excess of American
Savings' current and accumulated earnings and profits, as calculated for federal
income tax purposes, distributions in redemption of stock, and distributions in
partial or complete liquidation. Dividends paid out of American Savings' current
or accumulated earnings and profits will not be so included in American Savings'
taxable income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Therefore, if American Savings makes a non-dividend
distribution to American Financial, approximately one and one-half times the
amount of the distribution not in excess of the amount of the reserves would be
includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. American Savings does not intend to pay dividends
that would result in a recapture of any portion of its bad debt reserves.
Connecticut Taxation
American Financial and its subsidiaries are subject to the Connecticut
Corporate Business tax. American Financial and its subsidiaries will be
eligible to file a combined Connecticut income tax return and will pay the
larger of the regular corporation business tax (income tax) or a capital stock
tax, but no less than a nominal minimum tax.
Connecticut income tax is based on the federal taxable income before net
operating loss and special deductions of American Financial and its subsidiaries
and makes certain modifications to federal taxable income to arrive at
Connecticut taxable income. Connecticut taxable income is multiplied by the
state tax rate (8.5% for 1999 and 7.5% for 2000 and thereafter) to arrive at
Connecticut income tax.
Connecticut capital stock tax is computed as the average value of American
Financial's issued and outstanding capital stock, including treasury stock at
par or face value, fractional shares, scrip certificates convertible into stock
and amounts received on capital stock subscriptions plus the average value of
its surplus and undivided profit and the average value of its surplus reserves
less the average value of any deficit carried on its balance sheets and the
average value of any stock it owns in private corporations, including treasury
shares. The average capital calculated so computed is then multiplied by the
Connecticut capital tax rate of 0.31% per dollar not to exceed $1 million.
In May 1998 the State of Connecticut enacted legislation permitting the
formation of passive investment company subsidiaries by financial institutions.
This legislation exempts qualifying passive investment companies from the
Connecticut Corporate Business tax and excludes dividends paid from a passive
investment company from the taxable income of the parent financial institution.
American Savings' formation of a passive investment company in February 1999 is
expected to substantially eliminate the state income tax expense of American
Financial's and its subsidiaries. However, American Financial will remain
liable for the capital stock tax.
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SHARES TO BE PURCHASED BY MANAGEMENT WITH SUBSCRIPTION RIGHTS
The following table presents certain information as to the approximate
purchases of common stock by each director and executive officer of American
Savings, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement to purchase these shares and,
therefore, actual purchases could be more or less than indicated. Directors and
executive officers and their associates may not purchase more than 30% of the
shares sold in the conversion. For purposes of the following table, sufficient
shares are assumed to be available to satisfy subscriptions in all categories.
<TABLE>
<CAPTION>
Percent of Percent of
Anticipated Anticipated Shares at Shares at
Number of Dollar Minimum Maximum
Shares to be Amount to be of Estimated of Estimated
Name Purchased (1) Purchased (1) Valuation Range Valuation Range
- ---- --------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Charles S. Beach................................... 5,000 $ 50,000 0.02% 0.01%
Adolf G. Carlson................................... 2,000 20,000 0.01 0.01
Donald Davidson.................................... 2,500 25,000 0.01 0.01
Norman E.W. Erickson............................... 25,000 250,000 0.09 0.07
Marie S. Gustin.................................... 10,000 100,000 0.04 0.03
Fred M. Hollfelder................................. 10,000 100,000 0.04 0.03
Joseph T. Hughes................................... 10,000 100,000 0.04 0.03
Mark E. Karp....................................... 40,000 400,000 0.15 0.11
Robert T. Kenney................................... 25,000 250,000 0.09 0.07
Steven T. Martin................................... 50,000 500,000 (2) 0.19 0.14
Harry N. Mazadoorian............................... 15,000 150,000 0.06 0.04
Geddes Parsons..................................... 1,000 10,000 0.00 0.00
Stanley W. Shepard................................. 5,000 50,000 0.02 0.01
Jeffrey T. Witherwax............................... 50,000 500,000 (2) 0.19 0.14
Charles P. Ahern................................... 10,000 100,000 0.04 0.03
Charles J. Boulier, III............................ 12,500 125,000 0.05 0.03
Richard J. Moore................................... 10,000 100,000 0.04 0.03
Sheri C. Pasqualoni................................ 10,000 100,000 0.04 0.03
Peter N. Perugini.................................. 15,000 150,000 0.06 0.04
------- ---------- ---- ----
All Directors and Executive Officers
as a Group (19 persons) (3)..................... 308,000 $3,080,000 1.15% 0.85%
======= ========== ==== ====
</TABLE>
_____________________________
(1) Includes proposed purchases with funds contained in the individual's 401(k)
plan account. Does not include shares to be awarded under the employee
stock ownership plan and stock-based incentive plan or options to acquire
shares under the stock-based incentive plan.
(2) Such amount represents the maximum allowable purchase for such individual.
(3) Including the effect of shares issued to American Savings Charitable
Foundation, the aggregate beneficial ownership of all directors and
executive officers as a group would be 1.07% and 0.79% at the minimum and
maximum of the estimated valuation range, respectively.
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THE CONVERSION
The Board of Directors of American Savings, the Connecticut Banking
Commissioner of the State of Connecticut Department of Banking and American
Savings' Corporators have approved the Plan of Conversion subject to the
satisfaction of certain other conditions. However, any approvals by the
Connecticut Banking Commissioner are not a recommendation or endorsement of the
plan of conversion.
General
On May 24, 1999, the Board of Directors of American Savings unanimously
adopted the plan of conversion, under which American Savings will be converted
from a Connecticut-chartered mutual savings bank to a Connecticut-chartered
stock savings bank to be held as a wholly owned subsidiary of American
Financial, a recently formed Delaware corporation. The plan of conversion was
subsequently amended on June 28, 1999 and July 22, 1999. The following
discussion of the plan of conversion contains all material terms about the
conversion. Nevertheless, readers are urged to read carefully the plan of
conversion, which is available upon request. The plan of conversion is also
filed as an exhibit to the registration statement that American Financial has
filed with the Securities and Exchange Commission. See "Where You Can Find More
Information." The Connecticut Banking Commissioner of the State of Connecticut
Department of Banking has approved the plan of conversion and American Savings
has received a notice of intent not to object to the plan of conversion from the
Federal Deposit Insurance Corporation, subject to certain conditions. If
American Savings fulfills these conditions, the Federal Deposit Insurance
Corporation will issue its final non-objection to the conversion. Additionally,
American Savings' corporators adopted the plan of conversion at a special
meeting called for that purpose on August 3, 1999.
The conversion will be accomplished through adoption of a Stock Certificate
of Incorporation and Bylaws to authorize the issuance of capital stock by
American Savings. As part of the conversion, American Savings will issue all of
its newly issued capital stock, or 1,000 shares of common stock, to American
Financial in exchange for 50% of the net proceeds from the sale of common stock
by American Financial. American Financial expects to receive approval from the
Office of Thrift Supervision to become a savings and loan holding company and to
acquire American Savings' capital stock.
The plan of conversion provides that the Board of Directors of American
Savings, at any time before the issuance of the common stock, may decide not to
use the holding company form of organization in implementing the conversion.
This decision may be made to avoid possible delays resulting from overlapping
regulatory processing, or policies or conditions, which could hurt American
Savings' or American Financial's ability to complete the conversion and transact
its business after the conversion as is contemplated and in accordance with
American Savings' operating policies. If such a decision is made, American
Savings will withdraw American Financial's registration statement from the
Securities and Exchange Commission and will take all steps necessary to complete
the conversion without American Financial, including filing any necessary
documents. In such event, if American Savings determines to complete the
conversion, if permitted by the Connecticut Banking Commissioner, American
Savings will issue and sell its common stock and subscribers will be notified of
the elimination of American Financial and be permitted to affirm, modify or
rescind their orders. Subscribers will need to reconfirm their subscriptions
before the end of the resolicitation offering or their funds will be refunded
with interest. The following description of the plan of conversion assumes that
a holding company form of organization will be used in the conversion. If a
holding company form of organization is not used, all other pertinent terms of
the plan of conversion as described below will apply to the conversion of
American Savings from the mutual to stock form of organization and the sale of
American Savings' common stock.
The plan of conversion provides generally that: American Savings will convert
from a Connecticut-chartered mutual bank to a Connecticut-chartered stock
savings bank; the common stock will be offered by American Financial in the
subscription offering to persons having subscription rights; if necessary,
shares of common stock not subscribed for in the subscription offering will be
offered in a direct community offering to
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certain members of the general public, with preference given to natural persons
residing in Hartford, Middlesex, Tolland and Windham Counties, Connecticut, and
then to certain members of the general public in a syndicated community offering
through a syndicate of registered broker-dealers under selected dealer
agreements; and American Financial will purchase all of the capital stock of
American Savings to be issued in the conversion.
As part of the conversion, American Financial is making a subscription
offering of its common stock to holders of subscription rights in the following
order of priority: (1) holders of savings accounts with $50 or more on deposit
as of December 31, 1997; (2) American Savings' employee stock ownership plan;
(3) holders of savings accounts of American Savings with $50 or more on deposit
as of ________, 1999; (4) directors, officers and employees of American Savings
without a higher subscription priority; and (5) corporators of American Savings'
without a higher subscription priority.
Shares of common stock not subscribed for in the subscription offering are
expected to be offered for sale in the direct community offering. The direct
community offering, if one is held, is expected to begin at the same time as the
subscription offering. Shares of common stock not sold in the subscription and
direct community offerings may be offered in the syndicated community offering.
Regulations require that the direct community and syndicated community offerings
be completed within 45 days after completion of the fully extended subscription
offering unless extended by American Savings or American Financial with the
approval of the regulatory authorities. If the syndicated community offering is
not feasible, the Board of Directors of American Savings will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed shares of common stock. The plan of conversion provides
that the conversion must be completed within 24 months after the date of the
approval of the plan of conversion by the Board of Directors of American
Savings.
The completion of the offering, however, depends on market conditions and
other factors beyond American Savings' control. No assurance can be given as to
the length of time that will be required to complete the direct community or
syndicated community offerings or other sale of the common stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of American Financial and American Savings as converted, together with
corresponding changes in the net proceeds realized by American Financial from
the sale of the common stock. If the conversion is terminated, American Savings
would be required to charge all conversion expenses against current income.
Orders for shares of common stock will not be filled until at least
26,732,500 shares of common stock have been subscribed for, the Connecticut
Banking Commissioner approves the final valuation, the Federal Deposit Insurance
Corporation issues its final non-objection and the conversion closes. If the
conversion is not completed within 45 days after the last day of the fully
extended subscription offering and the Connecticut Banking Commissioner consents
to an extension of time to complete the conversion, subscribers will be given
the right to increase, decrease or rescind their subscriptions. Unless an
affirmative indication is received from subscribers that they wish to continue
to subscribe for shares, the funds will be returned promptly, together with
accrued interest at American Savings' passbook rate from the date payment is
received until the funds are returned to the subscriber. If the period is not
extended, or, in any event, if the conversion is not completed, all withdrawal
authorizations will be terminated and all funds held will be promptly returned
together with accrued interest at American Savings' passbook rate from the date
payment is received until the conversion is terminated.
Establishment of the Charitable Foundation
General. In furtherance of American Savings' commitment to its local
community, the plan of conversion provides for the establishment of a charitable
foundation in connection with the conversion. The plan of conversion provides
that American Savings and American Financial will establish American Savings
Charitable Foundation, and will fund it with American Financial common stock, as
further described below. American Financial and American Savings believe that
the funding of American Savings Charitable Foundation with American Financial
common stock is a means of establishing a common bond between American Savings
and its community and thereby enables American Savings' community to share in
the potential growth and success of American Financial
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over the long-term. By further enhancing American Savings' visibility and
reputation in its local community, American Savings believes that the foundation
will enhance the long-term value of American Savings' community banking
franchise.
Purpose of American Savings Charitable Foundation. In recent years, American
Savings has emphasized community lending and community activities within its
local community. In 1995, American Savings formed American Savings Bank
Foundation, Inc., a charitable foundation that provides grants to charitable
organizations that focus primarily on children and education and scholarships to
qualified students in the communities in which American Savings operates.
However, after the conversion, American Savings Bank Foundation, Inc. may decide
to dedicate its funding exclusively to provide scholarships to qualified
students in its local communities. See "Business of American Savings--American
Savings Bank Foundation, Inc."
American Savings Charitable Foundation is being formed to complement, not to
replace American Savings' existing community activities and its existing
foundation's activities. American Savings intends to continue to emphasize
community lending and community activities following the conversion. However,
such activities are not American Savings' sole corporate purpose. American
Savings Charitable Foundation, conversely, will be completely dedicated to
community activities and the promotion of charitable causes, and may be able to
support such activities in manners that are not presently available to American
Savings. American Savings believes that American Savings Charitable Foundation
will enable American Financial and American Savings to assist within the
communities in which American Savings operates in areas beyond community
development and lending and will enhance its current activities under the CRA.
American Savings received an "Outstanding" CRA rating in its last CRA
examination by the Federal Deposit Insurance Corporation. American Savings'
latest CRA rating received from the Connecticut Banking Commissioner was
"Satisfactory."
The Board of Directors believes the establishment of the charitable
foundation is consistent with American Savings' commitment to community service.
The Board further believes that the funding of American Savings Charitable
Foundation with American Financial common stock will allow American Savings'
community to share in the potential growth and success of American Financial
long after the conversion. American Savings Charitable Foundation will
accomplish that goal by providing for continued ties between it and American
Savings, thereby forming a partnership within the communities in which American
Savings operates.
American Savings, however, does not expect the contribution to American
Savings Charitable Foundation to take the place of American Savings' traditional
community lending and charitable activities. For the years 1998, 1997 and 1996,
American Savings contributed $4.0 million, $2.4 million and $2.3 million,
respectively, to community organizations and to American Savings Bank
Foundation, Inc.. American Savings expects to continue making charitable
contributions within its communities. Upon conversion, American Financial
intends to contribute to American Savings Charitable Foundation shares of its
common stock equal to 8% of the common stock sold in the conversion, or stock
valued at $28.9 million based on the purchase price of $10.00 per share, at the
maximum of the estimated valuation range. If the number of shares sold in the
conversion is increased to 41,592,625 shares, American Financial intends to
contribute to American Savings Charitable Foundation stock valued at $33.3
million, based on the purchase price of $10.00 per share. The conversion
presents American Savings and American Financial with a unique opportunity to
provide a substantial and continuing benefit to the communities in which
American Savings operates, and to receive the associated tax benefits, without
any significant cash cost to American Savings, and without any significant
adverse impact to the mutual depositors who
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are the current owners of American Savings.
Structure of American Savings Charitable Foundation. American Savings
Charitable Foundation will be incorporated under Delaware law as a non-stock
corporation. Under its Bylaws, American Savings Charitable Foundation's Board
of Directors will be comprised of between seven and 12 members, all of whom will
be existing or former directors or officers of American Financial or American
Savings. The Certificate of Incorporation of American Savings Charitable
Foundation provides that the corporation is organized exclusively for charitable
purposes, including community development, as set forth in Section 501(c)(3) of
the Internal Revenue Code. American Savings Charitable Foundation's Certificate
of Incorporation further provides that no part of the net earnings of the
foundation will inure to the benefit of, or be distributable to, its directors,
officers or members.
The Board of Directors of American Savings Charitable Foundation will be
responsible for establishing its grant and donation policies, consistent with
the purposes for which it was established. As directors of a nonprofit
corporation, directors of American Savings Charitable Foundation will at all
times be bound by their fiduciary duty to advance American Savings Charitable
Foundation's charitable goals, to protect its assets and to act in a manner
consistent with the charitable purpose for which American Savings Charitable
Foundation is established. The Directors of American Savings Charitable
Foundation will also be responsible for directing the activities of the
foundation, including the management of the common stock of American Financial
held by American Savings Charitable Foundation. However, all shares of common
stock held by American Savings Charitable Foundation will be voted in the same
ratio as all other shares of the common stock on all proposals considered by
stockholders of American Financial.
American Savings Charitable Foundation's place of business will be located at
American Financial's administrative offices. The Board of Directors of American
Savings Charitable Foundation will appoint such officers and employees as may be
necessary to manage its operations.
American Financial intends to capitalize American Savings Charitable
Foundation with common stock equal to 8% of the common stock sold in the
conversion. This would range from 2,138,600 shares, assuming 26,732,500 shares
are sold in the conversion, to 2,893,400 shares assuming 36,167,500 shares are
sold in the conversion. The market value of the shares would range from $21.4
million to $28.9 million assuming a purchase price of $10.00 per share. If the
number of shares to be issued in the conversion is increased to 44,920,035
shares, the foundation would be funded with 3,327,410 shares of common
stock.
American Savings Charitable Foundation will receive working capital from any
dividends that may be paid on American Financial's common stock in the future,
and within the limits of applicable federal and state laws, loans collateralized
by the common stock or from the proceeds of the sale of any of the common stock
in the open market from time to time as may be permitted to provide it with
additional liquidity. As a private foundation under Section 501(c)(3) of the
Internal Revenue Code, American Savings Charitable Foundation will be required
to distribute annually in grants or donations, a minimum of 5% of the average
fair market value of its net investment assets. One of the conditions imposed
on the gift of common stock by American Financial is that the amount of common
stock that may be sold by American Savings Charitable Foundation in any one year
shall not exceed 5% of the average market value of the assets held by American
Savings Charitable Foundation, except where the Board of Directors of American
Savings Charitable Foundation determines that the failure to sell an amount of
common stock greater than such amount would result in a long-term reduction of
the value of its assets and/or would otherwise jeopardize its capacity to carry
out its charitable purposes. Upon completion of the conversion and the
contribution of shares to American Savings Charitable Foundation immediately
following the conversion, American Financial would have 28,871,100, 33,966,000,
39,060,900 and 44,920,035 shares issued and outstanding at the minimum,
midpoint, maximum and 15% above the maximum of the estimated valuation range.
Because American Financial will have an increased number of shares outstanding,
the voting and ownership interests of shareholders in American Financial's
common stock would be diluted by 7.4%, compared to their interests in American
Financial if American
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Savings Charitable Foundation was not established. For additional discussion of
the dilutive effect, see "Pro Forma Data."
Tax Considerations. American Financial and American Savings have been
advised by their independent tax advisors that an organization created for the
above purposes should qualify as a Section 501(c)(3) exempt organization under
the Code, and should be classified as a private foundation. American Savings
Charitable Foundation will submit a request to the Internal Revenue Service to
be recognized as an exempt organization. As long as American Savings Charitable
Foundation files its application for tax-exempt status within 15 months from the
date of its organization, and provided the Internal Revenue Service approves the
application, its effective date as a Section 501(c)(3) organization will be the
date of its organization. American Financial's independent tax advisors,
however, have not rendered any advice on the regulatory condition to the
contribution agreed to by American Savings Charitable Foundation which requires
that all shares of common stock of American Financial held by American Savings
Charitable Foundation must be voted in the same ratio as all other outstanding
shares of common stock of American Financial on all proposals considered by
stockholders of American Financial. See "--Regulatory Conditions Imposed on
American Savings Charitable Foundation."
Under Delaware law, American Financial is authorized by statute to make
charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must be within reasonable limits as to amount
and purpose to be valid. Under the Internal Revenue Code, American Financial
and its subsidiaries may deduct up to 10% of its consolidated taxable income
before the charitable contribution deduction in any one year and any
contributions made by American Financial and its subsidiaries in excess of the
deductible amount will be deductible over each of the five succeeding taxable
years, subject to a 10% limitation each year. American Financial and American
Savings believe that the conversion presents a unique opportunity to establish
and fund a charitable foundation given the substantial amount of additional
capital being raised. In making such a determination, American Financial and
American Savings considered the dilutive impact of the contribution of common
stock to American Savings Charitable Foundation on the amount of common stock to
be sold in the conversion. Based on such consideration, American Financial and
American Savings believe that the contribution to American Savings Charitable
Foundation in excess of the 10% annual limitation is justified given American
Savings' capital position and its earnings, the substantial additional capital
being raised in the conversion and the potential benefits of American Savings
Charitable Foundation within the communities in which American Savings operates.
See "Historical and Pro Forma Regulatory Capital Compliance," "Capitalization,"
and "Comparison of Independent Valuation and Pro Forma Financial Information
With and Without Foundation." Thus, the amount of the contribution will not
adversely impact the financial condition of American Financial and American
Savings. American Financial and American Savings therefore believe that the
amount of the charitable contribution is reasonable given American Financial's
and American Savings' pro forma capital positions and does not raise safety and
soundness concerns.
American Financial and American Savings have received an opinion of their
independent tax advisors that American Financial's contribution of its own stock
to American Savings Charitable Foundation should not constitute an act of self-
dealing, and that American Financial should be entitled to a deduction in the
amount of the fair market value of the stock at the time of the contribution
less the nominal amount that American Savings Charitable Foundation is required
to pay American Financial for such stock. A 10% limitation of American
Financial's annual taxable income before the charitable contribution deduction
applies to such deduction. American Financial should be able to carry forward
for federal and state income tax purposes any unused portion of the deduction
for five years following the contribution. American Financial is permitted
under the Internal Revenue Code to carry the excess contribution over the five
year period following the contribution to American Savings Charitable
Foundation. American Financial estimates that substantially all of the
contribution should be deductible over the six-year period. However, American
Financial does not have any assurance that the Internal Revenue Service will
grant tax-exempt status to the foundation. Furthermore, even if the
contribution is deductible, American Financial may not have sufficient earnings
to be able to use the deduction in full. Neither American Financial nor
American Savings expect to make any further contributions to American Savings
Charitable Foundation or American Savings Bank Foundation, Inc. within the first
five years following the initial contribution, unless such contributions would
be
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deductible under the Internal Revenue Code. Any such decisions would be based on
an assessment of, among other factors, the financial condition of American
Financial and American Savings at that time, the interests of shareholders and
depositors of American Financial and American Savings, and the financial
condition and operations of American Savings Charitable Foundation.
Although American Financial and American Savings have received an opinion of
their independent tax advisors that American Financial should be entitled to a
deduction for the charitable contribution, there can be no assurances that the
Internal Revenue Service will recognize American Savings Charitable Foundation
as a Section 501(c)(3) exempt organization or that the deduction will be
permitted. In such event, American Financial's tax benefit related to the
contribution to American Savings Charitable Foundation would be expensed without
tax benefit, resulting in a reduction in earnings in the year in which the
Internal Revenue Service makes such a determination. See "Risk Factors--
Contributing to the foundation may not be tax deductible which could hurt
American Savings' earnings."
As a private foundation, earnings and gains, if any, from the sale of common
stock or other assets are exempt from federal and state corporate taxation.
However, investment income, such as interest, dividends and capital gains, is
generally taxed at a rate of 2.0%. American Savings Charitable Foundation will
be required to make an annual filing with the Internal Revenue Service within
four and one-half months after the close of its fiscal year to maintain its tax-
exempt status. American Savings Charitable Foundation will be required to make
its annual information return available for public inspection for a three-year
period. The information return for a private foundation must include, among
other things, an itemized list of all grants made or approved, showing the
amount of each grant, the recipient, any relationship between a grant recipient
and the foundation's managers and a concise statement of the purpose of each
grant.
Regulatory Conditions Imposed on American Savings Charitable Foundation.
Establishment of American Savings Charitable Foundation is subject to the
following conditions to be agreed to by American Savings Charitable Foundation
in writing as a condition to receiving the Federal Deposit Insurance
Corporation's non-objection to the conversion:
1. the Federal Deposit Insurance Corporation can examine the
foundation;
2. the foundation must comply with supervisory directives imposed by the
Federal Deposit Insurance Corporation;
3. the foundation will operate according to written policies adopted by
its board of directors, including a conflict of interest policy
acceptable to the Federal Deposit Insurance Corporation;
4. the foundation will give a proposed operating plan to the Federal
Deposit Insurance Corporation before the completion of the
conversion
5. the foundation will provide annual reports to the Federal Deposit
Insurance Corporation describing the grants made and the grant
recipients; and
6. any shares of American Financial common stock held by American Savings
Charitable Foundation must be voted in the same ratio as all other
shares of American Financial common stock voted on each and every
proposal considered by the stockholders of American Financial.
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Reasons for the Conversion
The Board of Directors and management believe that the conversion is in the
best interests of American Savings, its customers, employees and the communities
it serves. American Savings' Board of Directors has formed American Financial to
serve as a holding company, with American Savings as its subsidiary, after the
conversion. By converting to the stock form of organization, American Financial
and American Savings will be structured in the form used by holding companies of
commercial banks, most business entities and by a growing number of savings
institutions. Management of American Savings believes that the conversion offers
a number of advantages which will be important to the future growth and
performance of American Savings. The capital raised in the conversion is
intended to support American Savings' future lending and operational growth and
may also support possible future branching activities or the acquisition of
other financial institutions or financial service companies or their assets and
to increase its ability to render services to the communities it serves. With
the exception of American Savings' strategic plan to acquire or establish an
insurance agency, there are no current specific plans, arrangements or
understandings, written or oral, regarding these activities. The conversion is
also expected to afford American Savings' management, members and others the
opportunity to become stockholders of American Financial and participate more
directly in, and contribute to, any future growth of American Financial and
American Savings. The conversion will also enable American Financial and
American Savings to raise additional capital in the public equity or debt
markets should the need arise, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any financing
activities. American Savings, as a mutual savings bank, does not have the
authority to issue capital stock or debt instruments, other than by accepting
deposits.
Effects of Conversion to Stock Form
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized if the institution is liquidated. However, this ownership
interest is tied to the depositor's account and has no value separate from such
deposit account. Any depositor who opens a deposit account obtains a pro rata
ownership interest in the net worth of the institution without any additional
payment beyond the amount of the deposit. A depositor who reduces or closes his
account receives a portion or all of the balance in the account but nothing for
his ownership interest in the net worth of the institution, which is lost to the
extent that the balance in the account is reduced.
Consequently, mutual savings bank depositors normally realize the value of
their ownership interest only in the unlikely event that the mutual savings bank
is liquidated. In such event, the depositors of record at that time, as owners,
would be able to share in any residual surplus and reserves after other claims,
including claims of depositors to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except the right to claim a
pro rata share of funds representing the liquidation account established in
connection with the conversion. Additionally, permanent nonwithdrawable capital
stock is created and offered to depositors which represents the ownership of the
institution's net worth. The common stock is separate and apart from deposit
accounts and cannot be and is not insured by the Federal Deposit Insurance
Corporation or any other governmental agency. Certificates are issued to
evidence ownership of the permanent stock. The stock certificates are
transferable, and therefore the stock may be sold or traded if a purchaser is
available with no effect on any deposit account the seller may hold in the
institution.
No assets of American Financial or American Savings will be distributed in
connection with the conversion other than the payment of those expenses incurred
in connection with the conversion.
Continuity. While the conversion is being accomplished, the normal
business of American Savings will continue without interruption, including being
regulated by the Connecticut Banking Commissioner and the Federal
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Deposit Insurance Corporation. After conversion, American Savings will continue
to provide services for depositors and borrowers under current policies by its
present management and staff.
The Directors of American Savings at the time of conversion will serve as
directors of American Savings after the conversion. The Directors of American
Financial will be solely composed of individuals who served on the Board of
Directors of American Savings. All officers of American Savings at the time of
conversion will retain their positions after the conversion.
Savings Accounts and Loans. American Savings' savings accounts, account
balances and existing Federal Deposit Insurance Corporation insurance coverage
of savings accounts will not be affected by the conversion. Furthermore, the
conversion will not affect the loan accounts, loan balances or obligations of
borrowers under their individual contractual arrangements with American Savings.
Effect on Voting Rights of Corporators. American Savings presently
maintains a governing board of 49 corporators. Generally, corporators consist of
depositors of American Savings who are residents of the communities served by
American Savings. Corporators are nominated by American Savings' nominating
committee and elected by ballot at corporators' meetings. Generally, corporators
promote the goodwill of American Savings and consists, therefore, of individuals
who are successful in their occupations and respected in their communities.
Corporators also possess certain voting rights in American Savings. Upon
conversion, corporators will no longer be entitled to vote at meetings of
American Savings. Instead, American Financial, as the sole stockholder of
American Savings, will possess all voting rights in American Savings. The
holders of the common stock of American Financial will possess all voting rights
in American Financial. Depositors of American Savings will not have voting
rights after the conversion except to the extent that they become stockholders
of American Financial by purchasing common stock. American Savings intends to
establish a community advisory board which may consist of former corporators of
American Savings.
Tax Effects. American Savings has received an opinion from Muldoon, Murphy
& Faucette LLP, Washington, D.C., that addresses all the material federal income
tax consequences of the conversion. The opinion, which relies upon factual
representations given by American Savings, concludes that the conversion will
constitute a nontaxable reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended. Among other things, the opinion
states that:
1. no gain or loss will be recognized to American Savings in its mutual
or stock form by reason of the conversion;
2. no gain or loss will be recognized to its account holders upon the
issuance to them of accounts in American Savings immediately after the
conversion, in the same dollar amounts and on the same terms and
conditions as their accounts at American Savings in its mutual form
plus interest in the liquidation account;
3. the tax basis of account holders' accounts in American Savings
immediately after the conversion will be the same as the tax basis of
their accounts immediately before conversion;
4. the tax basis of each account holder's interest in the liquidation
account will be equal to the value, if any, of that interest;
5. the tax basis of the common stock purchased in the conversion will be
the amount paid and the holding period for the stock will begin on the
date of purchase; and
6. no gain or loss will be recognized to account holders upon the receipt
or exercise of subscription rights in the conversion, except if
subscription rights are deemed to have value as discussed below.
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Unlike a private letter ruling issued by the Internal Revenue Service, an
opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached in the
opinion. If there is a disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the Internal Revenue Service.
Based upon past rulings issued by the Internal Revenue Service, the opinion
provides that the receipt of subscription rights by eligible account holders,
supplemental eligible account holders and other individuals under the plan of
conversion will be taxable if the subscription rights are deemed to have a fair
market value. FinPro, whose findings are not binding on the Internal Revenue
Service, has issued a letter indicating that the subscription rights do not have
any value, based on the fact that the rights are acquired by the recipients
without cost, are nontransferable and of short duration and afford the
recipients the right only to purchase shares of the common stock at a price
equal to its estimated fair market value, which will be the same price paid by
purchasers in the direct community offering for unsubscribed shares of common
stock. If the subscription rights are deemed to have a fair market value, the
receipt of the rights may only be taxable to those persons who exercise their
subscription rights. American Savings could also recognize a gain on the
distribution of subscription rights. Holders of subscription rights are
encouraged to consult with their own tax advisors as to the tax consequences if
the subscription rights are deemed to have a fair market value.
American Savings has also received an opinion from KPMG LLP, Hartford,
Connecticut, that, assuming the conversion does not result in any federal income
tax liability to American Savings, its account holders, or American Financial,
implementation of the plan of conversion will not result in any Connecticut
income tax liability to those entities or persons.
The opinions of Muldoon, Murphy & Faucette LLP and KPMG LLP, and the letter
from FinPro are filed as exhibits to the registration statement that American
Financial has filed with the Securities and Exchange Commission. See "Where You
Can Find More Information."
Prospective investors are urged to consult with their own tax advisors
regarding the tax consequences of the conversion particular to them.
Liquidation Account. In the unlikely event of a complete liquidation of
American Savings, before the conversion, each depositor in American Savings
would receive a pro rata share of any assets of American Savings remaining after
payment of claims of all creditors, including the claims of all depositors up to
the withdrawal value of their accounts. Each depositor's pro rata share of the
remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in American Savings
at the time of liquidation.
After the conversion, holders of withdrawable deposit(s) in American
Savings, including certificates of deposit, shall not be entitled to share in
any residual assets upon liquidation of American Savings. However, under the
Connecticut Conversion regulations, American Savings shall, at the time of the
conversion, establish a liquidation account in an amount equal to the amount of
its equity capital, less any subordinated debt approved as bona fide capital of
American Savings, as of the latest practicable date prior to the
conversion.
The liquidation account shall be maintained by American Savings for a
period of ten years after the conversion for the benefit of eligible account
holders and supplemental eligible account holders who retain their deposit
accounts in American Savings. Each eligible account holder and supplemental
eligible account holder shall, with respect to each deposit account held, have a
related inchoate interest in a sub-account portion of the liquidation account
balance.
The initial subaccount balance for a deposit account held by an eligible
account holder or a supplemental eligible account holder shall be determined by
multiplying the opening balance in the liquidation account by a
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fraction of which the numerator is the amount of the holder's "qualifying
deposit" in the deposit account and the denominator is the total amount of the
"qualifying deposits" of all eligible or supplemental eligible account holders.
The initial subaccount balance shall not be increased, and it shall be decreased
as provided below.
If the deposit balance in any deposit account of an eligible account holder
or supplemental eligible account holder at the close of business on any annual
closing day of American Savings after December 31, 1997, or ________, 1999 is
less than the lesser of the deposit balance in such deposit account at the close
of business on any other annual closing date after December 31, 1997 or
________, 1999, or the amount of the "qualifying deposit" in such deposit
account on December 31, 1997 or ________, 1999, then the subaccount balance for
such deposit account shall be adjusted by reducing the subaccount balance in an
amount proportionate to the reduction in the deposit balance. Once reduced, the
subaccount balance shall not be subsequently increased, notwithstanding any
increase in the deposit balance of the related deposit account. If any deposit
account is closed, the related subaccount balance shall be reduced to zero.
Only upon a complete liquidation of American Savings, each eligible account
holder and supplemental eligible account holder shall be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted subaccount balance(s) for deposit account(s) held by the holder
before any liquidation distribution may be made to stockholders. No merger,
consolidation, bulk purchase of assets with assumptions of deposit account and
other liabilities or similar transactions with another federally insured
institution in which American Savings is not the surviving institution shall be
considered to be a complete liquidation. In any of these transactions, the
liquidation account shall be assumed by the surviving institution.
In the unlikely event American Savings is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to American Financial as the sole stockholder of American
Savings.
The liquidation account will be a memorandum account on the books of
American Savings and will not be reflected in the audited or unaudited
consolidated financial statements of American Financial or in American Savings'
regulatory reports.
The Subscription, Direct Community and Syndicated Community Offerings
Subscription Offering. Under the plan of conversion, nontransferable
subscription rights to purchase the common stock have been issued to persons and
entities entitled to purchase the common stock in the subscription offering. The
amount of the common stock which these parties may purchase will depend on the
availability of the common stock for purchase under the categories described in
the plan of conversion. Subscription priorities have been established for the
allocation of stock that may be available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with a savings
account of $50 or more on deposit at American Savings as of December 31, 1997
will receive nontransferable subscription rights to subscribe for up to a
maximum of $500,000 worth of common stock, so long as the share equivalent of
such dollar amount does not exceed one-half of one percent (0.50%) of the total
number of shares offered in the conversion. If the exercise of subscription
rights in this category results in an oversubscription, shares of common stock
will be allocated among subscribing eligible account holders so as to permit
each one, if possible, to purchase a number of shares sufficient to make the
person's total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. After that, unallocated shares will be
allocated proportionately, based on the amount of the eligible account holder's
qualifying deposits compared to total qualifying deposits of all subscribing
eligible account holders whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more eligible
account holders, the excess shall be reallocated, one or more times as
necessary, among those eligible account holders whose subscriptions are still
not fully satisfied on the same principle until all shares have been allocated
or all subscriptions satisfied. Subscription rights received by officers,
directors, corporators and their
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associates in this category based on any increased deposits in American Savings
in the one year period preceding December 31, 1997 are subordinated to the
subscription rights of other eligible account holders.
Category 2: Employee Stock Ownership Plan. The plan of conversion provides
that the employee stock ownership plan shall receive nontransferable
subscription rights to purchase up to 5% of the shares of common stock sold in
the conversion. If the plan's subscription is not filled in its entirety, the
employee stock ownership plan may purchase shares in the open market or may
purchase shares directly from American Financial. Additionally, the employee
stock ownership plan currently intends to purchase shares of common stock in the
open market after the effective date of the conversion to enable it to acquire,
together with the shares acquired in the subscription offering, up to 8% of the
outstanding shares of American Financial common stock or 2,309,688 shares and
3,124,872 shares at the minimum and maximum of the estimated valuation range.
Category 3: Supplemental Eligible Account Holders. To the extent there are
sufficient shares of common stock remaining after the satisfaction of
subscriptions by eligible account holders and the employee stock ownership plan,
each depositor with a deposit account of $50 or more on deposit as of ________,
1999 will receive nontransferable subscription rights to subscribe for up to the
maximum of $500,000 worth of common stock, so long as the share equivalent of
such dollar amount does not exceed one-half of one percent (0.50%) of the total
number of shares offered in the conversion. If the exercise of subscription
rights in this category results in an oversubscription, shares of common stock
will be allocated among subscribing supplemental eligible account holders so as
to permit each supplemental eligible account holder, if possible, to purchase a
number of shares sufficient to make his or her total allocation equal 100 shares
or the number of shares actually subscribed for, whichever is less. After that,
unallocated shares will be allocated among subscribing supplemental eligible
account holders proportionately, based on the amount of their respective
qualifying deposits compared to total qualifying deposits of all subscribing
supplemental eligible account holders whose subscriptions remain unsatisfied.
If the amount so allocated exceeds the amount subscribed for by any one or more
supplemental eligible account holders, the excess shall be reallocated, one or
more times as necessary, among those supplemental eligible account holders whose
subscriptions are still not fully satisfied on the same principle until all
shares have been allocated or all subscriptions satisfied.
Category 4: Directors, Officers and Employees. To the extent there are
sufficient shares of common stock remaining after the satisfaction of
subscriptions by eligible account holders, the employee stock ownership plan and
supplemental eligible account holders, directors, officers and employees of
American Savings who are not eligible account holders or supplemental eligible
account holders shall receive nontransferable subscription rights to subscribe
for up to $500,000 of common stock, so long as the share equivalent of such
dollar amount does not exceed one-half of one percent (0.50%) of the total
number of shares offered in the conversion.
Category 5: Corporators. To the extent there are sufficient shares of
common stock remaining after the satisfaction of subscriptions by eligible
account holders, the employee stock ownership plan, supplemental eligible
account holders and directors, officers and employees, corporators, who are not
eligible account holders or supplemental eligible account holders, shall receive
nontransferable subscription rights to subscribe for up to $500,000 of common
stock, so long as the share equivalent of such dollar amount does not exceed
one-half of one percent (0.50%) of the total number of shares offered in the
conversion.
Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for common stock in the subscription
offering or subscribing for common stock on behalf of another person may forfeit
those rights and may face possible further sanctions and penalties imposed by
the State of Connecticut Department of Banking, the Federal Deposit Insurance
Corporation or another agency of the U.S. Government. Each person exercising
subscription rights will be required to certify that he or she is purchasing
shares solely for his or her own account and that he or she has no agreement or
understanding with any other person for the sale or transfer of the shares. Once
tendered, subscription orders cannot be revoked without the consent of American
Savings and American Financial.
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American Financial and American Savings will make reasonable attempts to
provide a prospectus and related offering materials to holders of subscription
rights. However, the subscription offering and all subscription rights under the
plan of conversion will expire at 12:00 Noon, Eastern time, on ___________,
1999, whether or not American Savings has been able to locate each person
entitled to subscription rights. Orders for common stock in the subscription
offering received in hand by American Savings after that time will not be
accepted. The subscription offering may be extended by American Financial and
American Savings up to ______, 1999 without regulatory approval. The Connecticut
conversion regulations require that American Financial complete the sale of
common stock within 45 days after the close of the subscription offering. If the
direct community offering and the syndicated community offerings are not
completed within that period all funds received will be promptly returned with
interest at American Savings' passbook rate and all withdrawal authorizations
will be canceled. If regulatory approval of an extension of the time period has
been granted, all subscribers will be notified of the extension and of the
duration of any extension that has been granted, and will be given the right to
increase, decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by American Financial from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest, or withdrawal authorizations will be canceled. No single
extension can exceed 90 days.
Direct Community Offering. Any shares of common stock which remain
unsubscribed for in the subscription offering will be offered by American
Financial to certain members of the general public in a direct community
offering, with preference given to natural persons residing in Hartford,
Middlesex, Tolland and Windham Counties, Connecticut. Purchasers in the direct
community offering are eligible to purchase up to $500,000 of common stock,
which equals 50,000 shares. This amount may be increased up to 5% of the total
offering of shares without further approval of the American Savings' corporators
or a resolicitation of subscribers unless required by the Connecticut Banking
Commissioner or the Federal Deposit Insurance Corporation. If the purchase
limit is increased to 5% of the total offering of shares, orders accepted in the
direct community offering shall be filled up to a maximum of 2% of the total
offering and thereafter shall be allocated on a pro rata basis per order until
all orders have been filled or all of the remaining shares have been allocated.
The direct community offering, if held, may be concurrent with, during or
promptly after the subscription offering. The direct community offering may
terminate on or at any time after 12:00 Noon, Eastern time, on _______, 1999,
but no later than 45 days after the close of the subscription offering, unless
extended by American Financial and American Savings, with the approval of the
Connecticut Banking Commissioner and the Federal Deposit Insurance Corporation.
If regulatory approval of an extension of the time period has been granted, all
subscribers will be notified of the extension and of the duration of any
extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by American Financial from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest. American Financial and American Savings have the
absolute right to accept or reject in whole or in part any orders to purchase
shares in the direct community offering. If an order is rejected in part, the
purchaser does not have the right to cancel the remainder of the order. American
Financial presently intends to terminate the direct community offering as soon
as it has received orders for all shares available for purchase in the
conversion.
If all of the common stock offered in the subscription offering is
subscribed for, no common stock will be available for purchase in the direct
community offering.
Syndicated Community Offering. The plan of conversion provides that, if
necessary, all shares of common stock not purchased in the subscription offering
and direct community offering, if any, may be offered for sale to certain
members of the general public in a syndicated community offering through a
syndicate of registered broker-dealers to be formed and managed by Sandler
O'Neill acting as agent of American Financial. American Financial and American
Savings have the right to reject orders, in whole or part, in their sole
discretion in the syndicated community offering. Neither Sandler O'Neill nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of the common stock in the syndicated community offering; however,
Sandler O'Neill has agreed to use its best efforts in the sale of shares in the
syndicated community offering.
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Stock sold in the syndicated community offering also will be sold at the
$10.00 purchase price. See "--Stock Pricing and Number of Shares to Be Issued."
No person will be permitted to subscribe in the syndicated community offering
for shares of common stock with an aggregate purchase price of more than
$500,000 of common stock, which equals 50,000 shares. See "--Plan of
Distribution for the Subscription, Direct Community and Syndicated Community
Offerings" for a description of the commission to be paid to the selected
dealers and to Sandler O'Neill.
Sandler O'Neill may enter into agreements with selected dealers to assist
in the sale of shares in the syndicated community offering. During the
syndicated community offering, selected dealers may only solicit indications of
interest from their customers to place orders with American Financial as of a
certain date for the purchase of shares. When and if Sandler O'Neill and
American Financial believe that enough indications of interest and orders have
been received in the subscription offering, the direct community offering and
the syndicated community offering to consummate the conversion, Sandler O'Neill
will request, as of that certain date, selected dealers to submit orders to
purchase shares for which they have received indications of interest from their
customers. Selected dealers will send confirmations to customers on the next
business day after that certain date. Selected dealers may settle the trade by
debiting the accounts of their customers on a date which will be three business
days from that certain date. Customers who authorize selected dealers to debit
their brokerage accounts are required to have the funds for payment in their
account on but not before the settlement date. On the settlement date, selected
dealers will remit funds to the account that American Financial established for
each selected dealer. Each customer's funds so forwarded to American Financial,
along with all other accounts held in the same title, will be insured by the
Federal Deposit Insurance Corporation up to the applicable $100,000 legal limit.
After payment has been received by American Financial from selected dealers,
funds will earn interest at American Savings' passbook rate until the completion
of the offering. At the completion of the conversion, the funds received will be
used to purchase the shares of common stock ordered. The shares issued in the
conversion cannot and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency. If the conversion is not completed,
funds with interest will be returned promptly to the selected dealers, who, in
turn, will promptly credit their customers' brokerage accounts.
The syndicated community offering may terminate no more than 45 days after
the expiration of the subscription offering, unless extended by American
Financial and American Savings, with approval of the Connecticut Banking
Commissioner and the Federal Deposit Insurance Corporation.
If American Savings is unable to find purchasers from the general public
for all unsubscribed shares, other purchase arrangements will be made by the
Board of Directors of American Savings, if feasible. Any other arrangements
must be approved by the Connecticut Banking Commissioner and the Federal Deposit
Insurance Corporation. The Connecticut Banking Commissioner may grant one or
more extensions of the offering period, provided that no single extension
exceeds 90 days, subscribers are given the right to increase, decrease or
rescind their subscriptions during the extension period, and the extensions do
not go more than two years beyond the date on which the Board of Directors
approved the plan of conversion. If the conversion is not completed within 45
days after the close of the subscription offering, either all funds received
will be returned with interest, and withdrawal authorizations canceled, or, if
the Connecticut Banking Commissioner has granted an extension of time, all
subscribers will be given the right to increase, decrease or rescind their
subscriptions before the end of the extension period. If an extension of time
is obtained, all subscribers will be notified of the extension and of their
rights to modify their orders. If an affirmative response to any resolicitation
is not received by American Financial from a subscriber, the subscriber's order
will be rescinded and all funds received will be promptly returned with interest
or withdrawal authorizations will be canceled.
Persons in Non-Qualified States. American Financial and American Savings
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to subscribe for stock under the
plan of conversion reside. However, American Financial and American Savings are
not required to offer stock in the subscription offering to any person who
resides in a foreign country or who resides in a state of the United States to
which both of the following apply: (a) less than 100 persons eligible to
subscribe for shares reside;
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and (b) the granting of subscription rights or the offer or sale of shares to
these persons would require American Financial or its employees under the
securities laws of the state to register as a broker, dealer or agent, or to
register or otherwise qualify the shares for sale in the state. Neither American
Financial nor American Savings will make any payments to persons residing in
these states in lieu of granting subscription rights to them.
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
American Savings and American Financial have retained Sandler O'Neill to
consult with and advise American Savings and to assist American Savings and
American Financial, on a best efforts basis, in the distribution of shares in
the offering. Sandler O'Neill is a broker-dealer registered with the Securities
and Exchange Commission and a member of the National Association of Securities
Dealers, Inc. Sandler O'Neill will assist American Savings in the conversion by
acting as marketing advisor with respect to the subscription offering and will
represent American Savings as placement agent on a best efforts basis in the
sale of the common stock in the direct community offering if one is held;
conducting training sessions with directors, officers and employees of American
Savings regarding the conversion process; and assisting in the establishment and
supervision of American Savings' conversion center and, with management's input,
will train American Savings' staff to record properly and tabulate orders for
the purchase of common stock and to respond appropriately to customer inquiries.
Based on negotiations between American Savings and American Financial
concerning the fee structure, Sandler O'Neill will receive a fee equal to 1.35%
of the aggregate dollar amount of all stock sold in the subscription and direct
community offerings. Such amount does not include any shares sold to the
employee stock ownership plan, directors, officers and employees of American
Savings or American Financial or their immediate families or any shares sold to
American Savings Charitable Foundation. Such fee will be paid upon completion
of the conversion. Sandler O'Neill shall be reimbursed for its reasonable out-
of-pocket expenses, including legal fees. In addition, Sandler O'Neill will
perform conversion agent services and records management services for American
Savings in the conversion and will receive a fee for these services of $75,000.
Sandler O'Neill has not prepared any report or opinion constituting a
recommendation or advice to American Financial or American Savings or to persons
who subscribe for stock, nor has it prepared an opinion as to the fairness to
American Financial or American Savings of the purchase price or the terms of the
stock to be sold. Sandler O'Neill expresses no opinion as to the prices at
which common stock to be issued may trade. Total marketing fees to Sandler
O'Neill are expected to be $3.3 million to $5.1 million at the minimum and 15%
above the maximum of the estimated valuation range, respectively. See "Pro
Forma Data" for the assumptions used to arrive at these estimates. Sandler
O'Neill and selected dealers participating in the syndicated community offering
may receive a commission in the syndicated community offering in a maximum
amount to be agreed upon by American Financial and American Savings to reflect
market requirements at the time of the allocation of shares in the syndicated
community offering.
With certain limitations, American Financial and American Savings have also
agreed to indemnify Sandler O'Neill against liabilities and expenses, including
legal fees, incurred in connection with certain claims or litigation arising out
of or based upon untrue statements or omissions contained in the offering
material for the common stock or with regard to allocations of shares if there
is an oversubscription, or determinations of eligibility to purchase shares.
Description of Sales Activities
The common stock will be offered in the subscription offering and direct
community offering principally by the distribution of this prospectus and
through activities conducted at American Savings' conversion center at its
administrative office. The conversion center is expected to operate during
normal business hours throughout the subscription offering and direct community
offering. It is expected that at any particular time one or more Sandler
O'Neill employees will be working at the conversion center. Employees of
Sandler O'Neill will be responsible for
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mailing materials relating to the offering, responding to questions regarding
the conversion and the offering and processing stock orders.
Sales of common stock will be made by registered representatives affiliated
with Sandler O'Neill or by the selected dealers managed by Sandler O'Neill. The
management and employees of American Savings may participate in the offering in
clerical capacities, providing administrative support in effecting sales
transactions or, when permitted by state securities laws, answering questions of
a mechanical nature relating to the proper execution of the order form.
Management of American Savings may answer questions regarding the business of
American Savings when permitted by state securities laws. Other questions of
prospective purchasers, including questions as to the advisability or nature of
the investment, will be directed to registered representatives. The management
and employees of American Financial and American Savings have been instructed
not to solicit offers to purchase common stock or provide advice regarding the
purchase of common stock.
No officer, director or employee of American Savings or American Financial
will be compensated, directly or indirectly, for any activities in connection
with the offer or sale of securities issued in the conversion.
None of American Savings' personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
American Savings' personnel will assist in the above-described sales activities
under an exemption from registration as a broker or dealer provided by Rule 3a4-
1 promulgated under the Securities Exchange Act of 1934, as amended. Rule 3a4-1
generally provides that an "associated person of an issuer" of securities shall
not be deemed a broker solely by reason of participation in the sale of
securities of the issuer if the associated person meets certain conditions.
These conditions include, but are not limited to, that the associated person
participating in the sale of an issuer's securities not be compensated in
connection therewith at the time of participation, that the person not be
associated with a broker or dealer and that the person observe certain
limitations on his or her participation in the sale of securities. For purposes
of this exemption, "associated person of an issuer" is defined to include any
person who is a director, officer or employee of the issuer or a company that
controls, is controlled by or is under common control with the issuer.
Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings
To purchase shares in the subscription offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization indicated on the stock order form for withdrawal of
full payment from the subscriber's deposit account with American Savings, must
be received by American Savings by 12:00 Noon, Eastern time, on _________ __,
1999. Order forms that are not received by that time or are executed defectively
or are received without full payment or without appropriate withdrawal
instructions are not required to be accepted. In addition, American Savings and
American Financial are not obligated to accept orders submitted on photocopied
or facsimilied stock order forms and will not accept stock order forms
unaccompanied by an executed certification form. Notwithstanding the foregoing,
American Savings and American Financial shall have the right, each in their sole
discretion, to permit institutional investors to submit irrevocable orders
together with a legally binding commitment for payment and to thereafter pay for
the shares of common stock for which they subscribe in the direct community
offering at any time prior to 48 hours before the completion of the conversion.
American Financial and American Savings have the right to waive or permit the
correction of incomplete or improperly executed order forms, but do not
represent that they will do so. Under the plan of conversion, the interpretation
by American Financial and American Savings of the terms and conditions of the
plan of conversion and of the order form will be final subject to the authority
of the Connecticut Banking Commissioner and the Federal Deposit Insurance
Corporation. In order to purchase shares in the direct community offering, the
order form, accompanied by the required payment for each share subscribed for,
must be received by American Savings before the direct community offering
terminates, which may be on or at any time after the end of the subscription
offering. Once received, an executed order form may not be modified, amended or
rescinded without the consent of American Savings unless the conversion has not
been completed within 45 days after the end of the subscription offering.
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In order to ensure that persons with subscription rights are properly
identified as to their stock purchase priorities, they must list all accounts on
the order form giving all names on each account and the account number. Failure
to list an account could result in fewer shares being allocated to a subscribing
member.
Full payment for subscriptions may be made by check, bank draft or money
order, or by authorization of withdrawal from deposit accounts maintained with
American Savings. Appropriate means by which withdrawals may be authorized are
provided on the order form. No wire transfers will be accepted. Interest will be
paid on payments made by cash, check, bank draft or money order at American
Savings' passbook rate from the date payment is received until the completion or
termination of the conversion. If payment is made by authorization of
withdrawal from deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the contractual rates until
completion or termination of the conversion, unless the certificate matures
after the date of receipt of the order form but before closing, in which case
funds will earn interest at the passbook rate from the date of maturity until
the conversion is completed or terminated, but a hold will be placed on the
funds, making them unavailable to the depositor until completion or termination
of the conversion. When the conversion is completed, the funds received in the
offering will be used to purchase the shares of common stock ordered. The shares
of common stock issued in the conversion cannot and will not be insured by the
Federal Deposit Insurance Corporation or any other government agency. If the
conversion is not consummated for any reason, all funds submitted will be
promptly refunded with interest as described above.
If a subscriber authorizes American Savings to withdraw the amount of the
purchase price from his or her deposit account, American Savings will do so as
of the effective date of conversion, though the account must contain the full
amount necessary for payment at the time the subscription order is received.
American Savings will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time funds are
actually transferred under the authorization the certificate will be canceled at
the time of the withdrawal, without penalty, and the remaining balance will earn
interest at American Savings' passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for shares
of common stock subscribed for at the $10.00 purchase price upon the completion
of the subscription and direct community offerings, if all shares are sold, or
upon the completion of the syndicated community offering; provided that there is
in force from the time of its subscription until that time, a loan commitment
from an unrelated financial institution or American Financial to lend to the
employee stock ownership plan, at that time, the aggregate purchase price of the
shares for which it subscribed.
Individual retirement accounts maintained in American Savings do not permit
investment in the common stock. A depositor interested in using his or her
Individual Retirement Account funds to purchase common stock must do so through
a self-directed individual retirement account. Since American Savings does not
offer those accounts, it will allow a depositor to make a trustee-to-trustee
transfer of the individual retirement account funds to a trustee offering a
self-directed individual retirement account program with the agreement that the
funds will be used to purchase American Financial's common stock in the
offering. There will be no early withdrawal or Internal Revenue Service interest
penalties for transfers. The new trustee would hold the common stock in a self-
directed account in the same manner as American Savings now holds the
depositor's Individual Retirement Account funds. An annual administrative fee
may be payable to the new trustee. Depositors interested in using funds in an
individual retirement account at American Savings to purchase common stock
should contact the conversion center as soon as possible so that the necessary
forms may be forwarded for execution and returned before the subscription
offering ends. In addition, federal laws and regulations require that officers,
directors and 10% shareholders who use self-directed individual retirement
account funds to purchase shares of common stock in the subscription offering,
make purchases for the exclusive benefit of individual retirement accounts.
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Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at the address specified in properly completed
order forms or to the last address of the persons appearing on the records of
American Savings as soon as practicable following the sale of all shares of
common stock. Any certificates returned as undeliverable will be disposed of as
required by applicable law. Purchasers may not be able to sell the shares of
common stock which they purchased until certificates for the common stock are
available and delivered to them, even though trading of the common stock may
have begun.
To ensure that each purchaser receives a prospectus at least 48 hours
before the end of the offering as required by Rule 15c2-8 under the Securities
Exchange Act of 1934, as amended, no prospectus will be mailed any later than
five days before that date or hand delivered any later than two days before that
date. Execution of the order form will confirm receipt or delivery under Rule
15c2-8. Order forms will only be distributed with a prospectus. By executing
and returning the regulatory mandated certification form, you will be certifying
that you received this prospectus and acknowledging that the common stock is not
a deposit account and is not insured or guaranteed by any federal or state
governmental agency. You will also be acknowledging that you received
disclosure concerning the risks involved in this Offering. The certification
form could be used as support to show that you understand the nature of this
investment.
Stock Pricing and Number of Shares to be Issued
The plan of conversion requires that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of American Financial and American Savings as converted, as
determined by an independent appraisal. American Savings and American Financial
have retained FinPro, which is experienced in the evaluation and appraisal of
business entities, to prepare an appraisal of the pro forma market value of
American Financial and American Savings as converted, as well as a business
plan. FinPro will receive a fee expected to total approximately $50,000 for its
appraisal services and assistance in the preparation of a business plan, plus
reasonable out-of-pocket expenses incurred in connection with the appraisal.
American Savings has agreed to indemnify FinPro, its directors, officers, agents
and employees under certain circumstances against liabilities and expenses,
including legal fees, arising out of, related to, or based upon the conversion,
except where FinPro's liability results from its own negligence or willful
misconduct.
FinPro has prepared an appraisal of the estimated pro forma market value of
American Financial and American Savings as converted taking into account the
formation of American Financial as the holding company for American Savings. For
its analysis, FinPro undertook substantial investigations to learn about
American Savings' business and operations. Management supplied financial
information, including annual financial statements, information on the
composition of assets and liabilities, and other financial schedules. In
addition to this information, FinPro reviewed American Savings' conversion
application as filed with the State of Connecticut Department of Banking and
American Financial's registration statement as filed with the Securities and
Exchange Commission. Furthermore, FinPro visited American Savings' facilities
and had discussions with American Savings' management and its special conversion
legal counsel, Muldoon, Murphy & Faucette LLP. FinPro did not perform a
detailed individual analysis of the separate components of American Financial's
or American Savings' assets and liabilities.
FinPro's analysis utilized three selected valuation procedures, the
Price/Book method, the Price/Earnings method, and Price/Assets method, all of
which are described in its report. FinPro placed the greatest emphasis on the
Price/Earnings and Price/Book methods in estimating pro forma market value. In
applying these procedures, FinPro reviewed, among other factors, the economic
make-up of American Savings' primary market area, American Savings' financial
performance and condition in relation to publicly traded institutions that
FinPro deemed comparable to American Savings, the specific terms of the offering
of American Financial's common stock, the pro forma impact of the additional
capital raised in the conversion, conditions of securities markets in general,
and the market for thrift institution common stock in particular. FinPro's
analysis provides an approximation of the pro forma market value of American
Financial and American Savings as converted based on the valuation methods
applied and the assumptions outlined in its report. Included in its report were
certain assumptions as to the pro
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forma earnings of American Financial after the conversion that were utilized in
determining the appraised value. These assumptions included estimated expenses
and an assumed after-tax rate of return on the net conversion proceeds as
described under "Pro Forma Data," purchases by the employee stock ownership plan
of an amount equal to 8% of the common stock sold in the conversion and
purchases in the open market by the stock-based incentive plan of a number of
shares equal to 4% of the common stock sold in the conversion at the $10.00
purchase price. See "Pro Forma Data" for additional information concerning these
assumptions. The use of different assumptions may yield different results.
On the basis of the foregoing, FinPro has advised American Financial and
American Savings that, in its opinion, as of August 3, 1999, the estimated pro
forma market value of American Financial and American Savings, as converted and,
therefore, the common stock was within the valuation range of $267.3 million to
$361.7 million with a midpoint of $314.5 million. After reviewing the
methodology and the assumptions used by FinPro in the preparation of the
appraisal, the Board of Directors established the estimated valuation range
which is equal to the valuation range of $267.3 million to $361.7 million with
a midpoint of $314.5 million. Assuming that the shares are sold at $10.00 per
share in the conversion, the estimated number of shares would be between
26,732,500 and 36,167,500 with a midpoint of 31,450,000. The purchase price of
$10.00 was determined by discussion among the Boards of Directors of American
Savings and American Financial and Sandler O'Neill, taking into account, among
other factors, the requirement under the Connecticut conversion regulations that
the common stock be offered in a manner that will achieve the widest
distribution of the stock, and desired liquidity in the common stock after the
conversion. Since the outcome of the offering relates in large measure to market
conditions at the time of sale, it is not possible to determine the exact number
of shares that will be issued by American Financial at this time. The estimated
valuation range may be amended, with the approval of the Connecticut Banking
Commissioner and the Federal Deposit Insurance Corporation, if necessitated by
developments following the date of the appraisal in, among other things, market
conditions, the financial condition or operating results of American Savings,
regulatory guidelines or national or local economic conditions. FinPro's
appraisal report is filed as an exhibit to the registration statement that
American Financial has filed with the Securities and Exchange Commission. See
"Where You Can Find More Information."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, FinPro, after taking into account factors
similar to those involved in its prior appraisal, will determine its estimate of
the pro forma market value of American Financial and American Savings as
converted, as of the close of the subscription offering.
No shares will be sold unless FinPro confirms that, to the best of its
knowledge and judgment, nothing of a material nature has occurred that would
cause it to conclude that the actual total purchase price on an aggregate basis
was materially incompatible with its estimate of the total pro forma market
value of American Financial and American Savings as converted at the time of the
sale. If, however, the facts do not justify that statement, the offering may be
canceled, a new estimated valuation range and price per share set and new
subscription, direct community and syndicated community offerings held. Under
those circumstances, subscribers would have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest and holds on funds authorized for withdrawal from deposit accounts
would be released or reduced.
Depending upon market or financial conditions following the commencement of
the subscription and direct community offerings, the total number of shares to
be sold in the conversion may be increased or decreased without a resolicitation
of subscribers, provided that the product of the total number of shares times
the price per share is not below the minimum of the estimated valuation range or
more than 15% above the maximum of the estimated valuation range. Based on a
purchase price of $10.00 per share and the FinPro estimate of the pro forma
market value of the common stock ranging from a minimum of $267.3 million to a
maximum, as increased by 15%, of $415.9 million, the number of shares of common
stock expected to be sold is between a minimum of 26,732,500 shares and a
maximum, as adjusted by 15%, of 41,592,625 shares. The actual number of shares
issued between this range will depend on a number of factors and shall be
determined by American Savings and American Financial. The Federal Deposit
Insurance Corporation must also approve the actual number of shares issued.
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If market or financial conditions change so as to cause the aggregate
purchase price of the shares to be below the minimum of the estimated valuation
range or more than 15% above the maximum of the estimated valuation range, if
the plan of conversion is not terminated by American Financial and American
Savings after consultation with the Connecticut Banking Commissioner and Federal
Deposit Insurance Corporation, purchasers will be resolicited, in which case
they will need to reconfirm, rescind, or modify their subscriptions. Any change
of more than 15% above the estimated valuation range must be approved by the
Connecticut Banking Commissioner and Federal Deposit Insurance Corporation. If
the number of shares issued in the conversion is increased due to an increase of
up to 15% in the estimated valuation range to reflect changes in market or
financial conditions, persons who subscribed for the maximum number of shares
will not be given the opportunity to subscribe for an adjusted maximum number of
shares. See "--Limitations on Purchases of Shares."
An increase in the number of shares to be issued in the conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and American Financial's pro forma net
earnings and stockholders' equity on a per share basis while increasing pro
forma net earnings and stockholders' equity on an aggregate basis. A decrease
in the number of shares to be issued in the conversion would increase both a
subscriber's ownership interest and American Financial's pro forma net earnings
and stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
The number of shares to be issued and outstanding as a result of the sale
of common stock in the conversion will be increased by a number of shares equal
to 8% of the common stock sold in the conversion to fund American Savings
Charitable Foundation. Assuming the sale of shares at the maximum of the
estimated valuation range, American Financial will issue 2,893,400 shares of its
common stock from authorized but unissued shares to American Savings Charitable
Foundation immediately following the completion of the conversion. In that
event, American Financial will have total shares of common stock outstanding of
39,060,900 shares. Of that amount, American Savings Charitable Foundation will
own 7.4%. Funding American Savings Charitable Foundation with authorized but
unissued shares will have the effect of diluting the ownership and voting
interests of persons purchasing shares in the conversion by 7.4% since a greater
number of shares will be outstanding upon completion of the conversion than
would be if American Savings Charitable Foundation were not established. See
"Pro Forma Data."
In formulating its appraisal, FinPro relied upon the truthfulness, accuracy
and completeness of all documents American Savings furnished to it. FinPro also
considered financial and other information from regulatory agencies, other
financial institutions, and other public sources, as appropriate. While FinPro
believes this information to be reliable, FinPro does not guarantee the accuracy
or completeness of the information and did not independently verify the
financial statements and other data provided by American Savings and American
Financial or independently value the assets or liabilities of American Financial
and American Savings. The appraisal is not intended to be, and must not be
interpreted as, a recommendation of any kind as to the advisability of
purchasing shares of common stock. Moreover, because the appraisal must be based
on many factors which change periodically, there is no assurance that purchasers
of shares in the conversion will be able to sell shares after the conversion at
prices at or above the purchase price.
Copies of the appraisal report of FinPro including any amendments thereto,
and the detailed memorandum of the appraiser setting forth the method and
assumptions for such appraisal are available for inspection at the main office
of American Savings and the other locations specified under "Where You Can Find
More Information."
Limitations on Purchases of Shares
The plan of conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares. The plan
of conversion provides for the following purchase limitations:
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1. The maximum purchase in the subscription offering by any person or
group of persons through a single deposit account or similarly titled
deposit accounts is $500,000, which equals 50,000 shares, so long as
the share equivalent of such dollar amount does not exceed one-half of
one percent (0.50%) of the total number of shares offered in the
conversion;
2. No person, related persons or persons acting together may purchase
more than $500,000, which equals 50,000 shares, in the direct
community offering;
3. The employee stock ownership plan may purchase, in the aggregate, up
to 5% of the shares of common stock sold in the conversion;
4. Directors and officers of American Savings and American Financial and
their associates, in the aggregate, may not purchase more than 30% of
the total offering of shares in the aggregate;
5. Persons purchasing shares of common stock in the syndicated community
offering, together with associates of and persons acting in concert
with such persons, may purchase up to $500,000 of common stock subject
to the overall maximum purchase limitation described below; and
6. The maximum number of shares of common stock which may be subscribed
for or purchased in all categories of the conversion by any person,
together with associates of and groups of persons acting in concert
with such persons, except for the employee stock ownership plan, shall
not exceed 1.0% of the shares of common stock sold in the conversion.
For purposes of the plan of conversion, directors and officers are not deemed to
be acting in concert solely by reason of their being directors or officers of
American Savings or American Financial. Pro rata reductions within each
subscription rights category will be made in accordance with the procedures
outlined in the plan of conversion.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the corporators
or subscribers for common stock, unless required by the Connecticut Banking
Commissioner or the Federal Deposit Insurance Corporation, both the individual
amount permitted to be subscribed for and the overall maximum purchase
limitation may be increased to up to a maximum of 5% of the common stock to be
issued at the sole discretion of American Financial and American Savings. If
such amount is increased, subscribers for the maximum amount will be, and
certain other large subscribers in the sole discretion of American Savings may
be, given the opportunity to increase their subscriptions up to the then
applicable limit. American Savings and American Financial do not intend to
increase the maximum purchase limitation unless market conditions warrant that
an increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the estimated valuation range.
The plan of conversion defines "acting in concert" to include a combination
or pooling of voting or other interests in the securities of an issuer for a
common purpose under any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. In general, a person who acts
in concert with another party shall also be deemed to be acting in concert with
any person who is also acting in concert with that other party. American
Financial and American Savings may presume that certain persons are acting in
concert based upon, among other things, joint account relationships and the fact
that persons may have filed joint Schedules 13D with the Securities and Exchange
Commission with respect to other companies.
The plan of conversion defines "associate," when used to indicate a
relationship with any person, to mean any corporation or organization other than
American Financial, American Savings or a
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majority-owned subsidiary of American Savings of which a person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; any trust or other estate in which a person has
a substantial beneficial interest or as to which a person serves as trustee or
in a similar fiduciary capacity; and any relative or spouse of a person, or any
relative of a spouse, who either has the same home as a person or who is a
director or officer of American Savings or any of its parents or subsidiaries.
The term "associate," however, does not include, for purposes of the stock
purchase limitations in the conversion, any stock benefit plan of American
Savings in which such person has a substantial beneficial interest or serves as
a trustee or in a similar fiduciary capacity, and, for purposes of the total
shares that may be held by officers and directors of American Financial and
American Savings, does not include any tax-qualified employee stock benefit plan
of American Savings. For example, a corporation of which a person serves as an
officer would be an associate of a person and, therefore, all shares purchased
by a corporation would be included with the number of shares which a person
could purchase individually under the above limitations.
The plan of conversion defines "officer" to mean the Chairman of the Board,
President, Vice President, Secretary, Treasurer or principal financial officer,
Comptroller or principal accounting officer, and any other person performing
similar functions of American Savings or American Financial.
Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors and officers of American Savings and
American Financial and by NASD members. See "--Restrictions on Transferability
by Directors and Officers and NASD Members."
Restrictions on Repurchase of Stock
Under the Connecticut conversion regulations, savings banks and their
holding companies may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except for: (1) a repurchase, on a pro rata basis pursuant to an
offer approved by the Connecticut Banking Commissioner, made to all
stockholders, or (2) a repurchase in the open market by a tax-qualified or non-
tax-qualified stock benefit plan in an amount reasonable and appropriate to fund
such plans. Furthermore, repurchases of any common stock are prohibited if they
would cause American Savings' regulatory capital to be reduced below the amount
required for the liquidation account or if the repurchases would cause American
Savings to become "undercapitalized" within the meaning of the Federal Deposit
Insurance Corporation prompt corrective action regulation. Repurchases are
generally prohibited during the first year following conversion. However, if
approval is obtained to repurchase common stock during the first year after
conversion, then such repurchase may not be greater than 5% of the capital stock
issued. At this time, American Financial has no intention to repurchase stock.
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of common stock purchased by directors and officers of American
Financial and American Savings, and their associates, may not be sold for a
period of one year following the conversion, except upon the death of the
stockholder or unless approved by the Connecticut Banking Commissioner. Any
stock purchased after the conversion is free of this restriction. Accordingly,
shares of common stock issued by American Financial to directors and officers of
American Financial and American Savings, and their associates, shall bear a
legend giving appropriate notice of the restriction and, in addition, American
Financial will give appropriate instructions to the transfer agent for American
Financial's common stock with respect to the restriction on transfers. Any
shares issued to directors and officers of American Financial and American
Savings, and their associates, as a stock dividend, stock split or otherwise
with respect to restricted common stock shall also be restricted.
Purchases of outstanding shares of common stock of American Financial by
directors and officers of American Financial and American Savings, or any person
who was an executive officer or director of American
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Financial and American Savings after adoption of the plan of conversion, and
their associates during the three-year period following the conversion may be
made only through a broker or dealer registered with the Securities and Exchange
Commission or the State of Connecticut Department of Banking, except with the
prior written approval of the Connecticut Banking Commissioner. This restriction
does not apply, however, to negotiated transactions involving more than 1% of
American Financial's outstanding common stock or to the purchase of stock under
the stock-based incentive plan.
American Financial has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended, for the
registration of the common stock to be issued in the conversion. This
registration does not cover the resale of the shares. Shares of common stock
purchased by persons who are not affiliates of American Financial may be resold
without registration. Shares purchased by an affiliate of American Financial
will have resale restrictions under Rule 144 of the Securities Act, as amended.
If American Financial meets the current public information requirements of Rule
144, each affiliate of American Financial who complies with the other conditions
of Rule 144, including those that require the affiliate's sale to be aggregated
with those of certain other persons, would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of 1% of the outstanding shares of American Financial or the
average weekly volume of trading in the shares during the preceding four
calendar weeks. Provision may be made in the future by American Financial to
permit affiliates to have their shares registered for sale under the Securities
Act of 1933, as amended, under certain circumstances.
Under guidelines of the National Association of Securities Dealers, Inc.,
members of that organization and their associates face certain restrictions on
the transfer of securities purchased with subscription rights and to certain
reporting requirements upon purchase of the securities.
Interpretation, Amendment and Termination
To the extent permitted by law, all interpretations of the plan of
conversion by American Savings will be final; however, such interpretations have
no binding effect on the Connecticut Banking Commissioner or the Federal Deposit
Insurance Corporation. The plan of conversion provides that, if deemed
necessary or desirable by the Board of Directors, the plan of conversion may be
substantively amended by the Board of Directors as a result of comments from
regulatory authorities or otherwise, without the further approval of American
Savings' corporators unless required by the Connecticut Banking Commissioner or
the Federal Deposit Insurance Corporation.
Completion of the conversion requires the sale of all shares of the common
stock within 24 months following approval of the plan of conversion by American
Savings' Board of Directors. If this condition is not satisfied, the plan of
conversion will be terminated and American Savings will continue its business in
the mutual form of organization. The plan of conversion may be terminated by
the Board of Directors at any time.
RESTRICTIONS ON ACQUISITION OF AMERICAN FINANCIAL AND AMERICAN SAVINGS
General
American Savings' plan of conversion provides for the conversion of
American Savings from the mutual to the stock form of organization and, in
connection therewith, the adoption of a new stock Certificate of Incorporation
and Bylaws by American Savings' corporators. The plan of conversion also
provides for the concurrent formation of a holding company. See "The
Conversion--General." As described below and elsewhere herein, certain
provisions in American Financial's Certificate of Incorporation and Bylaws and
in its management remuneration provided for in the conversion, together with
provisions of Delaware corporate law, may have anti-takeover effects. In
addition, American Savings' Certificate of Incorporation and Bylaws and
management remuneration provided for in the conversion may also have "anti-
takeover" effects. Finally, regulatory restrictions may make it difficult for
persons or companies to acquire control of either American Financial or American
Savings.
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Restrictions in American Financial's Certificate of Incorporation and Bylaws
General. The following discussion is a general summary of the material
provisions of American Financial's Certificate of Incorporation and Bylaws and
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential anti-takeover effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual stockholders may deem to be in their
best interests. As a result, stockholders who might desire to participate in
such a transaction may not have an opportunity to do so. Such provisions will
also render the removal of the current Board of Directors or management of
American Financial more difficult. The following summary is general and
reference should be made to the Certificate of Incorporation and Bylaws. See
"Where You Can Find More Information" as to how to obtain a copy of these
documents.
Limitation on Voting Rights. The Certificate of Incorporation of American
Financial provides that in no event shall any record owner of any outstanding
common stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of common
stock be entitled or permitted to any vote in respect of the shares held in
excess of such 10% limit. Additionally, the Certificate of Incorporation
provides that in no event shall any record owner of any outstanding common stock
which is beneficially owned, directly or indirectly, by a person who
beneficially owns in excess of 5% of the then outstanding shares of common
stock, be entitled to vote in respect of the shares held in excess of such 5%
limit unless such beneficial owner owns, controls or holds such shares of common
stock in the ordinary course of business and not with the purpose nor with the
effect of changing or influencing control of American Financial. Beneficial
ownership is determined by Rule 13d-3 of the General Rules and Regulations of
the Securities Exchange Act of 1934, as amended, and includes shares
beneficially owned by that person or any of his affiliates, shares which that
person or his affiliates have the right to acquire under any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options or otherwise and shares as to which that person and
his affiliates have sole or shared voting or investment power. Beneficial
ownership does not include shares under a publicly solicited revocable proxy or
shares that are not otherwise deemed to be beneficially owned by such person and
his affiliates. No director or officer (or any affiliate thereof) of American
Financial shall, solely by reason of any or all of such directors or officers
acting in their capacities as such, be deemed to beneficially own any shares
beneficially owned by any other director or officer (or affiliate thereof) nor
will the employee stock ownership plan or any similar plan of American Financial
or American Savings or any director with respect thereto (solely by reason of
such director's capacity) be deemed to beneficially own any shares held under
any such plan. The Certificate of Incorporation of American Financial further
provides that the provisions limiting voting rights may only be amended upon the
vote of the holders of at least 80% of the voting power of all then outstanding
shares of capital stock entitled to vote thereon (after giving effect to the
provision limiting voting rights).
Board of Directors. The Board of Directors of American Financial is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. Each class shall serve a
staggered term, with approximately one-third of the total number of Directors
being elected each year. American Financial's Certificate of Incorporation and
Bylaws provide that the size of the Board shall be determined by a majority of
the whole Board of Directors. The Certificate of Incorporation and the Bylaws
provide that any vacancy occurring in the Board, including a vacancy created by
an increase in the number of Directors or resulting from death, resignation,
retirement, disqualification, removal from office or other cause, shall be
filled for the remainder of the unexpired term exclusively by a majority vote of
the Directors then in office. The classified Board is intended to provide for
continuity of the Board of Directors and to make it more difficult and time
consuming for a stockholder group to fully use its voting power to gain control
of the Board of Directors without the consent of the incumbent Board of
Directors of American Financial. Directors may be removed by the shareholders
only for cause by the affirmative vote of the holders of at least 80% of the
voting power of all then outstanding shares of capital stock entitled to vote
thereon.
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In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of American Financial may
be called only by a resolution adopted by a majority of the whole Board of
Directors of American Financial. The Certificate of Incorporation also provides
that any action required or permitted to be taken by the stockholders of
American Financial may be taken only at an annual or special meeting and
prohibits stockholder action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 120,000,000 million shares of common stock and 10,000,000 shares of
preferred stock. The shares of common stock and preferred stock were authorized
in an amount greater than that to be issued in the conversion to provide
American Financial's Board of Directors with as much flexibility as possible to
effect, among other transactions, financings, acquisitions, stock dividends,
stock splits and employee stock options. However, these additional authorized
shares may also be used by the Board of Directors consistent with its fiduciary
duty to deter future attempts to gain control of American Financial. The Board
of Directors also has sole authority to determine the terms of any one or more
series of preferred stock, including voting rights, conversion rates, and
liquidation preferences. As a result of the ability to fix voting rights for a
series of preferred stock, the Board has the power to the extent consistent with
its fiduciary duty to issue a series of preferred stock to persons friendly to
management to attempt to block a post-tender offer merger or other transaction
by which a third party seeks control, and thereby assist management to retain
its position. American Financial's Board currently has no plans for the
issuance of additional shares, other than the issuance of shares in the
conversion, including shares contributed to American Savings Charitable
Foundation, and the issuance of additional shares upon exercise of stock
options.
Stockholder Vote Required to Approve Business Combinations with Interested
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of American Financial's outstanding shares of voting
stock entitled to vote to approve certain "Business Combinations" with an
"Interested Stockholder," and related transactions. Under Delaware law, absent
this provision, business combinations, including mergers, consolidations and
sales of all or substantially all of the assets of a corporation must be
approved by the vote of the holders of only a majority of the outstanding shares
of common stock of American Financial and any other affected class of stock.
Under the Certificate of Incorporation, the approval of the holders of at least
80% of the shares of capital stock entitled to vote is required for any business
combination involving an Interested Stockholder (as defined below) except (1) in
cases where the proposed transaction has been approved by a majority of those
members of American Financial's Board of Directors who are unaffiliated with the
Interested Stockholder and were directors before the time when the Interested
Stockholder became an Interested Stockholder or (2) if the proposed transaction
meets certain conditions which are designed to afford the stockholders a fair
price in consideration for their shares. In each such case, where stockholder
approval is required, the approval of only a majority of the outstanding shares
of voting stock is sufficient. The term "Interested Stockholder" is defined to
include, among others, any individual, a group acting in concert, corporation,
partnership, association or other entity (other than American Financial or its
subsidiary) who or which is the beneficial owner, directly or indirectly, of 10%
or more of the outstanding shares of voting stock of American Financial.
This provision of the Certificate of Incorporation applies to any "Business
Combination," which is defined to include:
1. any merger or consolidation of American Financial or any of its
subsidiaries with any Interested Stockholder or affiliate of an
Interested Stockholder or any corporation which is, or after such
merger or consolidation would be, an Affiliate of an Interested
Stockholder;
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2. any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition to or with any Interested Stockholder or Affiliate of 25%
or more of the assets of American Financial or combined assets of
American Financial and its subsidiary;
3. the issuance or transfer to any Interested Stockholder or its
affiliate by American Financial (or any subsidiary) of any securities
of American Financial (or any subsidiary) in exchange for any cash,
securities or other property the value of which equals or exceeds 25%
of the fair market value of the common stock of American Financial;
4. the adoption of any plan for the liquidation or dissolution of
American Financial proposed by or on behalf of any Interested
Stockholder or affiliate thereof; and
5. any reclassification of securities, recapitalization, merger or
consolidation of American Financial with any of its subsidiaries which
has the effect of increasing the proportionate share of common stock
or any class of equity or convertible securities of American Financial
or subsidiary owned directly or indirectly, by an Interested
Stockholder or affiliate thereof.
The directors and executive officers of American Savings are purchasing
approximately 0.85% of the shares of the common stock to be sold in the
conversion based on the maximum of the estimated valuation range. In addition,
the employee stock ownership plan intends to purchase 8% of the common stock
issued in connection with the conversion, including shares issued to American
Savings Charitable Foundation. Additionally, if stockholders approve the
proposed stock-based incentive plan, American Financial expects to acquire 4% of
the common stock issued in connection with the conversion, including shares
issued to American Savings Charitable Foundation, and expects to issue options
to purchase up to 10% of the common stock issued in connection with the
conversion, including shares issued to American Savings Charitable Foundation,
to directors and executive officers. As a result, directors, executive officers
and employees may control the voting of approximately 21.4% of American
Financial's common stock on a diluted basis at the maximum of the estimated
valuation range, thereby enabling them to prevent the approval of the
transactions requiring the approval of at least 80% of American Financial's
outstanding shares of voting stock described herein above. Furthermore, the
ability of directors, executive officers and employees to prevent the approval
of transactions requiring the approval of at least 80% of the outstanding shares
of voting stock of American Financial will be enhanced by the regulatory
condition imposed on American Savings Charitable Foundation that any shares held
by it must be voted in the same ratio as all other shares of American Financial
common stock voted on each and every proposal considered by stockholders.
Evaluation of Offers. The Certificate of Incorporation of American
Financial further provides that the Board of Directors of American Financial,
when evaluating an offer, to (1) make a tender or exchange offer for any equity
security of American Financial, (2) merge or consolidate American Financial with
another corporation or entity or (3) purchase or otherwise acquire all or
substantially all of the properties and assets of American Financial, may, in
connection with the exercise of its judgment in determining what is in the best
interest of American Financial and the stockholders of American Financial, give
consideration to those factors that directors of any subsidiary (including
American Savings) may consider in evaluating any action that may result in a
change or potential change of control of such subsidiary, and the social and
economic effects of acceptance of such offer on: American Financial's present
and future customers and employees and those of its subsidiaries (including
American Savings); the communities in which American Financial and American
Savings operate or are located; the ability of American Financial to fulfill its
corporate objectives as a savings and loan holding company; and the ability of
American Savings to fulfill the objectives of a stock savings bank under
applicable statutes and regulations. By having these standards in the
Certificate of Incorporation of American Financial, the Board of Directors may
be in a stronger position to oppose such a transaction if the Board concludes
that the transaction would not be in the best interest of American Financial,
even if the price offered is significantly greater than the then market price of
any equity security of American Financial.
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Amendment of Certificate of Incorporation and Bylaws. Amendments to
American Financial's Certificate of Incorporation must be approved by a majority
of its Board of Directors and also by a majority of the outstanding shares of
its voting stock, provided, however, that an affirmative vote of the holders of
at least 80% of the outstanding voting stock entitled to vote (after giving
effect to the provision limiting voting rights) is required to amend or repeal
specific provisions of the Certificate of Incorporation, including the provision
limiting voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by American Financial and
amendment of American Financial's Bylaws and Certificate of Incorporation.
American Financial's Bylaws may be amended by a majority of the whole Board
of Directors, or by a vote of the holders of at least 80% (after giving effect
to the provision limiting voting rights) of the total votes eligible to be voted
at a duly constituted meeting of stockholders.
Bylaw Provisions. The Bylaws of American Financial also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting to give at
least 90 days' advance notice to the Secretary of American Financial. The
notice provision requires a stockholder who desires to raise new business to
provide information to American Financial concerning the nature of the new
business, the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
director must provide American Financial with information concerning the nominee
and the proposing stockholder.
Anti-Takeover Effects of American Financial's Certificate of Incorporation and
Bylaws and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce American Financial's
vulnerability to takeover attempts and other transactions which have not been
negotiated with and approved by members of its Board of Directors. Provisions
of the stock-based incentive plan provide for accelerated benefits to
participants if a change in control of American Financial or American Savings
occurs or a tender or exchange offer for their stock is made. See "Management
of American Savings--Benefits--Stock-Based Incentive Plan." American Financial
and American Savings have also entered into agreements with key officers and
intends to establish the Severance Compensation Plan which will provide such
officers and eligible employees with additional payments and benefits on the
officer's termination in connection with a change in control of American
Financial or American Savings. See "Management of American Savings--Executive
Compensation--Employment Agreements," and "Benefits--Employee Severance
Compensation Plan." The foregoing provisions and limitations may make it more
difficult for companies or persons to acquire control of American Financial.
Additionally, the provisions could deter offers to acquire the outstanding
shares of American Financial which might be viewed by stockholders to be in
their best interests.
American Financial's Board of Directors believes that the provisions of the
Certificate of Incorporation and Bylaws are in the best interest of American
Financial and its stockholders. An unsolicited non-negotiated takeover proposal
can seriously disrupt the business and management of a corporation and cause it
great expense. Accordingly, the Board of Directors believes it is in the best
interests of American Financial and its stockholders to encourage potential
acquirors to negotiate directly with management and that these provisions will
encourage such negotiations and discourage non-negotiated takeover attempts.
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The Delaware
takeover statute is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, the statute provides that a "Person" who owns 15% or more of
the outstanding voting stock of a Delaware corporation (an Interested
Stockholder) may not consummate a merger or other business combination
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transaction with such corporation at any time during the three-year period
following the date such "Person" became an Interested Stockholder. The term
"business combination" is defined broadly to cover a wide range of corporate
transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of the
statute:
1. any business combination if, before the date a person became an
Interested Stockholder, the board of directors approved either
the business combination or the transaction which resulted in the
stockholder becoming an Interested Stockholder;
2. any business combination involving a person who acquired at least
85% of the outstanding voting stock in the transaction in which
he became an Interested Stockholder, excluding, for purposes of
determining the number of shares outstanding, shares owned by the
corporation's directors who are also officers and specific
employee stock plans;
3. any business combination with an Interested Stockholder that is
approved by the board of directors and by a two-thirds vote of
the outstanding voting stock not owned by the Interested
Stockholder; and
4. certain business combinations that are proposed after the
corporation had received other acquisition proposals and which
are approved or not opposed by a majority of certain continuing
members of the board of directors.
A corporation may exempt itself from the requirements of the statute by
adopting an amendment to its certificate of incorporation or bylaws electing not
to be governed by Section 203. At the present time, the Board of Directors does
not intend to propose any such amendment.
Restrictions in American Savings' New Certificate of Incorporation and Bylaws
Although the Board of Directors of American Savings is not aware of any
effort that might be made to obtain control of American Savings after the
conversion, the Board of Directors believes that it is appropriate to adopt
provisions permitted by Connecticut law to protect the interests of the
converted bank and its stockholders from any hostile takeover. Such provisions
may, indirectly, inhibit a change in control of American Financial, as American
Savings' sole stockholder. See "Risk Factors--Anti-takeover provisions and
statutory provisions could make takeover attempts more difficult to achieve."
American Savings' stock Certificate of Incorporation will contain a
provision whereby the acquisition of beneficial ownership of more than 10% of
the issued and outstanding shares of any class of equity securities of American
Savings by any person (i.e., any individual, corporation, group acting in
concert, trust, partnership, joint stock company or similar organization),
either directly or through an affiliate thereof, will be prohibited for a period
of three years following the date of completion of the conversion without the
prior written approval of the Connecticut Banking Commissioner. If shares are
acquired in violation of this provision of American Savings' stock Certificate
of Incorporation, all shares beneficially owned by any person in excess of 10%
shall be considered "excess shares" and shall not be counted as shares entitled
to vote and shall not be voted by any person or counted as voting shares in
connection with any matters submitted to the stockholders for a vote. This
limitation shall not apply to any transaction in which American Savings forms a
holding company without a change in the respective beneficial ownership
interests of its stockholders other than by the exercise of any dissenter or
appraisal rights. If holders of revocable proxies for more than 10% of the
shares of the common stock of American Financial seek, among other things, to
elect one-third or more of American Financial's Board of Directors, to cause
American Financial's stockholders to approve the acquisition or corporate
reorganization of American Financial or to exert a
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continuing influence on a material aspect of the business operations of American
Financial, which actions could indirectly result in a change in control of
American Savings, the Board of Directors of American Savings will be able to
assert this provision of American Savings' stock Certificate of Incorporation
against such holders. Although the Board of Directors of American Savings is not
currently able to determine when and if it would assert this provision of
American Savings' stock Certificate of Incorporation, the Board, in exercising
its fiduciary duty, may assert this provision if it were deemed to be in the
best interests of American Savings, American Financial and its stockholders. It
is unclear, however, whether this provision, if asserted, would be successful
against such persons in a proxy contest which could result in a change in
control of American Savings indirectly through a change in control of American
Financial.
In addition, stockholders will not be permitted to cumulate their votes in
the election of Directors. Furthermore, American Savings' Bylaws provide for
the election of three classes of directors to staggered terms. The staggered
terms of the Board of Directors could have an anti-takeover effect by making it
more difficult for a majority of shares to force an immediate change in the
Board of Directors since only one-third of the Board is elected each year. The
purpose of these provisions is to assure stability and continuity of management
of American Savings in the years immediately following the conversion.
Finally, the stock Certificate of Incorporation provides for the issuance
of shares of preferred stock on such terms, including conversion and voting
rights, as may be determined by American Savings' Board of Directors without
stockholder approval. Although American Savings has no arrangements,
understandings or plans at the present time for the issuance or use of the
shares of undesignated preferred stock proposed to be authorized, the Board
believes that the availability of such shares will provide American Savings with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other corporate needs which may arise. If a proposed merger,
tender offer or other attempt to gain control of American Savings occurs of
which management does not approve, the Board can authorize the issuance of one
or more series of preferred stock with rights and preferences which could impede
the completion of such a transaction. An effect of the possible issuance of
such preferred stock, therefore, may be to deter a future takeover attempt. The
Board does not intend to issue any preferred stock except on terms which the
Board deems to be in the best interest of American Savings and its then existing
stockholders.
Regulatory Restrictions
Connecticut Conversion Regulations. Regulations issued by the Connecticut
Banking Commissioner provide that for a period of three years following the date
of the completion of the conversion, no person, acting singly or together with
associates in a group of persons acting in concert, shall directly or indirectly
offer to acquire or acquire the beneficial ownership of more than ten percent
(10%) of any class of any equity security of American Financial without the
prior written approval of the Connecticut Banking Commissioner. Where any
person, directly or indirectly, acquires beneficial ownership of more than ten
percent (10%) of any class of any equity security of American Financial without
the prior written approval of the Connecticut Banking Commissioner, the
securities beneficially owned by such person in excess of ten percent (10%)
shall not be voted by any person or counted as voting shares in connection with
any matter submitted to the stockholders for a vote, and shall not be counted as
outstanding for purposes of determining the affirmative vote necessary to
approve any matter submitted to the stockholders for a vote.
Change in Bank Control Act. The acquisition of ten percent (10%) or more
of the common stock outstanding may trigger the provisions of the Change in Bank
Control Act. The Federal Deposit Insurance Corporation has also adopted a
regulation under the Change in Bank Control Act which generally requires persons
who at any time intend to acquire control of a Federal Deposit Insurance
Corporation-insured state-chartered non-member bank, including a converted
savings bank such as American Savings, to provide 60 days prior written notice
and certain financial and other information to the Federal Deposit Insurance
Corporation.
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The 60-day notice period does not commence until the information is deemed
to be substantially complete. Control for the purpose of this Act exists in
situations in which the acquiring party has voting control of at least twenty-
five percent (25%) of any class of American Savings' voting stock or the power
to direct the management or policies of American Savings. However, under
Federal Deposit Insurance Corporation regulations, control is presumed to exist
where the acquiring party has voting control of at least ten percent (10%) of
any class of American Savings' voting securities if American Savings has a class
of voting securities which is registered under Section 12 of the Exchange Act,
or the acquiring party would be the largest holder of a class of voting shares
of American Savings. The statute and underlying regulations authorize the
Federal Deposit Insurance Corporation to disapprove a proposed acquisition on
certain specified grounds.
Federal Reserve Board Regulations. If American Savings does not maintain
its qualification as a qualified thrift lender, attempts to acquire control of
American Savings trigger the regulations of the Federal Reserve Board under the
Change in Bank Control Act.
Connecticut Banking Law. Under Connecticut banking law, no person may
acquire beneficial ownership of more than 10% of any class of voting securities
of a Connecticut-chartered bank, or any bank holding company of such a bank,
without prior notification of, and lack of disapproval by, the Connecticut
Banking Commissioner. Similar restrictions apply to any person who holds in
excess of 10% of any such class and desires to increase its holdings to 25% or
more of such class. Additionally, an out-of-state company which already
directly or indirectly controls voting power of 25% or more of the voting stock
of any bank or any bank holding company may not also acquire direct or indirect
ownership or control of more than 10% of the voting stock of another Connecticut
bank or Connecticut bank holding company unless such bank or holding company has
been in existence for at least five years and the Connecticut Banking
Commissioner approves the acquisition. Finally, for a period of three years
following completion of a conversion to stock form, no person may directly or
indirectly offer to acquire or acquire beneficial ownership of more than 10% of
any class of equity security of a converting mutual savings bank without prior
written approval of the Connecticut Banking Commissioner.
Prior approval of the Connecticut Banking Commissioner is also required
before any action is taken that causes any Connecticut stock bank to organize a
holding company to acquire the shares of the Connecticut stock bank. The
Connecticut Banking Commissioner will approve such a plan of acquisition,
following approval by a majority vote of the boards of directors of the acquiror
and the acquiree and a two-thirds approval of the stockholders of the acquiree,
provided the Connecticut Banking Commissioner finds that the terms of such plan
of acquisition are reasonable and in accordance with the law and sound public
policy. Any such company shall engage directly or indirectly only in such
activities as are now or may hereafter be proper activities for holding
companies under Connecticut law.
DESCRIPTION OF AMERICAN FINANCIAL STOCK
General
American Financial is authorized to issue 120,000,000 shares of common
stock having a par value of $.01 per share and 10,000,000 shares of preferred
stock having a par value of $.01 per share. American Financial currently expects
to issue up to 44,920,035 shares of common stock at the maximum of the estimated
valuation range, as adjusted by 15% and including shares issued to American
Savings Charitable Foundation. American Financial will not issue any shares of
preferred stock in the conversion. Each share of American Financial's common
stock will have the same relative rights as, and will be identical in all
respects with, each other share of common stock. Upon payment of the purchase
price for the common stock, as required by the plan of conversion, all stock
will be duly authorized, fully paid and nonassessable.
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The common stock of American Financial will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the
Federal Deposit Insurance Corporation or any other government agency.
Common Stock
Dividends. American Financial can pay dividends out of statutory surplus
or from certain net profits if, as and when declared by its Board of Directors.
The payment of dividends by American Financial is limited by law and applicable
regulation. See "Dividend Policy" and "Regulation and Supervision." The holders
of common stock of American Financial will be entitled to receive and share
equally in dividends as may be declared by the Board of Directors of American
Financial out of funds legally available therefor. If American Financial issues
preferred stock, the holders of preferred stock may have a priority over the
holders of the common stock with respect to dividends.
Voting Rights. After the conversion, the holders of common stock of
American Financial will possess exclusive voting rights in American Financial.
They will elect American Financial's Board of Directors and act on other matters
as are required to be presented to them under Delaware law or as are otherwise
presented to them by the Board of Directors. Except as discussed in
"Restrictions on Acquisition of American Financial and American Savings," each
holder of common stock will be entitled to one vote per share and will not have
any right to cumulate votes in the election of directors. If American Financial
issues preferred stock, holders of American Financial preferred stock may also
possess voting rights. Certain matters require a vote of 80% of the outstanding
shares entitled to vote. See "Restrictions on Acquisition of American Financial
and American Savings."
As a Connecticut mutual savings bank, corporate powers and control of
American Savings are currently vested in its corporators, who elect American
Savings' directors, and its Board of Directors, who elect the officers of
American Savings and who fill any vacancies on the Board of Directors. After the
conversion, voting rights will be vested exclusively in American Financial,
which will own all of the outstanding capital stock of American Savings, and
will be voted at the direction of American Financial's Board of Directors.
Consequently, the holders of the common stock of American Financial will not
have direct control of American Savings.
Liquidation. If there is any liquidation, dissolution or winding up of
American Savings, American Financial, as the holder of American Savings' capital
stock, would be entitled to receive all of American Savings' assets available
for distribution after payment or provision for payment of all debts and
liabilities of American Savings, including all deposit accounts and accrued
interest, and after distribution of the balance in the special liquidation
account to eligible account holders and supplemental eligible account holders.
Upon liquidation, dissolution or winding up of American Financial, the holders
of its common stock would be entitled to receive all of the assets of American
Financial available for distribution after payment or provision for payment of
all its debts and liabilities. If American Financial issues preferred stock, the
preferred stock holders may have a priority over the holders of the common stock
upon liquidation or dissolution.
Indemnification and Limit on Liability. American Financial's Certificate
of Incorporation contains provisions which limit the liability of and indemnity
of its directors, officers and employees. Such provisions provide that each
person who was or is made a party or is threatened to be made a party to or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director or officer of American Financial shall be indemnified and held
harmless by American Financial to the fullest extent authorized by the Delaware
General Corporation Law against all expense, liability and loss reasonably
incurred. Under certain circumstances, the right to indemnification shall
include the right to be paid by American Financial the expenses incurred in
defending any such proceeding in advance of its final disposition. In addition,
a director of American Financial shall not be personally liable to American
Financial or its stockholders for monetary damages except for liability for any
breach of the duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of the law, under Section
174 of the Delaware General Corporation Law, or for any transaction from which
the director derived an improper personal benefit.
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Preemptive Rights; Redemption. Holders of the common stock of American
Financial will not be entitled to preemptive rights with respect to any shares
that may be issued. The common stock cannot be redeemed.
Preferred Stock
American Financial will not issue any preferred stock in the conversion and
it has no current plans to issue any preferred stock after the conversion.
Preferred stock may be issued with designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Restrictions on Acquisition
Acquisitions of American Financial are restricted by provisions in its
Certificate of Incorporation and Bylaws and by rules and regulations of various
regulatory agencies. See ''Regulation and Supervision" and "Restrictions on
Acquisition of American Financial and American Savings."
DESCRIPTION OF AMERICAN SAVINGS STOCK
General
If the holding company form of organization is not utilized in connection
with the conversion, American Savings may offer shares of its common stock in
connection with the conversion. The following is a discussion of its stock.
The stock Certificate of Incorporation of American Savings, to be effective
upon the conversion, authorizes the issuance of stock consisting of 120,000,000
shares of common stock, par value $1.00 per share, and 10,000,000 shares of
preferred stock, par value $1.00 per share, which preferred stock may be issued
in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of common
stock of American Savings will have the same relative rights as, and will be
identical in all respects with, each other share of common stock. After the
conversion, the Board of Directors will be authorized to approve the issuance of
common stock up to the amount authorized by the stock Certificate of
Incorporation without the approval of American Savings' stockholders. Assuming
that the holding company form of organization is utilized, all of the issued and
outstanding common stock of American Savings will be held by American Financial.
American Savings stock will represent non-withdrawable capital, will not be an
account of an insurable type and will not be insured by the Federal Deposit
Insurance Corporation.
Common Stock
Dividends. The holders of American Savings' common stock will be entitled
to receive and to share equally in such dividends as may be declared by the
Board of Directors of American Savings out of its legally available funds. See
"Dividend Policy" for certain restrictions on the payment of dividends and
"Federal and State Taxation of Income--Federal Income Taxation" for a discussion
of the consequences of the payment of cash dividends from income appropriated to
bad debt reserves.
Voting Rights. Immediately after the conversion, the holders of American
Savings' common stock will possess exclusive voting rights in American Savings.
Each holder of shares of common stock will be entitled to one vote for each
share held. Shareholders shall not be entitled to cumulate their votes for the
election of directors. See "Restrictions on Acquisition of American Financial
and American Savings--Anti-Takeover Effects of American Financial's Certificate
of Incorporation and Bylaws and Management Remuneration Adopted in Conversion."
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Liquidation. In the event of any liquidation, dissolution, or winding up
of American Savings, the holders of common stock will be entitled to receive,
after payment of all American Savings' debts and liabilities (including all
deposit accounts and accrued interest thereon), and distribution of the balance
in the special liquidation account to eligible account holders and supplemental
eligible account holders, all assets of American Savings available for
distribution in cash or in kind. If additional preferred stock is issued after
the conversion, the holders thereof may also have priority over the holders of
common stock in the event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of American Savings' common stock
will not be entitled to preemptive rights with respect to any shares of American
Savings which may be issued. Upon receipt by American Savings of the full
specified purchase price therefor, the common stock will be fully paid and non-
assessable.
REGISTRATION REQUIREMENTS
American Financial has registered the common stock with the Securities and
Exchange Commission under Section 12(g) of the Securities Exchange Act of 1934,
as amended, and will not deregister its common stock for a period of at least
three years following the conversion. As a result of registration, the proxy and
tender offer rules, insider trading reporting and restrictions, annual and
periodic reporting and other requirements of that statute will apply.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for American
Financial by Muldoon, Murphy & Faucette LLP, Washington, D.C. The federal tax
consequences of the conversion have been opined upon by Muldoon, Murphy &
Faucette LLP and the State of Connecticut tax consequences of the conversion
have been opined upon by KPMG LLP, Hartford, Connecticut. Muldoon, Murphy &
Faucette LLP and KPMG LLP have consented to the references to their opinions in
this prospectus. Certain legal matters will be passed upon for Sandler O'Neill
by Tyler Cooper & Alcorn, LLP, Hartford, Connecticut.
EXPERTS
The financial statements of American Savings as of December 31, 1998 and
1997, and for each of the years in the three-year period ended December 31, 1998
are included in this prospectus and in the registration statement in reliance
upon the report of KPMG LLP, Hartford, Connecticut, independent certified public
accountants, included elsewhere in this prospectus and upon the authority of
said firm as experts in accounting and auditing.
FinPro has consented to the summary in this prospectus of its report to
American Savings setting forth its opinion as to the estimated pro forma market
value of American Financial and American Savings, as converted, and its letter
with respect to subscription rights, and to the use of its name and statements
with respect to it appearing in this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
American Financial has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 (File No. 333-84463) under the Securities Act
of 1933, as amended, with respect to the common stock offered in the conversion.
This prospectus does not contain all the information contained in the
registration statement, certain parts of which are omitted as permitted by the
rules and regulations of the Securities and Exchange Commission. This
information may be inspected at the public reference facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549 and at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies may be obtained at prescribed rates from the Public
Reference Room of the Securities and Exchange Commission at 450 Fifth Street,
NW, Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at
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1-800-SEC-0330. The registration statement also is available through the
Securities and Exchange Commission's World Wide Web site on the Internet at
http://www.sec.gov.
American Savings has filed an application for approval of conversion with
the Connecticut Banking Commissioner and a notice of intent to convert with the
Federal Deposit Insurance Corporation. This prospectus omits certain
information contained in that application and notice. The conversion
application may be examined at the Office of the Connecticut Banking
Commissioner, State of Connecticut Department of Banking, 260 Constitution
Plaza, Hartford, Connecticut 06103. The notice of intent to convert may be
examined at the Federal Deposit Insurance Corporation's offices at 15 Braintree
Hill Office Park, Suite 100, Braintree, Massachusetts 02184.
American Financial has filed with the Office of Thrift Supervision an
application to become the holding company for American Savings. This prospectus
omits certain information contained in that application. The application may be
inspected, without charge, at the offices of the Office of Thrift Supervision,
1700 G Street, NW, Washington, D.C. 20552 and at the offices of the Regional
Director of the Office of Thrift Supervision at the Northeast Regional Office of
the Office of Thrift Supervision, 10 Exchange Place, 18th Floor, Jersey City,
New Jersey 07302.
A copy of the plan of conversion, as amended, American Financial's
Certificate of Incorporation and Bylaws and American Savings' stock Certificate
of Incorporation and Bylaws are available without charge from American Savings
by contacting the conversion center at (___) ___-____. Copies of these
documents may also be obtained by calling Sheri C. Pasqualoni at (860)
___-____.
A copy of FinPro's appraisal report is available for inspection at the
Bank's administrative offices located at 102 West Main Street, New Britain,
Connecticut.
137
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN SAVINGS BANK
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................................ F-2
Consolidated Balance Sheets as of May 31, 1999 (unaudited) and December 31, 1998 and 1997........... F-3
Consolidated Statements of Income for the Five Months Ended May 31, 1999 and 1998 (unaudited) and
for the Years Ended December 31, 1998, 1997 and 1996........................................... 29
Consolidated Statements of Equity for the Five Months Ended May 31, 1999 (unaudited) and
for the Years Ended December 31, 1998, 1997 and 1996........................................... F-4
Consolidated Statements of Cash Flows for the Five Months Ended May 31, 1999 and 1998 (unaudited),
and for the Years Ended December 31,1998, 1997 and 1996........................................ F-5
Notes to Consolidated Financial Statements.......................................................... F-6
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for American Financial have not been included
in this prospectus because American Financial, which has engaged only in
organizational activities to date, has no significant assets, contingent or
other liabilities, revenues or expenses.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Savings Bank:
We have audited the accompanying consolidated balance sheets of American Savings
Bank and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income (which are included on page 34 of the
prospectus), equity and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Savings
Bank and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
February 17, 1999,
except for Note 17 which is as of June 28, 1999
F-2
<PAGE>
AMERICAN SAVINGS BANK
Consolidated Balance Sheets
<TABLE>
<CAPTION>
May 31, December 31, December 31,
Assets 1999 1998 1997
--------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C>
Cash and due from banks (note 2):
Non-interest bearing $ 17,474,392 20,119,389 16,266,038
Interest bearing 5,289,975 5,002,554 4,089
--------------- --------------- ---------------
22,764,367 25,121,943 16,270,127
Federal funds sold 31,600,000 30,700,000 23,800,000
Investment securities available for sale (amortized cost of
$307,351,434 at May 31, 1999, $350,991,177 at December 31, 1998,
and $372,387,846 at December 31, 1997) (note 3) 370,389,723 417,673,315 432,031,801
Mortgage-backed securities available for sale (amortized cost of
$204,708,039 at May 31, 1999, $170,389,698 at December 31, 1998,
and $131,709,845 at December 31, 1997) (note 3) 205,868,171 172,855,177 132,816,950
Loans, less allowance for loan losses of $7,972,660 at May 31, 1999,
$7,625,659 at December 31, 1998, and $6,276,984 at December 31, 1997
(notes 4 and 5) 941,251,086 907,254,369 837,683,438
Real estate owned 617,329 719,951 738,953
Accrued interest and dividends receivable 11,316,578 11,259,693 11,822,451
Federal Home Loan Bank stock 10,434,100 9,396,900 8,371,200
Bank premises and equipment, net (note 6) 13,449,464 12,883,480 9,153,506
Other assets 2,018,620 2,585,737 2,573,504
--------------- --------------- ---------------
$ 1,609,709,438 1,590,450,565 1,475,261,930
=============== =============== ===============
Liabilities and Equity
Deposits (note 7) $ 1,151,648,094 1,143,753,883 1,096,397,633
Mortgagors' escrow deposits 8,274,380 10,652,730 10,887,100
Advances from Federal Home Loan Bank (note 8) 129,743,750 120,243,750 80,243,750
Deferred income tax liability (note 11) 26,135,148 26,831,306 25,187,101
Accrued interest payable on deposits 1,340,418 661,405 698,225
Funds held under loan servicing agreements 951,090 1,183,543 853,740
Other liabilities 5,588,194 6,140,278 2,853,380
--------------- --------------- ---------------
1,323,681,074 1,309,466,895 1,217,120,929
--------------- --------------- ---------------
Commitments and contingencies (notes 12 and 13)
Equity (notes 9, 14 and 17):
Undivided profits 249,122,517 241,223,784 223,209,142
Accumulated other comprehensive income 36,905,847 39,759,886 34,931,859
--------------- --------------- ---------------
286,028,364 280,983,670 258,141,001
--------------- --------------- ---------------
$ 1,609,709,438 1,590,450,565 1,475,261,930
=============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AMERICAN SAVINGS BANK
Consolidated Statements of Equity
<TABLE>
<CAPTION>
Accumulated
other
Undivided comprehensive Total
profits income Equity
------------- ------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 189,219,364 21,582,085 210,801,449
Comprehensive income:
Net income 15,729,996 __ 15,729,996
Other comprehensive income, net of tax:
Net unrealized gains on available-for-sale securities
net of reclassification adjustment -- 3,632,304 3,632,304
-------------
Total comprehensive income 19,362,300
------------- ------------ -------------
Balance, December 31, 1996 204,949,360 25,214,389 230,163,749
Comprehensive income:
Net income 18,259,782 -- 18,259,782
Other comprehensive income, net of tax:
Net unrealized gains on available-for-sale securities
net of reclassification adjustment -- 9,717,470 9,717,470
-------------
Total comprehensive income 27,977,252
------------- ------------ -------------
Balance, December 31, 1997 223,209,142 34,931,859 258,141,001
------------- ------------ -------------
Comprehensive income:
Net income 18,014,642 -- 18,014,642
Other comprehensive income, net of tax:
Net unrealized gains on available-for-sale securities
net of reclassification adjustment (note 14) -- 4,828,027 4,828,027
-------------
Total comprehensive income 22,842,669
------------- ------------ -------------
Balance, December 31, 1998 241,223,784 39,759,886 280,983,670
------------- ------------ -------------
Comprehensive income:
Net income 7,898,733 -- 7,898,733
Other comprehensive loss, net of tax:
Net unrealized loss on available-for-sale securities
net of reclassification adjustment (Note 14) -- (2,854,039) (2,854,039)
-------------
Total comprehensive income 5,044,694
------------- ------------ -------------
Balance, May 31, 1999 $ 249,122,517 36,905,847 286,028,364
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMERICAN SAVINGS BANK
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Five months ended May 31, Year ended December 31,
----------------------------- ---------------------------------------------
1999 1998 1998 1997 1996
------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income $ 7,898,733 9,016,111 18,014,642 18,259,782 15,729,996
Adjustments to reconcile net income
to net cash (used) provided by
operating activities:
Provision for loan losses 800,000 1,000,000 2,400,000 2,154,500 2,250,000
Depreciation and amortization
of bank premises and equipment 689,636 619,621 1,480,605 1,119,419 946,013
Amortization of premiums (676,666) (863,303) (2,126,302) (2,591,280) (1,519,159)
(Increase) decrease in accrued
interest and dividends receivable (56,885) 413,420 562,758 (1,869,301) 7,478
Gain on sale/contribution of investment
securities available for sale (2,797,133) (4,196,180) (6,695,933) (4,655,255) (3,950,256)
Deferred income taxes 1,398,999 (513,926) (1,924,325) (799,068) (233,452)
Decrease in prepaid income taxes -- -- -- 358,820 662,601
Decrease (increase) in other assets 567,117 495,135 (12,233) (107,166) (373,762)
Increase (decrease) in other liabilities (253,841) 1,107,747 3,579,881 (1,392,103) 620,935
Loans originated for sale (10,441,521) (6,461,987) (13,474,627) (6,327,280) (16,838,332)
Sale of loans, originated for sale 10,496,355 6,465,391 13,458,025 6,332,857 16,810,912
Increase in net deferred loan
origination costs (884,817) (142,817) (605,424) (444,621) (698,852)
Net (gain) loss on sale of loans (54,834) (3,404) 16,602 (5,577) 27,420
Net gain on disposition of real estate owned (172,021) (162,095) (550,130) (209,051) (309,749)
------------- ------------ ------------- ------------ -----------
Net cash (used) provided by
operating activities 6,513,122 6,773,713 14,123,539 9,824,676 13,131,793
------------- ------------ ------------- ------------ -----------
Investing activities:
Principal paydowns on mortgage-backed
securities 23,079,484 16,570,112 42,335,133 17,827,942 20,353,347
Investment and mortgage-backed securities
available for sale:
Purchases (204,157,650) (198,898,145) (404,046,130) (402,040,164) (321,219,202)
Proceeds from sales 5,324,995 4,327,500 6,862,438 5,838,168 4,145,403
Proceeds from maturities 188,548,375 169,088,636 346,387,620 382,750,000 242,620,000
Purchases of Federal Home Loan Bank stock (1,037,200) (1,025,700) (1,025,700) -- --
Net increase in loans (35,267,951) (25,043,004) (74,243,586) (94,709,195) (72,210,403)
Net increase in bank premises and equipment (1,255,620) (900,803) (5,210,579) (2,244,768) (3,457,412)
Proceeds from the sales of real estate owned 1,779,008 1,870,307 3,447,201 3,403,021 3,100,215
------------- ------------ ------------- ------------ -----------
Net cash used by investing activities (22,986,559) (34,011,097) (85,493,603) (89,174,996) (126,668,052)
------------- ------------ ------------- ------------ -----------
Financing activities:
Increase in demand deposits, regular
savings, NOW and money management accounts 15,843,327 29,779,551 39,491,360 2,017,306 11,572,162
(Decrease) increase in certificates of deposit,
retirement accounts, and IRA passbook accounts (7,949,116) (1,983,516) 7,864,890 18,821,849 10,522,308
(Decrease) increase in mortgagors' escrow deposits (2,378,350) (2,985,438) (234,370) 5,609,843 1,036,079
Advances from the Federal Home Loan Bank 9,500,000 -- 40,000,000 30,000,000 50,000,000
------------- ------------ ------------- ------------ -----------
Net cash provided by financing activities 15,015,861 24,810,597 87,121,880 56,448,998 73,130,549
------------- ------------ ------------- ------------ -----------
Increase (decrease) in cash and cash equivalents (1,457,576) (2,426,787) 15,751,816 (22,901,322) (40,405,710)
Cash and cash equivalents at beginning of period 55,821,943 40,070,127 40,070,127 62,971,449 103,377,159
------------- ------------ ------------- ------------ -----------
Cash and cash equivalents at end of period $ 54,364,367 37,643,340 55,821,943 40,070,127 62,971,449
============= ============ ============= ============ ===========
Supplemental information:
Cash paid during the period:
Interest on deposits and other borrowings $ 21,657,317 22,495,325 53,898,357 52,331,864 49,138,276
Income taxes 2,210,000 2,596,000 9,890,000 8,295,000 8,270,000
Transfers of loans to real estate owned 1,356,051 2,328,097 2,878,069 2,856,195 1,941,322
Contribution of securities to charitable
foundation -- 2,103,775 3,632,413 4,329,584 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American Savings Bank (the Bank) is a state-chartered mutual savings bank
whose deposits are insured up to specified limits by the Bank Insurance
Fund administered by the Federal Deposit Insurance Corporation (the FDIC).
The Bank provides a full range of banking and other financial services to
individual customers located primarily in Connecticut. The Bank is subject
to competition from other financial institutions. The Bank also is subject
to the regulations of certain state and federal agencies and undergoes
periodic examinations by those regulatory authorities. As discussed in Note
17, the Bank has adopted a Plan of Conversion pursuant to which the Bank
will convert to a state-chartered stock bank.
(a) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles, and include the
accounts of the Bank and its subsidiaries, American Investment
Services, Inc. and American Savings Bank Mortgage Servicing Company.
All significant intercompany transactions have been eliminated in
consolidation. In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results
could differ from those estimates.
Material estimates that are particularly susceptible to changes in the
near-term relate to the determination of the allowance for loan losses
and the valuation of real estate owned. In connection with real estate
owned, management obtains independent appraisals for significant
properties to determine the market value of the property.
While management uses available information to recognize losses on
loans, future additions to the allowance for loan losses may be
necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available to them
at the time of their examinations.
(b) UNAUDITED INTERIM FINANCIAL STATEMENTS
The consolidated financial statements and related notes as of May 31,
1999 and for the five months ended May 31, 1999 and 1998 are
unaudited. All adjustments, consisting of only normal recurring
adjustments, which in the opinion of management are necessary for fair
presentation of financial position, results of operations and cash
flows, have been made. The results of operations for the five months
ended May 31, 1999 are not necessarily indicative of the results which
may be expected for a full year.
F-6
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
(c) INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Bank classifies its debt securities in one of three categories:
trading, available for sale, or held to maturity. Marketable equity
securities are classified as either trading or available for sale
securities. Trading securities are bought and held principally for the
purpose of selling them in the near term. Held to maturity securities
are those securities which the Bank has the ability and intent to hold
until maturity. All other securities not included in trading or held
to maturity are classified as available for sale.
Held to maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts. Trading
and available for sale securities are recorded at fair value.
Unrealized gains and losses on trading securities are included in
earnings. Unrealized gains and losses, net of the related tax effect,
on available for sale securities are excluded from earnings and are
reported as a component of equity (accumulated other comprehensive
income) until realized.
Premiums and discounts on debt securities are amortized or accreted
into interest income over the term of the securities in a manner that
approximates the interest method. A decline in market value of a
security below amortized cost that is deemed other than temporary is
charged to earnings, resulting in the establishment of a new cost
basis for the security. Gains and losses on sales of securities are
recognized at the time of sale on a specific identification basis.
(d) LOANS
Interest on loans is credited to income based on the rate applied to
principal amounts outstanding. Interest on loans is not accrued when,
in the judgment of management, the collectibility of the principal or
interest becomes doubtful. The Bank's policy is to discontinue the
accrual of interest when principal or interest payments are delinquent
90 days or more. Once the accrual of interest on a loan is
discontinued, all interest previously accrued is reversed against
current period interest income if management determines that interest
is uncollectible. Loans are removed from nonaccrual status when they
become less than 90 days past due and when concern no longer exists as
to the collectibility of principal and interest.
Certain direct loan origination costs, net of loan origination fees,
are deferred and recognized in interest income over the life of the
related loan as an adjustment to the related loan's yield.
The adequacy of the allowance for loan losses is regularly evaluated
by management. Factors considered in evaluating the adequacy of the
allowance include previous loss experience, current economic
conditions and their effect on borrowers, the performance of
individual loans in relation to contract terms, and other pertinent
factors. The provision for loan losses charged to expense is based
upon management's judgment of the amount necessary to maintain the
allowance at a level adequate to absorb probable losses inherent in
the existing loan portfolio. Loan losses are charged against the
allowance when management believes the collectibility of the principal
balance outstanding is unlikely.
F-7
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
Impaired loans are those for which it is probable that the Bank will
be unable to collect all amounts due according to the contractual
terms of the loan agreement. Impairment is measured based on the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the
loan is collateral dependent. The Bank considers loans impaired if
payments are greater than 90 days past due and the value of the
collateral securing the loan is less than the principal amount
outstanding.
(e) LOANS HELD FOR SALE AND SERVICING
Loans held for sale are carried at the lower of aggregate cost or
market value. Any adjustment to reduce the carrying amount to market
value results in a charge to earnings. Gains on the sale of loans are
recognized on the date the transaction is settled.
When the Bank acquires mortgage servicing rights either through the
purchase or origination of mortgage loans (originated mortgage loan
servicing rights) and sells or securitizes those loans with servicing
rights retained, it allocates the total cost of the mortgage loans to
the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. Capitalized
mortgage servicing rights are amortized as a reduction of servicing
fee income in proportion to, and over the period of, estimated net
servicing income by use of a method that approximates a level-yield
method. Capitalized mortgage servicing rights are periodically
evaluated for impairment. If impairment is identified, the amount of
impairment is charged to earnings with the establishment of a
valuation allowance against the mortgage servicing rights.
(f) REAL ESTATE OWNED
Real estate owned primarily consists of properties acquired through
foreclosure or deeded to the Bank in lieu of foreclosure. Each real
estate owned property is carried at the lower of cost or fair value,
less estimated selling costs. Holding costs are charged to current
period earnings. Gains and losses on sales of properties are reflected
in the consolidated statements of income when realized.
(g) FEDERAL HOME LOAN BANK STOCK
As a member of the Federal Home Loan Bank (FHLB) of Boston, the Bank
is required to hold a certain amount of FHLB stock. This stock is
considered to be a non-marketable equity security and, accordingly, is
carried at cost.
F-8
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
(h) BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed on the straight-line and declining-balance methods using the
estimated lives of the assets. Estimated lives are 15 to 40 years for
buildings and improvements and 3 to 20 years for furniture, fixtures
and equipment. Amortization of leasehold improvements is calculated on
a straight-line basis over the terms of the related leases or the life
of the asset, whichever is shorter. The cost of maintenance and
repairs is charged to income as incurred, whereas significant renewals
are capitalized. The cost and accumulated depreciation relating to
premises and equipment retired or otherwise disposed of are eliminated
from accounts and any resulting gains and losses are credited or
charged to income.
(i) INCOME TAXES
The Bank accounts for deferred income taxes using the asset and
liability method. Under the asset and liability method, deferred tax
assets and liabilities are established for the temporary differences
between the financial reporting basis and the tax basis of the Bank's
assets and liabilities at enacted tax rates expected to be in effect
when such amounts are realized or settled.
The deferred tax asset is subject to reduction by a valuation
allowance in certain circumstances. This valuation allowance is
recognized if, based on an analysis of available evidence, management
determines that it is more likely than not that some portion or all of
the deferred tax asset will not be realized. The valuation allowance
is subject to ongoing adjustment based on changes in circumstances
that affect management's judgment about the realization of the
deferred tax asset. Adjustments to increase or decrease the valuation
allowance are charged or credited, respectively, to income tax
expense.
Income tax expense includes the amount of taxes payable for the
current year, and the change during the year in the amount of deferred
tax assets and liabilities. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income tax
expense in the period that includes the enactment date.
(j) EMPLOYEE BENEFIT PLANS
401k Plan
The Bank has a 401(k) savings plan available to employees who have
completed one year of service and worked at least 1,000 hours for that
year. Each participant elects a pre-tax deduction up to 15% of base
pay. Employee contributions of 1% to 6% are matched by the Bank at a
rate of 50% of employee contributions.
F-9
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
Pension Plan
The Bank has a non-contributory defined benefit plan covering
substantially all employees meeting certain age and length of service
requirements. The plan provides a monthly benefit upon retirement
based on years of service and compensation during the highest paid
consecutive three years of employment. The Bank's funding policy is to
contribute annually the maximum amount that can be deducted for
federal income tax purposes.
Other Postretirement Benefits
The Bank sponsors a master health care plan and life insurance plan
for substantially all retirees and employees. The cost of providing
retiree health care and other postretirement benefits is recognized
over the period the employee renders service to the Bank.
(k) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash and cash equivalents, investment
securities, mortgage-backed securities, loans, deposits, borrowings
and certain off-balance-sheet items. Fair value estimates are made at
a specific point in time based on market information, where available,
or other more subjective information if an active market for the
financial instrument does not exist. These estimates incorporate
assumptions and other matters of judgment and may not reflect the true
financial impact that could result from selling the entire portfolio
of a financial instrument on one date, including any income tax
consequences.
Fair value estimates are based on 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 assets that are
not considered financial instruments and are excluded from fair value
disclosures include real estate owned and premises and equipment.
(l) CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of this financial statement, the Bank defines cash and
due from banks and federal funds sold as cash equivalents.
F-10
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
(m) TRUST ASSETS
Approximately $112,043,000, $108,571,000 and $94,898,000 of assets
were held by the Bank at May 31, 1999, and December 31, 1998 and 1997,
respectively, in a fiduciary or agency capacity for customers. These
assets are not included in the accompanying consolidated financial
statements, since they are not owned by the Bank.
(n) COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for the reporting and display of comprehensive income and its
components. Comprehensive income includes net income and any changes
in equity from sources that bypass the income statement (such as
changes in net unrealized gains and losses on securities available for
sale). SFAS No. 130 affects financial statement disclosures only and
has no effect on the Bank's financial position or results of
operations.
(o) SEGMENT INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires public companies to report certain financial
information about significant revenue-producing segments of the
business for which such information is available and utilized by the
chief operating decision-maker. Specific information to be reported
for individual operating segments includes a measure of profit and
loss, certain revenue and expense items, and total assets. As a
community-orientated financial institution, substantially all of the
Bank's operations involve the delivery of loan and deposit products to
customers. Management makes operating decisions and assesses
performance based on an ongoing review of these community-banking
operations, which constitutes that Bank's only operating segment for
financial reporting purposes under SFAS No. 131.
(2) CASH AND DUE FROM BANKS
The Bank is required to maintain reserves with respect to its transaction
accounts and non-personal time deposits. As of May 31, 1999 and December
31, 1998, the Bank maintained cash and liquid assets of approximately
$1,000,000 in satisfaction of these regulatory requirements.
F-11
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
(3) INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Bank classified all investment and mortgage-backed securities as
available for sale as of May 31, 1999, and December 31, 1998 and 1997. The
amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of investment and mortgage-backed securities at
May 31, 1999 and December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
MAY 31, 1999
------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Available for sale
Investments:
U.S. Treasury notes $ 10,041,905 292,470 -- 10,334,375
U.S. Government agencies 55,520,989 -- (335,769) 55,185,220
Corporate bonds and notes 185,108,862 198,151 (1,552,651) 183,754,362
Other bonds and notes 43,699,276 -- (84,213) 43,615,063
Marketable equity securities 12,980,402 64,553,883 (33,582) 77,500,703
----------------- ----------------- ----------------- -----------------
307,351,434 65,044,504 (2,006,215) 370,389,723
----------------- ----------------- ----------------- -----------------
Mortgage-backed securities:
Freddie Mac 154,981,529 1,456,171 (637,174) 155,800,526
Fannie Mae 49,726,510 407,389 (66,254) 50,067,645
----------------- ----------------- ----------------- -----------------
204,708,039 1,863,560 (703,428) 205,868,171
----------------- ----------------- ----------------- -----------------
Total available for sale $ 512,059,473 66,908,064 (2,709,643) 576,257,894
================= ================= ================= =================
</TABLE>
At May 31, 1999, the net unrealized gain on securities available for sale
of $64,198,421, net of income tax of $27,292,574, is shown as accumulated
other comprehensive income.
F-12
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Available for sale
Investments:
U.S. Treasury notes $ 27,048,233 631,454 -- 27,679,687
U.S. Government agencies 78,025,274 128,930 -- 78,154,204
Corporate bonds and notes 138,257,777 467,587 -- 138,725,364
Other bonds and notes 55,633,277 373,237 (323,826) 55,682,688
Marketable equity securities 12,026,616 65,599,491 (194,735) 77,431,372
Auction market preferred
stocks 40,000,000 -- -- 40,000,000
----------------- ----------------- ---------------- -----------------
350,991,177 67,200,699 (518,561) 417,673,315
----------------- ----------------- ---------------- -----------------
Mortgage-backed securities:
Freddie Mac 132,294,166 2,128,509 (16,941) 134,405,734
Fannie Mae 38,095,532 353,911 -- 38,449,443
----------------- ----------------- ---------------- -----------------
170,389,698 2,482,420 (16,941) 172,855,177
----------------- ----------------- ---------------- -----------------
Total available for sale $ 521,380,875 69,683,119 (535,502) 590,528,492
================= ================= ================ =================
</TABLE>
At December 31, 1998, the net unrealized gain on securities available for
sale of $69,147,617, net of income taxes of $29,387,731, is shown as
accumulated other comprehensive income.
F-13
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Available for sale
Investments:
U.S. Treasury notes $ 50,473,364 401,532 (77,240) 50,797,656
U.S. Treasury bills 29,070,857 21,537 (249) 29,092,145
U.S. Government agencies 168,210,180 116,934 (10,218) 168,316,896
Corporate bonds and notes 114,659,737 168,077 -- 114,827,814
Other bonds and notes 1,303,156 188,665 (36,972) 1,454,849
Marketable equity securities 8,670,552 58,899,400 (27,511) 67,542,441
----------------- ----------------- ---------------- -----------------
372,387,846 59,796,145 (152,190) 432,031,801
----------------- ----------------- ---------------- -----------------
Mortgage-backed securities:
Freddie Mac 90,964,203 1,057,675 (44,990) 91,976,888
Fannie Mae 40,745,642 189,213 (94,793) 40,840,062
----------------- ----------------- ---------------- -----------------
131,709,845 1,246,888 (139,783) 132,816,950
----------------- ----------------- ---------------- -----------------
Total available for sale $ 504,097,691 61,043,033 (291,973) 564,848,751
================= ================= ================ =================
</TABLE>
At December 31, 1997, the net unrealized gain on securities available for
sale of $60,751,060, net of income taxes of $25,819,201, is shown as
accumulated other comprehensive income.
F-14
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
The amortized cost and fair value of debt securities at May 31, 1999 and
December 31, 1998, by contractual maturity, excluding mortgage-backed
securities, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
MAY 31, 1999 DECEMBER 31, 1998
------------------------------- ----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available for sale:
Due in one year or less $ 152,268,547 152,146,514 212,329,557 212,647,397
Due after one year through five years 130,608,248 129,169,757 75,133,858 75,463,606
Due after five years through ten years 11,494,237 11,572,749 11,501,146 12,130,940
-------------- ----------- ----------- -----------
294,371,032 292,889,020 298,964,561 300,241,943
Mortgage-backed securities 204,708,039 205,868,171 170,389,698 172,855,177
-------------- ----------- ----------- -----------
$ 499,079,071 498,757,191 469,354,259 473,097,120
============== =========== =========== ===========
</TABLE>
A security with an amortized cost and fair value of $5,000,000 at May 31,
1999 was pledged to secure public deposits. A security with an amortized
cost of $2,004,972 and a fair value of $2,012,820 at December 31, 1998 was
pledged to secure public deposits.
There were no sales of mortgage-backed securities during the five month
periods ended May 31, 1999 and 1998 and during the years ended December 31,
1998, 1997 and 1996. Proceeds from sales of investment securities available
for sale were $5,324,995 and $4,327,500 for the five months ended May 31,
1999 and 1998, respectively. Gross realized gains on these sales were
$2,797,133 and $2,142,454 for the five months ended May 31, 1999 and 1998,
respectively, and there were no realized losses. In addition, during the
five months ended May 31, 1998, investment securities with an amortized
cost of $50,049 and fair value of $2,103,775 were contributed to the
American Savings Bank Foundation, Inc. (the "Foundation"), resulting in
recognition of a gain of $2,053,726. There were no contributions of
securities to the Foundation during the five months ended May 31, 1999.
Proceeds from sales of investment securities available for sale for the
year ended December 31, 1998, were $6,862,438. Gross realized gains on
these sales were $3,148,740 and there were no realized losses. In addition,
during the year ended December 31, 1998, investment securities with an
amortized cost of $85,220 and fair value of $3,632,413 were contributed to
the Foundation, resulting in recognition of a gain of $3,547,193.
F-15
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
Proceeds from sales of investment securities available for sale for the
year ended December 31, 1997 were $5,838,168. Gross realized gains on these
sales were $508,342 and there were no realized losses. In addition, during
the year ended December 31 1997, investment securities with an amortized
cost of $182,671 and fair value of $4,329,584 were contributed to the
Foundation, resulting in recognition of a gain of $4,146,913.
Proceeds from sales of investment securities available for sale for the
year ended December 31, 1996, were $4,145,403. Gross realized gains on
these sales were $3,950,256 and there were no realized losses. No
securities were contributed to the Foundation during 1996.
(4) LOANS
The composition of the Bank's loan portfolio was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, -----------------------------------------
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Real estate mortgage loans:
One- to four - family $ 653,016,137 624,819,067 588,049,836
Residential construction 15,745,314 17,177,224 11,755,172
Multi - family 858,278 871,683 968,541
Commercial 339,321 350,858 1,094,243
----------------- ------------------ ------------------
Total real estate mortgage loans 669,959,050 643,218,832 601,867,792
----------------- ------------------ ------------------
Consumer loans:
Equity loans and lines of credit 255,985,101 243,101,875 216,814,029
Automobile 17,318,565 20,084,965 20,792,973
Other 3,542,070 6,940,213 3,556,909
----------------- ------------------ ------------------
Total consumer loans 276,845,736 270,127,053 241,163,911
----------------- ------------------ ------------------
Total loans 946,804,786 913,345,885 843,031,703
Net deferred loan origination costs 2,418,960 1,534,143 928,719
Allowance for loan losses (7,972,660) (7,625,659) (6,276,984)
----------------- ------------------ ------------------
$ 941,251,086 907,254,369 837,683,438
================= ================== ==================
</TABLE>
Loans on nonaccrual status amounted to $2,872,335 and $5,636,813 as of
May 31, 1999 and 1998, respectively, and $3,986,104, $6,874,077 and
$6,507,843 as of December 31, 1998, 1997 and 1996, respectively. If
interest on these loans had been recognized in accordance with their
original terms, such income would have approximated $116,862 and $229,648
for the five months ended May 31, 1999 and 1998, respectively, and
$180,225, $337,753 and $327,464 for the years ended December 31, 1998, 1997
and 1996, respectively.
F-16
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
The Bank's investment in impaired loans was $754,000, $1.3 million and $2.2
million at May 31, 1999 and December 31, 1998 and 1997, respectively. The
allowance for loan losses on these impaired loans was approximately
$200,000, $387,000 and $444,000 at May 31, 1999 and December 31, 1998 and
1997, respectively. There were no impaired loans without a related
allowance for losses. The average balance of impaired loans was $1.5
million and $2.2 million for the five month periods ended May 31, 1999 and
1998, respectively and $1.7 million, $1.5 million and $673,000 for the
years ended December 31, 1998, 1997 and 1996. The interest income
recognized on impaired loans was not significant.
Changes in the allowance for loan losses for the periods indicated were as
follows:
<TABLE>
<CAPTION>
FIVE MONTHS ENDED MAY 31, YEARS ENDED DECEMBER 31,
----------------------------- --------------------------------------------
1999 1998 1998 1997 1996
------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 7,625,659 6,276,984 6,276,984 5,587,760 4,484,019
Provision for loan losses charged
to income 800,000 1,000,000 2,400,000 2,154,500 2,250,000
Loans charged-off (538,579) (723,949) (1,154,113) (1,540,093) (1,170,623)
Recoveries 85,580 94,706 102,788 74,817 24,364
------------- --------- ---------- ---------- ----------
Balance at end of period $ 7,972,660 6,647,741 7,625,659 6,276,984 5,587,760
============= ========= ========== ========== ==========
</TABLE>
The Bank uses forward commitments to sell residential first mortgage loans,
which are entered into for the purpose of reducing the market risk
associated with originating loans held for sale. Market risk may arise from
the possible inability of the Bank or the other party to fulfill the
contracts. At December 31, 1998, the Bank had forward commitments to sell
loans totaling $5.4 million at rates between 5.75% and 6.63%. The estimated
fair value of commitments to sell loans is considered insignificant at
December 31, 1998. At May 31, 1999 and December 31, 1997, the Bank did not
have any forward commitments to sell loans.
The Bank serviced loans for others totaling approximately $165,883,653,
$166,545,280, $175,145,840 and $179,677,617 at May 31, 1999, and December
31, 1998, 1997 and 1996, respectively. Income from servicing loans for
others was $187,684 and $199,135 for the five months ended May 31, 1999 and
1998, respectively, and $479,488, $488,026 and $469,896 for the years ended
December 31, 1998, 1997 and 1996, respectively.
F-17
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
(5) CONCENTRATIONS OF CREDIT RISK
A significant amount of the Bank's mortgage loan receivables and
commitments are secured by residential real estate located in the Greater
Hartford area and surrounding communities in Connecticut. The Bank's policy
for collateral requires that the amount of the loan generally may not
exceed 80% of the appraised value of the property at the time that the loan
is granted. In cases where the loan exceeds this percentage, the Bank's
policy is to require private mortgage insurance of between 20% to 30% of
the appraised value based on the actual loan to value ratio.
(6) BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, --------------------------------------
1999 1998 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
Premises $ 9,253,674 7,774,566 7,065,594
Construction in progress 2,032,967 2,552,327 382,715
Furniture and equipment 7,421,155 7,125,283 6,046,315
Leasehold improvements 2,708,757 2,708,757 1,469,298
---------------- ---------------- -----------------
21,416,553 20,160,933 14,963,922
Less accumulated depreciation and amortization (7,967,089) (7,277,453) (5,810,416)
---------------- ---------------- -----------------
Net bank premises and equipment $ 13,449,464 12,883,480 9,153,506
================ ================ =================
</TABLE>
Total depreciation and amortization expense amounted to $689,636 and
$619,621 for the five months ended May 31, 1999 and 1998, respectively, and
$1,480,605, $1,119,419 and $946,013 for the years ended December 31, 1998,
1997 and 1996, respectively.
(7) DEPOSITS
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, -------------------------------------------
1999 1998 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Regular and other savings $ 204,637,520 193,005,355 181,361,422
NOW accounts 72,122,639 68,214,612 52,336,914
Money market accounts 66,277,030 63,386,320 60,614,510
Demand deposit accounts 25,731,266 28,318,841 19,120,922
Certificates of deposit 607,464,761 615,519,988 602,237,134
Retirement accounts 175,414,878 175,308,767 180,726,731
------------------ ------------------ -------------------
Total $ 1,151,648,094 1,143,753,883 1,096,397,633
================== ================== ===================
</TABLE>
F-18
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
A summary of certificates of deposit and retirement accounts by maturity is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, -------------------------------------------
1999 1998 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
1 - 12 months $ 565,491,044 575,119,169 505,871,057
13 - 24 months 179,919,160 171,544,653 181,686,550
25 - 36 months 16,154,538 19,524,300 69,811,780
37 - 48 months 14,938,301 8,581,290 15,708,798
48 months and thereafter 5,594,104 15,009,007 9,114,845
------------------ ------------------ -------------------
Total $ 782,097,147 789,778,419 782,193,030
================== ================== ===================
</TABLE>
Certificates of deposit and retirement accounts of $100,000 or more totaled
$79,553,750, $80,075,274, $70,547,573 and $66,766,495 at May 31, 1999 and
December 31, 1998, 1997 and 1996, respectively. Interest paid on
certificates of deposit of $100,000 or more amounted to approximately
$1,516,318 and $1,632,797 for the five months ended May 31, 1999 and 1998,
respectively, and $3,764,182, $3,472,279 and $3,403,527 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Interest expense on deposits, by account type, is summarized as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED MAY 31, YEARS ENDED DECEMBER 31,
----------------------------- ------------------------------------------
1999 1998 1998 1997 1996
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Regular and other savings $ 1,711,304 1,602,648 3,960,992 3,870,985 3,983,444
NOW accounts 378,487 303,972 784,920 711,875 569,412
Money market accounts 722,579 691,968 1,678,206 1,694,398 1,756,731
Certificates of deposit 12,616,356 13,417,374 32,178,088 32,379,742 32,084,603
Retirement accounts 3,969,697 4,271,804 10,220,394 10,464,033 10,594,935
------------- ---------- ---------- ---------- ----------
$ 19,398,423 20,287,766 48,822,600 49,121,033 48,989,125
============= ========== ========== ========== ==========
</TABLE>
F-19
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
(8) ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Boston (the FHLB) by maturity
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, -------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
6.06% due December 27, 1999 $ 5,300,000 5,300,000 5,300,000
5.28% due May 5, 2000 1,500,000 -- --
4.96% due December 4, 2000 10,000,000 10,000,000 --
5.10% due December 4, 2001 20,000,000 20,000,000 --
6.05% due December 15, 2001 10,000,000 10,000,000 10,000,000
6.28% due December 26, 2001 10,000,000 10,000,000 10,000,000
5.60% due May 6, 2002 2,000,000 -- --
6.09% due June 15, 2002 2,000,000 2,000,000 2,000,000
6.01% due November 14, 2002 10,000,000 10,000,000 10,000,000
5.14% due December 4, 2002 10,000,000 10,000,000 --
6.09% due December 16, 2002 8,000,000 8,000,000 8,000,000
6.47% due December 26, 2003 25,000,000 25,000,000 25,000,000
5.81% due May 5, 2004 6,000,000 -- --
6.51% due December 27, 2004 5,000,000 5,000,000 5,000,000
6.55% due December 27, 2005 1,000,000 1,000,000 1,000,000
6.54% due December 27, 2005 3,700,000 3,700,000 3,700,000
4.00% due December 3, 2008 243,750 243,750 243,750
----------------- ---------------- -----------------
$ 129,743,750 120,243,750 80,243,750
================= ================ =================
</TABLE>
Sufficient qualified collateral (principally mortgage loans and securities
including FHLB stock) is required to be maintained against the FHLB
advances. However, no specific assets of the Bank are required to be
segregated to provide the required collateral. As a member of the FHLB, the
Bank has access to a preapproved line of credit for up to 2% of its total
assets and the capacity to borrow up to 30% of its total assets.
(9) REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
F-20
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of Total Capital and Tier I Capital to risk-weighted assets,
and of Tier I Capital to average assets. Management believes that, as of
May 31, 1999 and December 31, 1998 and 1997, the Bank met all capital
adequacy requirements to which it was subject.
As of May 31, 1999 and December 31, 1998, the most recent notifications
from the FDIC categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum Total risk-based, Tier I risk-
based and Tier I leverage ratios as set forth in the following table. There
have been no conditions or events since those notifications that management
believes have changed the Bank's capital category.
The following is a summary of the Bank's actual capital amounts and ratios
as of May 31, 1999 and December 31, 1998 and 1997, compared to the required
amounts and ratios for minimum capital adequacy and for classification as a
well-capitalized institution:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------- ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
As of May 31, 1999:
Total Capital (to Risk
Weighted Assets) $ 286,129,653 29.6% $ 77,434,150 8.0% $ 96,792,688 10.0%
Tier I Capital (to Risk
Weighted Assets) 249,122,517 26.5 37,555,696 4.0 56,333,544 6.0
Tier I Capital (to
Average Assets) 249,122,517 15.5 64,380,378 4.0 80,475,472 5.0
As of December 31, 1998:
Total Capital (to Risk
Weighted Assets) $ 278,281,584 29.2% $ 76,256,635 8.0% $ 95,320,794 10.0%
Tier I Capital (to Risk
Weighted Assets) 241,223,784 26.1 36,951,032 4.0 55,426,548 6.0
Tier I Capital (to
Average Assets) 241,223,784 16.4 59,011,560 4.0 73,764,450 5.0
As of December 31, 1997:
Total Capital (to Risk
Weighted Assets) $ 229,486,126 30.3% $ 60,597,336 8.0% $ 75,746,670 10.0%
Tier I Capital (to Risk
Weighted Assets) 223,209,142 29.5 30,298,668 4.0 45,448,002 6.0
Tier I Capital (to
Average Assets) 223,209,142 16.0 55,971,200 4.0 69,964,000 5.0
</TABLE>
F-21
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
(10) BENEFIT PLANS
Pension Plan
The following table sets forth changes in benefit obligation, changes in
plan assets and the funded status of the Bank's pension plan for the
periods indicated. The table also provides a reconciliation of the plan's
funded status and the amounts recognized in the Bank's consolidated balance
sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, -------------------------------------
1999 1998 1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period $ 10,685,049 9,502,589 8,504,882
Service cost 197,849 436,176 368,188
Interest cost 281,810 662,826 602,478
Amendments 74,467 76,257 234,872
Actuarial (gain) loss (747,177) 544,197 288,968
Benefits paid (169,832) (536,996) (496,799)
----------------- ---------------- ----------------
Benefit obligation at end of period 10,322,166 10,685,049 9,502,589
----------------- ---------------- ----------------
Change in plan assets:
Fair value of plan assets at beginning of period 10,086,249 10,293,472 8,877,276
Actual return on plan assets (71,404) 329,773 1,703,506
Employer contribution (4,857) -- 209,489
Benefits paid (169,832) (536,996) (496,799)
----------------- ---------------- ----------------
Fair value of plan assets at end of period 9,840,156 10,086,249 10,293,472
----------------- ---------------- ----------------
Funded status (482,010) (598,800) 790,883
Unrecognized transition asset (318,859) (370,288) (493,717)
Unrecognized prior service cost 787,467 743,172 731,881
Unrecognized net actuarial loss (gain) 759,323 1,068,538 (44,491)
----------------- ---------------- ----------------
Net amount recognized $ 745,921 842,622 984,556
================= ================ ================
Amounts recognized in other assets/liabilities in the
consolidated balance sheets:
Prepaid benefit cost $ 1,119,162 1,146,783 1,154,164
Accrued benefit liability (711,610) (623,744) (281,853)
Intangible asset 338,369 319,583 112,245
----------------- ---------------- ----------------
Net amount recognized $ 745,921 842,622 984,556
================= ================ ================
</TABLE>
F-22
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
The pension plan information includes information for a supplemental
benefit equalization plan (the supplemental plan) that provides additional
benefits to certain employees. As of May 31, 1999, the benefit obligation
of the supplemental plan was $851,277 and there were no plan assets.
The components of net periodic pension cost for the periods indicated were
as follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
ENDED MAY 31, DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1998 1997 1996
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Service cost $ 197,849 181,740 436,176 368,188 337,211
Interest cost 281,810 276,178 662,826 602,478 571,955
Expected return on plan
assets (368,021) (376,233) (902,958) (777,994) (716,001)
Amortization and deferral (19,794) (22,546) (54,110) (74,104) (76,014)
----------- -------- -------- -------- --------
Net periodic pension cost $ 91,844 59,139 141,934 118,568 117,151
=========== ======== ======== ======== ========
</TABLE>
Significant actuarial assumptions used in determining the actuarial present
value of the projected benefit obligation and the net periodic pension cost
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, ---------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Discount rate 7.0% 6.5% 7.0%
Rate of increase in compensation levels 4.5 4.5 5.0
Long-term rate of return on assets 9.0 9.0 9.0
</TABLE>
Savings Plan
Contributions made by the Bank to a 401(k) savings plan maintained for
employees meeting certain eligibility requirements amounted to $78,032 and
$71,995 for the five month periods ended May 31, 1999 and 1998,
respectively, and $529,013, $452,416 and $434,126 for the years ended
December 31, 1998, 1997 and 1996, respectively, and are included in
salaries and employee benefits expenses.
Other Postretirement Benefit Plan
The Bank sponsors a health care plan and a life insurance plan that
provides postretirement benefits to full-time employees who meet minimum
age and service requirements. The cost of providing retiree health care and
other postretirement benefits is recognized over the period the employee
renders service to the Bank.
F-23
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
The following table presents changes in benefit obligation, changes in plan
assets and the funded status of the plan for the periods indicated. The
table also provides a reconciliation of the plan's funded status and the
amount recognized in the Bank's consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, ---------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period $ 1,088,399 908,585 709,626
Service cost 15,206 30,920 25,154
Interest cost 28,725 66,732 57,541
Actuarial loss (72,229) 136,957 165,549
Benefits paid (23,517) (54,795) (49,285)
----------------- ----------------- -----------------
Benefit obligation at end of period 1,036,584 1,088,399 908,585
----------------- ----------------- -----------------
Change in plan assets:
Fair value of plan assets at beginning of
period -- -- --
Employer contribution 23,517 54,795 49,285
Benefits paid (23,517) (54,795) (49,285)
----------------- ----------------- -----------------
Fair value of plan assets at end of period -- -- --
----------------- ----------------- -----------------
Funded status (1,036,584) (1,088,399) (908,585)
Unrecognized net actuarial loss 123,291 197,838 60,881
Unrecognized prior service cost 57,634 61,666 71,346
----------------- ----------------- -----------------
Accrued benefit cost recognized in other
liabilities $ (855,659) (828,895) (776,358)
================= ================= =================
</TABLE>
Periodic postretirement benefit cost includes the following components for
the periods indicated:
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
ENDED MAY 31, DECEMBER 31,
----------------------------------- -----------------------------------------------
1999 1998 1998 1997 1996
----------------------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Service cost $ 15,206 12,884 30,920 25,154 21,544
Interest cost 28,725 27,805 66,732 57,541 49,553
Recognized net actuarial loss 2,318 -- -- -- --
Amortization 4,032 4,033 9,680 7,022 962
--------------- ---------------- ------------- ------------- -------------
Postretirement benefit cost $ 50,281 44,722 107,332 89,717 72,059
=============== ================ ============= ============= =============
</TABLE>
F-24
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
For measurement purposes, the assumed annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend rate) was
9.2% for May 31, 1999, and 9.7% and 10.3% for December 31, 1998 and 1997,
respectively. The rate was assumed to decrease gradually to 5% by the year
2010 and remain at that level thereafter. An increase of 1% in the assumed
health care cost trend rate would increase the postretirement benefit
obligation by $34,961 at May 31, 1999 and $38,292 at December 31, 1998 and
increase the periodic postretirement benefit cost by $1,893 for the five
months ended May 31, 1999 and $3,915 for the year ended December 31, 1998.
A decrease of 1% in the assumed health care cost trend rate would decrease
the postretirement benefit obligation by $30,118 at May 31, 1999 and
$30,844 at December 31, 1998 and increase the postretirement benefit cost
by $1,496 for the five months ended May 31, 1999 and $3,097 for the year
ended December 31, 1998.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% for May 31, 1999, and 6.5% and
7.0% for December 31, 1998 and 1997, respectively.
(11) INCOME TAXES
The components of income tax expense are summarized as follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
ENDED MAY 31, December 31,
--------------------------- ------------------------------------------
1999 1998 1998 1997 1996
------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current tax benefit (expense):
Federal $ 2,799,001 3,720,151 8,510,454 6,752,741 6,931,779
State -- 1,065,775 2,479,871 2,139,071 1,928,444
------------ --------- ---------- --------- ---------
Total current 2,799,001 4,785,926 10,990,325 8,891,812 8,860,223
------------ --------- ---------- --------- ---------
Deferred tax benefit (expense):
Federal 1,398,999 (502,151) (1,846,454) (526,741) (147,040)
State -- (11,775) (77,871) (272,327) (86,412)
------------ --------- ---------- --------- ---------
Total deferred 1,398,999 (513,926) (1,924,325) (799,068) (233,452)
------------ --------- ---------- --------- ---------
Total income tax expense $ 4,198,000 4,272,000 9,066,000 8,092,744 8,626,771
============ ========= ========== ========= =========
</TABLE>
F-25
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
The effective tax rate for each period set forth below differs from the
statutory federal income tax rate. The reasons for these differences in the
effective tax rate follow:
<TABLE>
<CAPTION>
FIVE MONTHS ENDED MAY 31,
-----------------------------------------------------
1999 1998
------------------------ ------------------------
AMOUNT % AMOUNT %
------------ ----- ------------- -----
<S> <C> <C> <C> <C>
Statutory federal income tax $ 4,233,857 35.00% $ 4,650,839 35.00%
Increase (decrease) resulting from:
State income taxes, net of
federal income tax benefit -- -- 685,100 5.47
Dividend received deduction (233,485) (1.93) (134,101) (1.01)
Appreciated value of
donated securities -- -- (718,804) (5.41)
Other 197,628 1.63 (211,034) (1.93)
------------ ----- ------------- -----
Effective combined federal
and state tax amount and rate 4,198,000 34.70% 4,272,000 32.12%
============ ===== ============= =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT %
------------- ------ ------------ ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax rate $ 9,478,225 35.00% $ 9,223,384 35.00% 8,524,868 35.00%
Increase (decrease) in tax rates
resulting from:
State income taxes, net of
federal income tax benefit 1,561,300 5.77 1,213,384 4.60 1,197,321 4.92
Dividend received deduction (332,500) (1.23) (454,567) (1.72) (1,059,698) (4.35)
Appreciated value of
donated securities (1,289,888) (4.76) (1,451,420) (5.51) -- --
Other (351,137) (1.30) (438,037) (1.66) (35,721) (.15)
------------- ------ ------------ ------ --------- ------
Effective combined federal
and state tax amount
and rate 9,066,000 33.48% 8,092,744 30.71% 8,626,770 35.42%
============= ====== ============ ====== ========= ======
</TABLE>
F-26
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, -----------------------------
1999 1998 1997
-------------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 2,857,964 3,237,714 2,818,560
Postretirement benefits other than pensions 303,186 341,229 326,812
Other 314,822 1,753,493 589,573
-------------- ----------- -----------
Total gross deferred tax assets 3,475,972 5,332,436 3,734,945
-------------- ----------- -----------
Less state valuation allowance -- (175,000) --
-------------- ----------- -----------
Deferred tax asset after valuation allowance 3,475,972 5,157,436 3,734,945
Deferred tax liabilities:
Net unrealized gains on securities available for sale (27,292,574) (29,387,731) (25,819,201)
Deferral of loan origination fees (840,882) (736,705) (935,443)
Bank premises and equipment, principally due to
differences in depreciation (539,454) (651,743) (729,735)
Excess of tax bad debt reserve over base year (631,576) (797,754) (972,659)
Retirement plan (265,250) (356,203) (405,391)
Prepaid insurance (41,384) (58,606) (59,617)
-------------- ----------- -----------
Total gross deferred tax liabilities (29,611,120) (31,988,742) (28,922,046)
-------------- ----------- -----------
Net deferred tax liability $ (26,135,148) (26,831,306) (25,187,101)
============== =========== ===========
</TABLE>
Management believes it is more likely than not that the reversal of
deferred tax liabilities and results of future operations will generate
sufficient taxable income to realize the deferred tax assets, net of the
valuation allowance.
The Bank only recognizes a deferred tax asset when, based upon available
evidence. Management believes the associated tax benefits will more likely
than not be realized. As of December 31, 1998, the Bank recorded a
valuation allowance of $175,000 against its state deferred tax asset in
connection with the creation of a Connecticut passive investment company
pursuant to legislation enacted earlier in the year. Under this
legislation, Connecticut passive investment companies are not subject to
the Connecticut Corporate Business Tax and dividends paid by the passive
investment company to the Bank are exempt from the Connecticut Corporate
Business Tax. Accordingly, the Bank expects to report no Connecticut income
tax beginning in 1999. During 1999, the deferred tax assets that the
valuation allowance was established against were written off upon the
transfer to the passive investment company.
F-27
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
For income tax purposes, a bad debt reserve is maintained equal to the
excess of tax bad debt deductions over actual losses charged against the
reserve. The Bank's base-year tax bad debt reserve was $24.6 million and
the related unrecognized deferred tax liability was approximately $10.3
million at May 31, 1999 and December 31, 1998. A deferred tax liability has
not been recognized for the base-year tax bad debt reserve, since the Bank
does not expect that the reserve will become taxable in the foreseeable
future.
(12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financial needs of its customers.
These financial instruments expose the Bank to credit risk in excess of the
amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to commitment to extend credits, if such commitments are
fulfilled, is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
The contract amounts of financial instruments with off-balance-sheet risk
are as follows:
<TABLE>
<CAPTION>
December 31,
MAY 31, --------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Approved real estate loan commitments:
Fixed rate $ 8,900,950 15,431,400 9,233,500
Variable rate 58,405,665 32,767,525 16,393,053
Approved consumer loan commitments 6,426,050 5,563,748 3,808,150
Unused portion of home equity lines of credit 170,001,263 139,970,684 112,792,615
Unused portion of construction loans 9,639,562 6,705,952 4,864,488
Unused checking overdraft lines of credit 873,276 854,484 774,551
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary, by the Bank upon extension of
credit is based on management's credit evaluation of the counterparty.
Collateral obtained is primarily residential property located in
Connecticut. Interest rates on approved mortgage loan commitments and
equity lines of credit are a combination of fixed and variable.
F-28
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
(13) LEASES
Rental expense amounted to $191,926 and $149,408 for the five months ended
May 31, 1999 and 1998, respectively, and $396,154, $335,176 and $304,657
for the years ended December 31, 1998, 1997 and 1996, respectively.
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases for branch office premises with initial or remaining terms
of one year or more consisted of the following at May 31, 1999 and
December 31, 1998:
MAY 31, DECEMBER 31,
1999 1998
---------- ------------
1999 $ 271,385 465,231
2000 393,323 393,323
2001 325,410 325,410
2002 289,859 289,859
2003 252,850 252,850
Thereafter 1,337,625 1,337,625
---------- ---------
$2,870,452 3,064,298
========== =========
The branch office leases include options to renew for periods ranging from
5 to 20 years.
(14) OTHER COMPREHENSIVE INCOME
The following tables summarize components of other comprehensive income and
the related tax effects for the five month period ended May 31, 1999 and
the year ended December 31, 1998:
<TABLE>
<CAPTION>
FIVE MONTHS ENDED MAY 31, 1999
BEFORE INCOME TAX
TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
----------------- ----------------- -----------------
<S> <C> <C> <C>
Unrealized loss on available for sale securities:
Unrealized holding losses arising during the period $ (2,152,063) 911,039 (1,241,024)
Reclassification adjustment for gains
realized during the period (2,797,133) 1,184,118 (1,613,015)
----------------- ----------------- -----------------
Other comprehensive loss $ (4,949,196) 2,095,157 (2,854,039)
================= ================= =================
</TABLE>
F-29
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
BEFORE INCOME TAX
TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
----------------- ----------------- -----------------
<S> <C> <C> <C>
Unrealized gain on available for sale securities:
Unrealized holding gains arising during the period $ 15,092,490 (6,630,681) 8,461,809
Reclassification adjustment for gains
realized during the period (6,695,933) 3,062,151 (3,633,782)
----------------- ----------------- -----------------
Other comprehensive income $ 8,396,557 (3,568,530) 4,828,027
================= ================= =================
</TABLE>
For the five months ended May 31, 1998 and the years ended December 31,
1997 and 1996, other comprehensive income was attributable to unrealized
gains on available for sale securities. For these periods, other
comprehensive income before income taxes was $4,060,262, $16,899,499 and
$6,317,050, respectively. For the same three periods the related income tax
benefit was $1,752,611, $7,182,029 and $2,684,746, respectively.
(15) FOUNDATION
In 1995 the Bank established the American Savings Bank Foundation, Inc.
(the Foundation). The Foundation was organized for charitable purposes and
is exempt by statute from federal income taxes under applicable provisions
of the Internal Revenue Code and Connecticut tax law. The Bank makes annual
contributions to the Foundation subject to the determination of its Board
of Directors. In order to maintain Internal Revenue Code compliance, assets
of the Foundation cannot be returned to the Bank or directed for use of, or
for the benefit of, the Bank. No contribution was made during the five-
month period ended May 31, 1999. In 1998, the Bank contributed $3,632,413
to the Foundation, of which $2,316,000 was for the 1998 contribution and
$1,316,413 representing a Board designated contribution for 1999. In 1997,
the Bank contributed $2,305,000 to the Foundation. The Bank's contribution
to the Foundation in 1998 and 1997 was made primarily in the form of
investment securities.
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods used to estimate fair values for the Bank's financial
instruments are set forth below.
Fair values of investment and mortgage-backed securities are based on
quoted market prices or dealer quotes for similar instruments. The fair
value of the Federal Home Loan Bank stock is estimated to equal the
carrying amount, due to the historical experience that this stock is
redeemed at par.
Fair values for fixed-rate loans are estimated using discounted cash flow
analyses using yields currently expected for pools of loans with similar
terms and credit quality. Variable-rate loans are valued at carrying amount
due to the repricing characteristics of the portfolio.
F-30
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
The fair values of deposits with no stated maturity, such as demand
deposits, regular savings, and money management accounts, are assumed to
equal the amount payable on demand. Fair values of certificates of deposit
are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregate expected monthly maturities of certificates of deposit.
Fair values of advances from the FHLB are estimated using a discounted cash
flow technique that applies interest rates currently being offered on
advances to a schedule of aggregated monthly maturities FHLB advances by
period to maturity.
The fair values of the Bank's commitments to extend credit approximate
their carrying amounts, which are insignificant, at May 31, 1999, and
December 31, 1998 and 1997.
The following are the carrying amounts and estimated fair values as of the
Bank financial assets and liabilities, none of which were held for trading
purposes:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
MAY 31, 1999 1998 1997
------------------------------- ---------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNTS FAIR VALUES AMOUNTS FAIR VALUES AMOUNTS FAIR VALUES
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and due from
banks $ 22,764,367 22,764,367 25,121,943 25,121,943 16,270,127 16,270,127
Federal funds sold 31,600,000 31,600,000 30,700,000 30,700,000 23,800,000 23,800,000
Investment securities
available for sale 370,389,723 370,389,723 417,673,315 417,673,315 432,031,801 432,031,801
Mortgage-backed
securities
available for sale 205,868,171 205,868,171 172,855,177 172,855,177 132,816,950 132,816,950
Federal Home Loan
Bank stock 10,434,100 10,434,100 9,396,900 9,396,900 8,371,200 8,371,200
Loans, net 941,251,086 941,911,971 907,254,369 917,606,527 837,683,438 842,189,724
Accrued interest
and dividends
receivable 11,316,578 11,316,578 11,259,693 11,259,693 11,822,451 11,822,451
Regular savings 204,637,520 204,637,520 193,005,355 193,005,355 181,361,442 181,361,442
NOW, money market,
and demand deposits 164,130,935 164,130,935 159,919,773 159,919,773 132,072,346 132,072,346
Certificates of
deposit and
retirement accounts 782,879,639 787,465,742 790,828,755 797,529,985 782,963,865 786,030,086
Mortgagors' escrow
deposits 8,274,380 8,274,380 10,652,730 10,652,730 10,887,100 10,887,100
Advance from FHLB 129,743,750 129,098,400 120,243,750 122,583,548 80,243,750 80,813,977
Accrued interest
payable on deposits 1,340,418 1,340,418 661,405 661,405 698,225 698,225
</TABLE>
F-31
<PAGE>
AMERICAN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1999 and 1998 (unaudited) and December 31, 1998, 1997 and 1996
(17) CONVERSION OF STOCK FORM OF OWNERSHIP
On May 24, 1999, the Board of Directors of the Bank adopted a Plan of Conversion
(the Plan), pursuant to which the Bank will convert from a state-chartered
mutual bank to a state-chartered stock bank. All of the outstanding common stock
of the Bank will be sold to a holding company (the Company) which will issue and
sell its stock pursuant to the Plan. All of the stock of the Company to be
issued in the conversion is being offered to eligible and supplemental eligible
account holders, employee benefit plans of the Bank and certain other eligible
subscribers in a subscription offering pursuant to subscription rights in order
of priority as set forth in the Plan. The Bank plans to establish an Employee
Stock Ownership Plan ("ESOP") for the benefit of eligible employees, to become
effective upon the conversion. The ESOP may borrow the proceeds necessary to
fund the purchase of up to 8% of the common stock issued provided, however, that
the ESOP may not purchase in the conversion more than 5% of the common stock
sold. The Bank expects to make annual contributions adequate to fund the
repayment of any indebtedness of the ESOP.
The Bank's Plan provides for the establishment of an additional charitable
foundation (the New Foundation) in connection with the conversion. The New
Foundation will be funded with a contribution of common shares by the Company
equal up to 8% of the total shares of common stock to be issued in the
conversion. This contribution will result in the recognition of expense, equal
to the fair value of the shares contributed, in the period in which the
contribution is made. The New Foundation will be dedicated to charitable
purposes within the Bank's local community, including community development
activities.
Effective upon the conversion, the Company intends to enter into employment
agreements with certain executives. The agreements will include, among other
things, provisions for minimum annual compensation and certain lump-sum
severance payments in the event of a "change in control".
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs incurred
will be charged to expense. The Bank had incurred no conversion costs as of
May 31, 1999.
The deposit accounts of the Bank's depositors will continue to be insured by the
FDIC and will not be affected by the conversion. The Plan provides for the
establishment, upon the completion of the conversion, of a special "liquidation
account" for the benefit of eligible account holders and supplemental eligible
account holders (if any) in an amount equal to the surplus of the Bank as of the
date of its latest balance sheet contained in the final prospectus used in
connection with the conversion. Account holders who continue to maintain deposit
accounts at the Bank would be entitled, on a complete liquidation of the Bank
after the conversion, to an interest in the liquidation account prior to any
payment to the stockholders of the Bank. Upon completion of the conversion, the
Bank's surplus will be substantially restricted with respect to payment of
dividends to stockholders due to the liquidation account.
Subsequent to the offering, the Company and the Bank may not declare or pay
dividends on, nor repurchase any of its shares of common stock, if the effect
thereof would cause stockholders' equity to be reduced below applicable
regulatory capital maintenance requirements or if such declaration, payment or
repurchase would otherwise violate regulatory requirements.
F-32
<PAGE>
You should rely only on the information contained in this prospectus. Neither
American Financial nor American Savings Bank has authorized anyone to provide
you with different information. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered by this
prospectus to any person or in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make an offer or solicitation in those jurisdictions. Neither the delivery of
this prospectus nor any sale hereunder shall under any circumstances imply that
there has been no change in the affairs of American Financial Holdings, Inc. or
American Savings Bank since any of the dates as of which information is
furnished in this prospectus or since the date of this prospectus.
[Logo for American Financial Holdings, Inc.]
(Proposed Holding Company for American Savings Bank)
36,167,500 Shares of Common Stock
________
Prospectus
________
SANDLER O'NEILL & PARTNERS, L.P.
________, 1999
DEALER PROSPECTUS DELIVERY OBLIGATION
Until ___________, 1999, all dealers that buy, sell or trade these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
SEC filing(1)..................................... $ 124,878
OTS filing fee.................................... 2,000
Connecticut filing fee............................ 5,000
Connecticut holding company filing fee............ 2,500
NASD filing fee(1)................................ 45,313
Stock market listing fee(1)....................... 95,000
Printing, postage and mailing..................... 700,000
Legal fees and expenses (including underwriter's
counsel)..................................... 925,000
Accounting fees and expenses...................... 350,000
Appraisers' fees and expenses (including
business plan)............................... 50,000
Marketing fees and selling commissions(1)......... 5,088,000
Underwriter's expenses............................ 150,000
Conversion agent fees and expenses................ 75,000
Transfer agent fees and expenses.................. 20,000
Certificate printing.............................. 15,000
Telephone, temporary help and other equipment..... 50,000
Edgarization expenses............................. 25,000
Miscellaneous..................................... 15,905
----------
TOTAL............................................. $7,738,000
==========
</TABLE>
______________________
(1) Unless otherwise noted, based upon the registration and issuance of
44,920,035 shares at $10.00 per share.
Item 14. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Delaware
(being Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
<PAGE>
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent
<PAGE>
of the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
Item 15. Recent Sales of Unregistered Securities
None.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letters between American Savings Bank and Sandler O'Neill &
Partners, L.P.*
1.2 Form of Agency Agreement between American Savings Bank and Sandler
O'Neill & Partners, L.P.
2.1 Amended Plan of Conversion (including the Stock Certificate of
Incorporation and Stock Bylaws of American Savings Bank)
3.1 Certificate of Incorporation of American Financial Holdings, Inc.*
3.2 Bylaws of American Financial Holdings, Inc.*
3.3 Stock Certificate of Incorporation and Stock Bylaws of American Savings
Bank (See Exhibit 2.1 hereto)*
4.0 Draft Stock Certificate of American Financial Holdings, Inc.*
5.0 Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.0 Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.1 Opinion of KPMG LLP re: State Tax Matters
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.2 Form of Employment Agreement between American Savings Bank and certain
executive officers*
10.3 Form of Employment Agreement between American Financial Holdings, Inc.
and certain executive officers*
10.4 Form of American Savings Bank Employee Severance Compensation Plan
10.5 Form of American Savings Bank Supplemental Executive Retirement
Plan
10.6 Form of American Savings Bank Directors' Retirement Plan
10.7 Form of Deferred Compensation Plans
10.8 American Savings Bank 401(k) Plan
10.9 Form of American Savings Bank Supplemental Retirement Plan for Chief
Executive Officer*
23.1 Consent of KPMG LLP
23.2 Consent of Muldoon, Murphy & Faucette LLP*
23.3 Consent and Subscription Rights Opinion of FinPro, Inc.*
24.1 Powers of Attorney*
27.0 Financial Data Schedule*
99.1 Appraisal Report of FinPro, Inc. (P)*
99.2 Draft of American Savings Charitable Foundation Gift Instrument*
______________________
*Previously filed
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New Britain, State of
Connecticut, on September 17, 1999.
American Financial Holdings, Inc.
By: /s/ Robert T. Kenney
--------------------------------------
Robert T. Kenney
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ------ ----
<S> <C> <C>
/s/ Robert T. Kenney President, Chief Executive Officer September 17, 1999
- -------------------------------
Robert T. Kenney and Director (principal executive
officer)
/s/ Charles J. Boulier III Executive Vice President, Treasurer September 17, 1999
- -------------------------------
Charles J. Boulier III and Chief Financial Officer (principal
accounting and financial officer)
* Director
- -------------------------------
Adolf G. Carlson
* Director
- -------------------------------
Marie S. Gustin
* Director
- -------------------------------
Fred M. Hollfelder
* Director
- -------------------------------
Mark E. Karp
* Director
- -------------------------------
Steven T. Martin
* Director
- -------------------------------
Harry N. Mazadoorian
* Director
- -------------------------------
Jeffrey T. Witherwax
</TABLE>
*Pursuant to the Power of Attorney filed as Exhibit 24.0 to the Registration
Statement on Form S-1 for American Financial Holdings, Inc. filed on August 4,
1999.
<TABLE>
<S> <C> <C>
/s/ Robert T. Kenney President, Chief Executive September 17, 1999
- -------------------------------
Robert T. Kenney Officer and Director
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
List of Exhibits (filed herewith unless otherwise noted)
<S> <C>
1.1 Engagement Letters between American Savings Bank and Sandler O'Neill &
Partners, L.P.*
1.2 Form of Agency Agreement between American Savings Bank and Sandler O'Neill
& Partners, L.P.
2.1 Amended Plan of Conversion (including the Stock Certificate of
Incorporation and Stock Bylaws of American Savings Bank)
3.1 Certificate of Incorporation of American Financial Holdings, Inc.*
3.2 Bylaws of American Financial Holdings, Inc.*
3.3 Stock Certificate of Incorporation and Stock Bylaws of American Savings
Bank (See Exhibit 2.1 hereto)*
4.0 Draft Stock Certificate of American Financial Holdings, Inc.*
5.0 Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.0 Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.1 Opinion of KPMG LLP re: State Tax Matters
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.2 Form of Employment Agreement between American Savings Bank and certain
executive officers*
10.3 Form of Employment Agreement between American Financial Holdings, Inc. and
certain executive officers*
10.4 Form of American Savings Bank Employee Severance Compensation Plan
10.5 Form of American Savings Bank Supplemental Executive Retirement Plan
10.6 Form of American Savings Bank Directors= Retirement Plan
10.7 Form of Deferred Compensation Plans
10.8 American Savings Bank 401(k) Plan
10.9 Form of American Savings Bank Supplemental Retirement Plan for Chief
Executive Officer
23.1 Consent of KPMG LLP
23.2 Consent of Muldoon, Murphy & Faucette LLP*
23.3 Consent and Subscription Rights Opinion of FinPro, Inc.*
24.1 Powers of Attorney*
27.0 Financial Data Schedule*
99.1 Appraisal Report of FinPro, Inc. (P)*
99.2 Draft of American Savings Charitable Foundation Gift Instrument*
</TABLE>
____________________
*Previously filed
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
As filed with the Securities and Exchange Commission on September 20, 1999
Registration No. 333-84463
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
EXHIBITS
TO THE
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE
FORM S-1
Registration Statement
Under
THE SECURITIES ACT OF 1933
____________
American Financial Holdings, Inc.
(Exact name of registrant as specified in its charter)
================================================================================
<PAGE>
EXHIBIT 1.2
36,167,500 Shares
(subject to increase up to 41,592,625 shares
in the event of an oversubscription)
AMERICAN FINANCIAL HOLDINGS, INC.
(a Delaware corporation)
Common Stock
(par value $0.01 per share)
AGENCY AGREEMENT
________, 1999
SANDLER O'NEILL & PARTNERS, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Ladies and Gentlemen:
American Financial Holdings, Inc., a Delaware corporation (the
"Company"), and American Savings Bank, a state chartered mutual savings bank
(the "Bank"), hereby confirm their agreement with Sandler O'Neill & Partners,
L.P. ("Sandler O'Neill" or the "Agent") with respect to the offer and sale by
the Company of 36,167,500 shares (subject to increase up to 41,592,625 shares in
the event of an oversubscription) of the Company's Common Stock, par value $0.01
per share (the "Common Stock"). The shares of Common Stock to be sold by the
Company are hereinafter called the "Securities." In addition, as described
herein, the Company expects to contribute shares of Common Stock in an amount
equal to 8% of the shares of Common Stock sold in the Offerings (as hereinafter
defined) to the American Savings Charitable Foundation (the "Foundation"), such
shares hereinafter being referred to as the "Foundation Shares".
The Securities are being offered for sale and the Foundation Shares
are being contributed in accordance with the plan of conversion (the "Plan")
adopted by the Board of Directors of the Bank pursuant to which the Bank intends
to convert from a state chartered mutual savings bank to a state chartered stock
savings bank and issue all of its stock to the Company. Pursuant to the Plan,
the Company is offering to the Bank's tax qualified employee benefit plans,
including the Employee Stock Ownership Plan (the "ESOP") (collectively, the
"Employee Plans") and to certain of the Bank's depositors rights to subscribe
for the Securities in a subscription offering (the "Subscription Offering").
Rights to subscribe will also be offered to the Bank's officers, directors and
employees and corporators who do not have a higher priority right. To the
extent Securities are not subscribed for in the Subscription Offering, such
Securities may be offered to certain members of the
<PAGE>
general public, with preference given to certain natural persons residing in the
counties in which the Bank's offices are located, in a direct community offering
(the "Community Offering" and together with the Subscription Offering, as each
may be extended or reopened from time to time, the "Subscription and Community
Offering") which may be commenced concurrently with the Subscription Offering.
It is currently anticipated by the Bank and the Company that any Securities not
subscribed for in the Subscription and Community Offering will be offered,
subject to Section 2 hereof, in a syndicated community offering (the "Syndicated
Community Offering"). The Subscription Offering and the Syndicated Community
Offering are hereinafter referred to collectively as the "Offerings," and the
conversion of the Bank from mutual to stock form, the acquisition of the capital
stock of the Bank by the Company and the Offerings are hereinafter referred to
collectively as the "Conversion." It is acknowledged that the number of
Securities to be sold in the Conversion may be increased or decreased as
described in the Prospectus (as hereinafter defined). If the number of
Securities is increased or decreased in accordance with the Plan, the term
"Securities" shall mean such greater or lesser number, where applicable. In the
event that a holding company form of organization is not utilized, all pertinent
terms of this Agreement will apply to the conversion of the Bank from the mutual
to stock form of organization and the sale of the Bank's common stock.
In connection with the Conversion and pursuant to the terms of the
Plan as described in the Prospectus, the Company has established the Foundation.
Immediately following the consummation of the Conversion, subject to the
approval of the establishment of the Foundation by the depositors of the Bank
and compliance with certain conditions as may be imposed by regulatory
authorities, the Company will contribute newly issued shares of Common Stock in
an amount equal to 8% of the Securities sold in the Offering, or between
2,138,600 and 2,893,400 shares of Common Stock (subject to increase in certain
circumstances to 3,327,410 shares).
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-____), including a
related prospectus, for the registration of the Securities and the Foundation
Shares under the Securities Act of 1933, as amended (the "Securities Act"), has
filed such amendments thereto, if any, and such amended prospectuses as may have
been required to the date hereof by the Commission in order to declare such
registration statement effective, and will file such additional amendments
thereto and such amended prospectuses and prospectus supplements as may
hereafter be required. Such registration statement (as amended to date, if
applicable, and as from time to time amended or supplemented hereafter) and the
prospectuses constituting a part thereof (including in each case all documents
incorporated or deemed to be incorporated by reference therein and the
information, if any, deemed to be a part thereof pursuant to the rules and
regulations of the Commission under the Securities Act, as from time to time
amended or supplemented pursuant to the Securities Act or otherwise (the
"Securities Act Regulations")), are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any revised
prospectus shall be used by the Company in connection with the Subscription and
Community Offering or the Syndicated Community Offering which differs from the
Prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the Securities Act Regulations),
the term "Prospectus" shall refer to such revised prospectus from and after the
time it is first provided to the Agent for such use.
Concurrently with the execution of this Agreement, the Company is
delivering to the Agent copies of the Prospectus of the Company to be used in
the Subscription and Community Offering. Such prospectus contains information
with respect to the Bank, the Company and the Common Stock.
-2-
<PAGE>
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) The Company and the Bank jointly and severally represent and
warrant to the Agent as of the date hereof as follows:
(i) The Registration Statement has been declared effective by
the Commission, no stop order has been issued with respect thereto and no
proceedings therefor have been initiated or, to the knowledge of the
Company and the Bank, threatened by the Commission. At the time the
Registration Statement became effective and at the Closing Time referred to
in Section 2 hereof, the Registration Statement complied and will comply in
all material respects with the requirements of the Securities Act and the
Securities Act Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading. The Prospectus, at the date hereof does not and at the Closing
Time referred to in Section 2 hereof will not, include an untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the representations
and warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information with respect to the Agent furnished
to the Company in writing by the Agent expressly for use in the
Registration Statement or Prospectus (the "Agent Information," which the
Company and the Bank acknowledge appears only in the sections captioned
"The Conversion - Syndicate Community Offering," "-Plan of Distribution for
the Subscription, Direct Community Offering and Syndicated Community
Offering" and "-Description of Sales Activities" of the Prospectus.
(ii) The Company has filed with the Department of the Treasury,
Office of Thrift Supervision (the "OTS") the Company's application for
approval of its acquisition of the Bank (the "Holding Company Application")
on Form H-(e)1-S promulgated under the savings and loan holding company
provisions of the Home Owners' Loan Act, as amended ("HOLA") and the
regulations promulgated thereunder. The Company has received written
notice from the OTS of its approval of the acquisition of the Bank, such
approval remains in full force and effect and no order has been issued by
the OTS suspending or revoking such approval and no proceedings therefor
have been initiated or, to the knowledge of the Company or the Bank,
threatened by the OTS. At the date of such approval and at the Closing
Time referred to in Section 2, the Holding Company Application complied and
will comply in all material respects with the applicable provisions of HOLA
and the regulations promulgated thereunder.
(iii) Pursuant to the rules and regulations of the Federal
Deposit Insurance Corporation ("FDIC") and the Department of Banking of the
State of Connecticut ("Department of Banking") governing the conversion of
state chartered mutual savings banks to stock form (the "Conversion
Regulations"), the Bank has filed with the FDIC and Department of Banking
an application for conversion, and has filed such amendments thereto and
supplementary materials as may have been required to the date hereof (such
application, as amended to date, if applicable, and as from time to time
amended or supplemented hereafter, is hereinafter referred to as the
"Conversion Application"), including copies of the Bank's Proxy Statement,
dated July 16, 1999, relating to the Conversion (the "Proxy Statement"),
and the Prospectus. The FDIC, by letter dated __________, 199__, and the
-3-
<PAGE>
Department of Banking, by letter dated __________, 199__, have approved the
Conversion Application, such approvals remain in full force and effect and
no order has been issued by the FDIC or Department of Banking suspending or
revoking such approvals and no proceedings therefor have been initiated or,
to the knowledge of the Company or the Bank, threatened by the FDIC or
Department of Banking. At the date of such approval and at the Closing Time
referred to in Section 2, the Conversion Application complied and will
comply in all material respects with the applicable provisions of the
Conversion Regulations.
(iv) At the time of their use, the Proxy Statement and any
other proxy solicitation materials will comply in all material respects
with the applicable provisions of the Conversion Regulations and will not
contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company and
the Bank will promptly file the Prospectus and any supplemental sales
literature with the FDIC and Department of Banking. The Prospectus and all
supplemental sales literature, as of the date the Registration Statement
became effective and at the Closing Time referred to in Section 2, complied
and will comply in all material respects with the applicable requirements
of the Conversion Regulations and, at or prior to the time of their first
use, will have received all required authorizations of the FDIC and
Department of Banking for use in final form.
(v) Neither the FDIC nor Department of Banking has, by order
or otherwise, prevented or suspended the use of the Prospectus or any
supplemental sales literature authorized by the Company or the Bank for use
in connection with the Offerings.
(vi) At the Closing Time referred to in Section 2, the Company
and the Bank will have completed the conditions precedent to the Conversion
and the establishment of the Foundation in accordance with the Plan, the
applicable Conversion Regulations and all other applicable laws,
regulations, decisions and orders, including all material terms,
conditions, requirements and provisions precedent to the Conversion imposed
upon the Company or the Bank by the FDIC, Department of Banking or any
other regulatory authority, other than those which the regulatory authority
permits to be completed after the Conversion.
(vii) FinPro, Inc., which prepared the valuation of the Bank as
part of the Conversion, has advised the Company and the Bank in writing
that it satisfies all requirements for an appraiser set forth in the
Conversion Regulations and any interpretations or guidelines issued by the
Department of Banking and the FDIC with respect thereto.
(viii) The accountants who certified the consolidated financial
statements and supporting schedules of the Bank included in the
Registration Statement have advised the Company and the Bank in writing
that they are independent public accountants within the meaning of the Code
of Ethics of the American Institute of Certified Public Accountants (the
"AICPA"), and such accountants are, with respect to the Company, the Bank
and each subsidiary of the Bank, independent certified public accountants
as required by the Securities Act and the Securities Act Regulations.
(ix) The only subsidiaries of the Bank are American Investment
Services, Inc., ASB Mortgage Servicing Company and American Savings Bank
Foundation, Inc.
-4-
<PAGE>
(x) The consolidated financial statements and the related
notes thereto included in the Registration Statement and the Prospectus
present fairly the financial position of the Company, the Bank and its
consolidated subsidiaries at the dates indicated and the results of
operations, retained earnings and cash flows for the periods specified, and
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act Regulations and the Conversion
Regulations; except as otherwise stated in the Registration Statement, said
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis; and the
supporting schedules and tables included in the Registration Statement
present fairly the information required to be stated therein.
(xi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein (A) there has been no material adverse change in the
financial condition, results of operations or business affairs of the
Company, the Bank and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and (B) except
for transactions specifically referred to or contemplated in the
Prospectus, there have been no transactions entered into by the Company,
the Bank or any of its subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company, the
Bank and its subsidiaries, considered as one enterprise.
(xii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and
to enter into and perform its obligations under this Agreement; and the
Company is duly qualified as a foreign corporation to transact business and
is in good standing in the State of Connecticut and in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to
so qualify would not have a material adverse effect on the financial
condition, results of operations or business affairs of the Company, the
Bank and its subsidiaries, considered as one enterprise.
(xiii) Upon consummation of the Conversion and the contribution
of the Foundation Shares as described in the Prospectus, the authorized,
issued and outstanding capital stock of the Company will be as set forth in
the Prospectus under "Capitalization" (except for subsequent issuances, if
any, pursuant to reservations, agreements or employee benefit plans
referred to in the Prospectus); no shares of Common Stock have been or will
be issued and outstanding prior to the Closing Time referred to in Section
2; at the time of Conversion, the Securities will have been duly authorized
for issuance and, when issued and delivered by the Company pursuant to the
Plan against payment of the consideration calculated as set forth in the
Plan and stated on the cover page of the Prospectus, will be duly and
validly issued and fully paid and non-assessable; the terms and provisions
of the Common Stock and the capital stock of the Company conform to all
statements relating thereto contained in the Prospectus; the certificates
representing the shares of Common Stock conform to the requirements of
applicable law and regulations; and the issuance of the Securities is not
subject to preemptive or other similar rights.
(xiv) The Bank, as of the date hereof, is a state chartered
savings bank in mutual form and upon consummation of the Conversion will be
a state chartered savings bank
-5-
<PAGE>
in stock form, in both instances with full corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus; the Company, the Bank and its subsidiaries
have obtained all licenses, permits and other governmental authorizations
currently required for the conduct of their respective businesses or
required for the conduct of their respective businesses as contemplated by
the Holding Company Application and the Conversion Application, except
where the failure to obtain such licenses, permits or other governmental
authorizations would not have a material adverse effect on the financial
condition, results of operations or business affairs of the Company, the
Bank and its subsidiaries considered as one enterprise; all such licenses,
permits and other governmental authorizations are in full force and effect
and the Company, the Bank and its subsidiaries are in all material respects
in compliance therewith; neither the Company, the Bank nor any of the
Bank's subsidiaries has received notice of any proceeding or action
relating to the revocation or modification of any such license, permit or
other governmental authorization which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a
material adverse effect on the financial condition, results of operations
or business affairs of the Company, the Bank and its subsidiaries,
considered as one enterprise; and the Bank is in good standing under the
laws of the United States and the State of Connecticut and is qualified to
transact business as a foreign corporation in any jurisdiction in which the
failure to so qualify would have a material adverse effect on the financial
condition, results of operations or business affairs of the Company, the
Bank and its subsidiaries considered as one enterprise.
(xv) The deposit accounts of the Bank are insured by the FDIC
up to the applicable limits and upon consummation of the Conversion, the
liquidation account for the benefit of eligible account holders and
supplemental eligible account holders will be duly established in
accordance with the requirements of the Conversion Regulations. The Bank is
a "qualified thrift lender" within the meaning of 12 U.S.C. Section
1467a(m).
(xvi) Upon consummation of the Conversion, the authorized
capital stock of the Bank will be 120,000,000 shares of common stock, par
value $1.00 per share (the "Bank Common Stock") and 10,000,000 shares of
preferred stock, par value $1.00 per share (the "Bank Preferred Stock"),
and the issued and outstanding capital stock of the Bank will be 1,000
shares of Bank Common Stock and no shares of the Bank Preferred Stock, and
no shares of Bank Common Stock or Bank Preferred Stock have been or will be
issued prior to the Closing time referred to in Section 2; and as of
Closing Time referred to in Section 2, all of the issued and outstanding
capital stock of the Bank will be duly authorized, validly issued and fully
paid and nonassessable and have been issued in compliance with all federal
and state securities laws. The shares of Bank Common Stock to be issued to
the Company will have been duly authorized for issuance and, when issued
and delivered by the Bank pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan and as described in the
Prospectus, will be duly and validly issued and fully paid and
nonassessable, and all such Bank Common Stock will be owned beneficially
and of record by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance or legal or equitable claim; the terms
and provisions of the Bank Common Stock and the Bank Preferred Stock
conform to all statements relating thereto contained in the Prospectus, and
the certificates representing the shares of the Bank Common Stock will
conform with the requirements of applicable laws and regulations; and the
issuance of the Bank Common Stock is not subject to preemptive or similar
rights.
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<PAGE>
(xvii) The Foundation has been duly authorized and incorporated
and is validly existing as a non stock corporation in good standing under
the laws of the State of Delaware with corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus; the Foundation will not be a savings and loan
holding company within the meaning of 12 C.F.R. Section 574.2(q) as a
result of the issuance of shares of Common Stock to it in accordance with
the terms of the Plan and in the amounts as described in the Prospectus; no
approvals are required to establish the Foundation and to contribute the
shares of Common Stock thereto as described in the Prospectus other than
those imposed by the Department of Banking and the FDIC; except as
specifically disclosed in the Prospectus and the Proxy Statement, there are
no agreements and/or understandings, written or oral, between the Company
and/or the Bank and the Foundation with respect to the control, directly or
indirectly, over the voting and the acquisition or disposition of the
Foundation Shares; at the time of the Conversion, the Foundation Shares
will have been duly authorized for issuance and, when issued and
contributed by the Company pursuant to the Plan, will be duly and validly
issued and fully paid and non-assessable; and the issuance of the
Foundation Shares is not subject to preemptive or similar rights.
(xviii) Each direct and indirect subsidiary of the Bank has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Registration Statement and Prospectus, and
is duly qualified to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure to so qualify would not have a material adverse effect on
the financial condition, results of operations or business affairs of the
Company, the Bank and its subsidiaries considered as one enterprise; the
activities of each such subsidiary are permitted to subsidiaries of a state
chartered savings bank by the rules, regulations, resolutions and practices
of the FDIC and the Department of Banking; all of the issued and
outstanding capital stock of each such subsidiary has been duly authorized
and validly issued, is fully paid and nonassessable and is owned by the
Bank, directly, free and clear of any security interest, mortgage, pledge,
lien, encumbrance or legal or equitable claim.
(xix) The Company and the Bank have taken all corporate action
necessary for them to execute, deliver and perform this Agreement, and this
Agreement has been duly executed and delivered by, and is the valid and
binding agreement of, the Company and the Bank, enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency or other
laws affecting the enforceability of the rights of creditors generally and
judicial limitations on the right of specific performance and except as the
enforceability of indemnification and contribution provisions may be
limited by applicable securities laws.
(xx) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and
prior to the Closing Time, except as otherwise may be indicated or
contemplated therein, none of the Company, the Bank or any subsidiary of
the Bank will have (A) issued any securities or incurred any liability or
obligation, direct or contingent, or borrowed money, except borrowings in
the ordinary course of business from the same or similar sources and in
similar amounts as indicated in the Prospectus, or (B) entered into any
transaction or series of transactions which is material in light of the
business of the Company, the Bank and its subsidiaries, taken as a whole,
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<PAGE>
excluding the origination, purchase and sale of loans or the purchase or
sale of investment securities or mortgaged-backed securities in the
ordinary course of business.
(xxi) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution and delivery
of this Agreement or the issuance of the Securities and the Foundation
Shares that has not been obtained and a copy of which has been delivered to
the Agent, except as may be required under the securities laws of various
jurisdictions.
(xxii) Neither the Company, the Bank nor any of the Bank's
subsidiaries is in violation of its certificate of incorporation,
organization certificate, articles of incorporation or charter, as the case
may be, or bylaws (and the Bank will not be in violation of its charter or
bylaws in stock form upon consummation of the Conversion); and neither the
Company, the Bank nor any of the Bank's subsidiaries is in default (nor has
any event occurred which, with notice or lapse of time or both, would
constitute a default) in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the
Company, the Bank or any of its subsidiaries is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company, the Bank or any of its subsidiaries is subject, except for such
defaults that would not, individually or in the aggregate, have a material
adverse effect on the financial condition, results of operations or
business of the Company, the Bank and its subsidiaries considered as one
enterprise; and there are no contracts or documents of the Company, the
Bank or any of the Bank's subsidiaries which are required to be filed as
exhibits to the Registration Statement or the Conversion Application which
have not been so filed.
(xxiii) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate action and do not and will not
conflict with or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company, the Bank or any of its subsidiaries pursuant to,
any contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company, the Bank or any of its subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any of its subsidiaries is subject,
except for such defaults that would not, individually or in the aggregate,
have a material adverse effect on the financial condition, results of
operations or business affairs of the Company, the Bank and its
subsidiaries considered as one enterprise; nor will such action result in
any violation of the provisions of the certificate of incorporation,
organization certificate, articles of incorporation or charter or by-laws
of the Company, the Bank or any of its subsidiaries, or any applicable law,
administrative regulation or administrative or court decree.
(xxiv) No labor dispute with the employees of the Company, the
Bank or any of its subsidiaries exists or, to the knowledge of the Company
or the Bank, is imminent or threatened; and the Company and the Bank are
not aware of any existing or threatened labor disturbance by the employees
of any of its principal suppliers or contractors which might be expected to
result in any material adverse change in the financial condition, results
of operations or business affairs of the Company, the Bank and its
subsidiaries considered as one enterprise.
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<PAGE>
(xxv) Each of the Company, the Bank and its subsidiaries have
good and marketable title to all properties and assets for which ownership
is material to the business of the Company, the Bank or its subsidiaries
and to those properties and assets described in the Prospectus as owned by
them, free and clear of all liens, charges, encumbrances or restrictions,
except such as are described in the Prospectus or are not material in
relation to the business of the Company, the Bank or its subsidiaries
considered as one enterprise; and all of the leases and subleases material
to the business of the Company, the Bank or its subsidiaries under which
the Company, the Bank or its subsidiaries hold properties, including those
described in the Prospectus, are valid and binding agreements of the
Company, the Bank and its subsidiaries, enforceable in accordance with
their terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and similar laws of general
applicability relating to or affecting creditors' rights or general
principles of equity).
(xxvi) None of the Company, the Bank nor its subsidiaries are
in violation of any directive from the OTS, the FDIC or the Department of
Banking to make any material change in the method of conducting their
respective businesses; the Bank and its subsidiaries have conducted and are
conducting their business so as to comply in all material respects with all
applicable statutes, regulations and administrative and court decrees
(including, without limitation, all regulations, decisions, directives and
orders of the FDIC and the Department of Banking).
(xxvii) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending, or,
to the knowledge of the Company or the Bank, threatened, against or
affecting the Company, the Bank or any of its subsidiaries which is
required to be disclosed in the Registration Statement (other than as
disclosed therein), or which might result in any material adverse change in
the financial condition, results of operations or business affairs of the
Company, the Bank and its subsidiaries considered as one enterprise, or
which might materially and adversely affect the properties or assets
thereof or which might materially and adversely affect the consummation of
the Conversion; all pending legal or governmental proceedings to which the
Company, the Bank or any subsidiary is a party or of which any of their
respective property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to
the business, are considered in the aggregate not material; and there are
no contracts or documents of the Company or any of its subsidiaries which
are required to be filed as exhibits to the Registration Statement or the
Conversion Application which have not been so filed.
(xxviii) The Bank has obtained an opinion of its counsel,
Muldoon, Murphy & Faucette, LLP, with respect to the legality of the
Securities to be issued and the Foundation Shares and the federal income
tax consequences of the Conversion, and an opinion from KPMG LLP ("KPMG")
regarding state and local income tax (including franchise tax, sales or use
tax, license fee on foreign corporations, stock transfer tax, real property
transfer gain tax and real estate transfer tax), copies of which are filed
as exhibits to the Registration Statement; all material aspects of the
aforesaid opinions are accurately summarized in the Prospectus; the facts
and representations upon which such opinions are based are truthful,
accurate and complete in all material respects; and neither the Bank nor
the Company has taken or will take any action inconsistent therewith.
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<PAGE>
(xxix) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xxx) All of the loans represented as assets on the most
recent consolidated financial statements or consolidated selected financial
information of the Bank included in the Prospectus meet or are exempt from
all requirements of federal, state or local law pertaining to lending,
including without limitation truth in lending (including the requirements
of Regulations Z and 12 C.F.R. Part 226 and Section 563.99), real estate
settlement procedures, consumer credit protection, equal credit opportunity
and all disclosure laws applicable to such loans, except for violations
which, if asserted, would not result in a material adverse effect on the
financial condition, results of operations or business of the Company, the
Bank and its subsidiaries considered as one enterprise.
(xxxi) To the knowledge of the Company and the Bank, with the
exception of the intended loan to the Bank's ESOP by the Company to enable
the ESOP to purchase shares of Common Stock in an amount of up to 8% of the
Common Stock issued in the Conversion, none of the Company, the Bank or
employees of the Bank has made any payment of funds of the Company or the
Bank as a loan for the purchase of the Common Stock or made any other
payment of funds prohibited by law, and no funds have been set aside to be
used for any payment prohibited by law.
(xxxii) The Company, the Bank and its subsidiaries are in
compliance in all material respects with the applicable financial
recordkeeping and reporting requirements of the Currency and Foreign
Transaction Reporting Act of 1970, as amended, and the rules and
regulations thereunder.
(xxxiii) None of the Company, the Bank nor its subsidiaries nor
any properties owned or operated by the Company, the Bank or its
subsidiaries is in violation of or liable under any Environmental Law (as
defined below), except for such violations or liabilities that,
individually or in the aggregate, would not have a material adverse effect
on the financial condition, results of operations or business affairs of
the Company, the Bank and the subsidiaries considered as one enterprise.
There are no actions, suits or proceedings, or demands, claims, notices or
investigations (including, without limitation, notices, demand letters or
requests for information from any environmental agency) instituted or
pending, or to the knowledge of the Company or the Bank threatened,
relating to the liability of any property owned or operated by the Company,
the Bank or the subsidiaries thereof, under any Environmental Law. For
purposes of this subsection, the term "Environmental Law" means any
federal, state, local or foreign law, statute, ordinance, rule, regulation,
code, license, permit, authorization, approval, consent, order, judgment,
decree, injunction or agreement with any regulatory authority relating to
(i) the protection, preservation or restoration of the environment
(including, without limitation, air, water, vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the use,
storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of any substance
presently listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a
component.
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<PAGE>
(xxxiv) The Company, the Bank and its subsidiaries have filed all
federal income and state and local franchise tax returns required to be
filed and have made timely payments of all taxes shown as due and payable
in respect of such returns, and no deficiency has been asserted with
respect thereto by any taxing authority.
(xxxv) The Company has received approval, subject to regulatory
approval to consummate the Offerings and issuance, to have the Securities
quoted on the National Market System of the National Association of
Securities Dealers' Automated Quotation System ("Nasdaq National Market")
effective as of the Closing Time referred to in Section 2 hereof.
(xxxvi) The Company has filed a registration statement for the
Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and such registration statement was declared
effective concurrent with the effectiveness of the Registration Statement.
(b) Any certificate signed by any officer of the Company or the
Bank and delivered to either of the Agent or to counsel for the Agent shall be
deemed a representation and warranty by the Company or the Bank to each Agent as
to the matters covered thereby.
SECTION 2. APPOINTMENT OF SANDLER O'NEILL; SALE AND DELIVERY OF THE
SECURITIES; CLOSING.
On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Company hereby
appoints Sandler O'Neill as its Agent to consult with and advise the Company,
and to assist the Company with the solicitation of subscriptions and purchase
orders for Securities, in connection with the Company's sale of Common Stock in
the Subscription and Community Offering and the Syndicated Community Offering.
On the basis of the representations and warranties herein contained, and subject
to the terms and conditions herein set forth, Sandler O'Neill accepts such
appointment and agrees to use its best efforts to assist the Company with the
solicitation of subscriptions and purchase orders for Securities in accordance
with this Agreement; provided, however, that the Agent shall not be obligated to
take any action which is inconsistent with any applicable laws, regulations,
decisions or orders. The services to be rendered by Sandler O'Neill pursuant to
this appointment include the following: (i) consulting as to the securities
marketing implications of any aspect of the Plan of Conversion or related
corporate documents; (ii) reviewing with the Board of Directors the independent
appraiser's appraisal of the common stock; (iii) reviewing all offering
documents, including the Prospectus, stock order form and related offering
materials (it being understood that preparation and filing of such documents is
the sole responsibility of the Company and the Bank and their counsel); (iv)
assisting in the design and implementation of a marketing strategy for the
Offerings; (v) assisting the Company and the Bank in obtaining all requisite
regulatory approvals; (vi) assisting Bank management in preparing for meetings
with potential investors and broker-dealers; and (vii) providing such other
general advice and assistance as may be requested to promote the successful
completion of the Offerings.
The appointment of the Agent hereunder shall terminate upon the
earlier to occur of (a) forty-five (45) days after the last day of the
Subscription and Community Offering, unless the Company and the Agent agree in
writing to extend such period and the FDIC and Department of Banking agree to
extend the period of time in which the Shares may be sold, or (b) the receipt
and
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<PAGE>
acceptance of subscriptions and purchase orders for all of the Securities, or
(c) the completion of the Syndicated Community Offering.
If any of the Securities remain available after the expiration of the
Subscription and Community Offering, at the request of the Company and the Bank,
Sandler O'Neill will seek to form a syndicate of registered brokers or dealers
("Selected Dealers") to assist in the solicitation of purchase orders of such
Securities on a best efforts basis, subject to the terms and conditions set
forth in a selected dealers' agreement (the "Selected Dealers' Agreement"),
substantially in the form set forth in Exhibit A to this Agreement. Sandler
O'Neill will endeavor to limit the aggregate fees to be paid by the Company and
the Bank under any such Selected Dealers' Agreement to an amount competitive
with gross underwriting discounts charged at such time for underwritings of
comparable amounts of stock sold at a comparable price per share in a similar
market environment; provided, however, that the aggregate fees payable to
Sandler O'Neill and Selected Dealers shall not exceed 6% of the aggregate
Purchase Price of the Securities sold by such Selected Dealers. Sandler O'Neill
will endeavor to distribute the Securities among the Selected Dealers in a
fashion which best meets the distribution objective of the Company and the
requirements of the Plan, which may result in limiting the allocation of stock
to certain Selected Dealers. It is understood that in no event shall Sandler
O'Neill be obligated to act as a Selected Dealer or to take or purchase any
Securities.
In the event the Company is unable to sell at least the total minimum
of the Securities, as set forth on the cover page of the Prospectus, within the
period herein provided, this Agreement shall terminate and the Company shall
refund to any persons who have subscribed for any of the Securities the full
amount which it may have received from them, together with interest as provided
in the Prospectus, and no party to this Agreement shall have any obligation to
the others hereunder, except for the obligations of the Company and the Bank as
set forth in Sections 4, 6(a) and 7 hereof and the obligations of the Agent as
provided in Sections 6(b) and 7 hereof. Appropriate arrangements for placing
the funds received from subscriptions for Securities or other offers to purchase
Securities in special interest-bearing accounts with the Bank until all
Securities are sold and paid for were made prior to the commencement of the
Subscription Offering, with provision for refund to the purchasers as set forth
above, or for delivery to the Company if all Securities are sold.
If at least the total minimum of Securities, as set forth on the cover
page of the Prospectus, are sold, the Company agrees to issue or have issued the
Securities sold and to release for delivery certificates for such Securities at
the Closing Time against payment therefor by release of funds from the special
interest-bearing accounts referred to above. The closing shall be held at the
__________ offices of _________________________, at 10:00 a.m., local time, or
at such other place and time as shall be agreed upon by the parties hereto, on a
business day to be agreed upon by the parties hereto. The Company shall notify
the Agent by telephone, confirmed in writing, when funds shall have been
received for all the Securities. Certificates for Securities shall be delivered
directly to the purchasers thereof in accordance with their directions.
Notwithstanding the foregoing, certificates for Securities purchased through
Selected Dealers shall be made available to the Agent for inspection at least 48
hours prior to the Closing Time at such office as the Agent shall designate.
The hour and date upon which the Company shall release for delivery all of the
Securities, in accordance with the terms hereof, is herein called the "Closing
Time."
The Company will pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Securities.
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<PAGE>
In addition to the reimbursement of the expenses specified in Section
4 hereof, the Agent will receive the following compensation for its services
hereunder:
(a) one and thirty-five hundredths percent (1.35%) of the aggregate
Actual Purchase Price (as defined in the Prospectus) of the Securities sold
in the Subscription and Community Offering, excluding in each case shares
purchased by (i) any employee benefit plan of the Company or the Bank
established for the benefit of their respective directors, officers and
employees, (ii) by any foundation or charitable organization established by
the Bank in connection with the Conversion, and (iii) any director, officer
or employee of the Company or the Bank or members of their immediate
families (which term shall mean parents, grandparents, spouse, siblings,
children and grandchildren); and
(b) with respect to any Securities sold by an NASD member firm (other
than Sandler O'Neill) under the Selected Dealers' Agreement in the
Syndicated Community Offering, (i) the compensation payable to Selected
Dealers under any Selected Dealers' Agreement, (ii) any sponsoring dealer's
fees; and (iii) a management fee to Sandler O'Neill of one and thirty-five
hundredths percent (1.35%). Any fees payable to Sandler O'Neill for
Securities sold by Sandler O'Neill under any such agreement shall be
limited to an aggregate of [six percent (6%)] of the Actual Purchase Price
of such Securities.
If this Agreement is terminated by the Agent in accordance with the
provisions of Section 9(a) hereof or the Conversion is terminated by the
Company, no fee shall be payable by the Company to Sandler O'Neill; however, the
Company shall reimburse the Agent for all of its reasonable out-of-pocket
expenses incurred prior to termination, including the reasonable fees and
disbursements of counsel for the Agent in accordance with the provisions of
Section 4 hereof.
All fees payable to the Agent hereunder shall be payable in
immediately available funds at Closing Time, or upon the termination of this
Agreement, as the case may be. In recognition of the long lead times involved
in the conversion process, the Bank agrees to make advance payments to the Agent
in the aggregate amount of fifty thousand dollars ($50,000), twenty-five
thousand dollars ($25,000) of which has been previously paid and the remaining
twenty-five thousand ($25,000) of which shall be payable upon commencement of
the subscription offering, which shall be credited against any fees or
reimbursement of expenses payable hereunder.
SECTION 3. COVENANTS OF THE COMPANY. The Company and the Bank
covenant with the Agent as follows:
(a) The Company and the Bank will prepare and file such amendments or
supplements to the Registration Statement, the Prospectus, the Conversion
Application and the Proxy Statement as may hereafter be required by the
Securities Act Regulations or the Conversion Regulations or as may
hereafter be requested by the Agent. Following completion of the
Subscription and Community Offering, in the event of a Syndicated Community
Offering, the Company and the Bank will (i) promptly prepare and file with
the Commission a post-effective amendment to the Registration Statement
relating to the results of the Subscription and Community Offering, any
additional information with respect to the proposed plan of distribution
and any revised pricing information or (ii) if no such post-effective
amendment is required, will file with, or mail for filing to, the
Commission a
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<PAGE>
prospectus or prospectus supplement containing information relating to the
results of the Subscription and Community Offering and pricing information
pursuant to Rule 424 of the Securities Act Regulations, in either case in a
form acceptable to the Agent. The Company and the Bank will notify the
Agent immediately, and confirm the notice in writing, (i) of the
effectiveness of any post-effective amendment of the Registration
Statement, the filing of any supplement to the Prospectus and the filing of
any amendment to the Conversion Application, (ii) of the receipt of any
comments from the Commission, OTS, FDIC or Department of Banking with
respect to the transactions contemplated by this Agreement or the Plan,
(iii) of any request by the Commission for any amendment to the
Registration Statement or by the FDIC or Department of Banking for any
amendment to the Conversion Application or any amendment or supplement to
the Prospectus or for additional information, (iv) of the issuance by the
FDIC or Department of Banking of any order suspending the Offerings or the
use of the Prospectus or the initiation of any proceedings for that
purpose, (v) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose, and (vi) of the receipt of any notice with
respect to the suspension of any qualification of the Securities for
offering or sale in any jurisdiction. The Company and the Bank will make
every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) The Company and the Bank will give the Agent notice of its
intention to file or prepare any amendment to the Conversion Application or
Registration Statement (including any post-effective amendment) or any
amendment or supplement to the Prospectus (including any revised prospectus
which the Company proposes for use in connection with the Syndicated
Community Offering of the Securities which differs from the prospectus on
file at the Commission at the time the Registration Statement becomes
effective, whether or not such revised prospectus is required to be filed
pursuant to Rule 424(b) of the Securities Act Regulations), will furnish
the Agent with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be,
and will not file any such amendment or supplement or use any such
prospectus to which the Agent or counsel for the Agent may object.
(c) The Company and the Bank will deliver to the Agent as many signed
copies and as many conformed copies of the Conversion Application and the
Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein)
as the Agent may reasonably request, and from time to time such number of
copies of the Prospectus as the Agent may reasonably request.
(d) During the period when the Prospectus is required to be
delivered, the Company and the Bank will comply, at their own expense, with
all requirements imposed upon them by the FDIC and Department of Banking,
by the applicable Conversion Regulations, as from time to time in force,
and by the Securities Act, the Securities Act Regulations, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission promulgated thereunder, including, without
limitation, Regulation M under the Exchange Act, so far as necessary to
permit the continuance of sales or dealing in shares of Common Stock during
such period in accordance with the provisions hereof and the Prospectus.
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<PAGE>
(e) If any event or circumstance shall occur as a result of which it
is necessary, in the opinion of counsel for the Agent, to amend or
supplement the Prospectus in order to make the Prospectus not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser, the Company and the Bank will forthwith amend or supplement the
Prospectus (in form and substance satisfactory to counsel for the Agent) so
that, as so amended or supplemented, the Prospectus will not include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading, and the Company and the Bank will furnish to the Agent a
reasonable number of copies of such amendment or supplement. For the
purpose of this subsection, the Company and the Bank will each furnish such
information with respect to itself as the Agent may from time to time
reasonably request.
(f) The Company and the Bank will take all necessary action, in
cooperation with the Agent, to qualify the Securities for offering and sale
under the applicable securities laws of such states of the United States
and other jurisdictions as the Conversion Regulations may require and as
the Agent and the Company have agreed; provided, however, that the Company
and the Bank shall not be obligated to file any general consent to service
of process or to qualify as a foreign corporation in any jurisdiction in
which it is not so qualified. In each jurisdiction in which the Securities
have been so qualified, the Company and the Bank will file such statements
and reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for a period of not less than one year from
the effective date of the Registration Statement.
(g) The Company authorizes Sandler O'Neill and any Selected Dealers
to act as agent of the Company in distributing the Prospectus to persons
entitled to receive subscription rights and other persons to be offered
Securities having record addresses in the states or jurisdictions set forth
in a survey of the securities or "blue sky" laws of the various
jurisdictions in which the Offerings will be made (the "Blue Sky Survey").
(h) The Company will make generally available to its security holders
as soon as practicable, but not later than 60 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month
period beginning not later than the first day of the Company's fiscal
quarter next following the "effective date" (as defined in said Rule 158)
of the Registration Statement.
(i) During the period ending on the third anniversary of the
expiration of the fiscal year during which the closing of the transactions
contemplated hereby occurs, the Company will furnish to its stockholders as
soon as practicable after the end of each such fiscal year an annual report
(including consolidated statements of financial condition and consolidated
statements of income, stockholders' equity and cash flows, certified by
independent public accountants) and, as soon as practicable after the end
of each of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration
Statement), consolidated summary financial information of the Company, the
Bank and its subsidiaries for such quarter in reasonable detail. In
addition, such annual report and quarterly consolidated summary financial
information shall be made public through the issuance of appropriate press
releases at the same time or prior to the time of the furnishing thereof to
stockholders of the Company.
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(j) During the period ending on the third anniversary of the
expiration of the fiscal year during which the closing of the transactions
contemplated hereby occurs, the Company will furnish to the Agent (i) as
soon as publicly available, a copy of each report or other document of the
Company furnished generally to stockholders of the Company or furnished to
or filed with the Commission under the Exchange Act or any national
securities exchange or system on which any class of securities of the
Company is listed, and (ii) from time to time, such other information
concerning the Company as the Agent may reasonably request.
(k) The Company and the Bank will conduct the Conversion including
the formation and operation of the Foundation in all material respects in
accordance with the Plan, the Conversion Regulations and all other
applicable regulations, decisions and orders, including all applicable
terms, requirements and conditions precedent to the Conversion imposed upon
the Company or the Bank by the FDIC or Department of Banking.
(l) The Company and the Bank will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds."
(m) The Company will file with the Commission such reports on Form SR
as may be required pursuant to Rule 463 of the Securities Act Regulations,
if such report or substantially similar report is required by the SEC.
(n) The Company will maintain the effectiveness of the Exchange Act
Registration Statement for not less than three years. The Company will
file with the Nasdaq Stock Market all documents and notices required by the
Nasdaq Stock Market of companies that have issued securities that are
traded in the over-the-counter market and quotations for which are reported
by the Nasdaq National Market.
(o) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by the Agent in order for the Agent
to ensure compliance with the National Association of Securities Dealers,
Inc.'s "Interpretation Relating to Free-Riding and Withholding."
(p) Other than in connection with any employee benefit plan or
arrangement described in the Prospectus, the Company will not, without the
prior written consent of the Agent, sell or issue, contract to sell or
otherwise dispose of, any shares of Common Stock other than the Securities
for a period of 180 days following the Closing Time.
(q) During the period beginning on the date hereof and ending on the
later of the third anniversary of the Closing Time or the date on which the
Agent receives full payment in satisfaction of any claim for
indemnification or contribution to which it may be entitled pursuant to
Sections 6 or 7, respectively, neither the Company nor the Bank shall,
without the prior written consent of the Agent, take or permit to be taken
any action that could result in the Bank Common Stock becoming subject to
any security interest, mortgage, pledge, lien or encumbrance; provided,
however, that this covenant shall be null and void if the OTS, by
regulation, policy statement or interpretive release, or by written order
or written advice addressed to the Bank or the Agent specifically
addressing the provisions of Section 6(a) hereof, permits indemnification
of the Agent by the Bank as contemplated by such provisions.
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(r) The Company and the Bank will comply with the conditions imposed
by or agreed to with the OTS in connection with its approval of the Holding
Company Application and with the FDIC and Department of Banking in
connection with their approval or non-objection of, or non-objection to,
the Conversion Application, including those conditions relating to the
establishment and the operation of the Foundation; the Company and the Bank
shall use their best efforts to ensure that the Foundation submits within
the time frames required by applicable law a request to the Internal
Revenue Service to be recognized as a tax-exempt organization under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code");
the Company and the Bank will take no action which will result in the
possible loss of the Foundation's tax exempt status; and neither the
Company nor the Bank will contribute any additional assets to the
Foundation until such time that such additional contributions will be
deductible for federal and state income tax purposes.
(s) During the period ending on the first anniversary of the Closing
Time, the Bank will comply with all applicable law and regulation necessary
for the Bank to continue to be a "qualified thrift lender" within the
meaning of 12 U.S.C. Section 1467a(m).
(t) The Company shall not deliver the Securities until the Company
and the Bank have satisfied each condition set forth in Section 5 hereof,
unless such condition is waived by the Agent.
(u) The Company or the Bank will furnish to Sandler O'Neill as early
as practicable prior to the Closing Date, but no later than two (2) full
business days prior thereto, a copy of the latest available unaudited
interim consolidated financial statements of the Bank and the Subsidiaries
which have been read by KPMG, as stated in their letters to be furnished
pursuant to subsections (e) and (f) of Section 5 hereof.
SECTION 4. PAYMENT OF EXPENSES. The Company and the Bank jointly and
severally agree to pay all expenses incident to the performance of their
obligations under this Agreement, including but not limited to (i) the cost of
obtaining all securities and bank regulatory approvals, (ii) the printing and
filing of the Registration Statement as originally filed and of each amendment
thereto, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the purchasers in the Offerings, (iv) the fees and
disbursements of the Company's and the Bank's counsel, accountants appraiser and
other advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees and
the fees and disbursements of counsel in connection therewith and in connection
with the preparation of the Blue Sky Survey, (vi) the printing and delivery to
the Agent of copies of the Registration Statement as originally filed and of
each amendment thereto and the printing and delivery of the Prospectus and any
amendments or supplements thereto to the purchasers in the Offerings and the
Agent, (vii) the printing and delivery to the Agent of copies of a Blue Sky
Survey, and (viii) the fees and expenses incurred in connection with the listing
of the Securities on the Nasdaq National Market. In the event the Agent incurs
any such fees and expenses on behalf of the Bank or the Company, the Bank will
reimburse the Agent for such fees and expenses whether or not the Conversion is
consummated; provided, however, that the Agent shall not incur any substantial
expenses on behalf of the Bank or the Company pursuant to this Section without
the prior approval of the Bank.
The Company and the Bank jointly and severally agree to pay certain
expenses incident to the performance of the Agent's obligations under this
Agreement, regardless of whether the Conversion
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is consummated, including (i) the filing fees paid or incurred by the Agent in
connection with all filings with the National Association of Securities Dealers,
Inc., and (ii) all reasonable out of pocket expenses incurred by the Agent
relating to the Offerings, including, without limitation, advertising,
promotional, syndication and travel expenses and fees and expenses of the
Agent's counsel. All fees and expenses to which the Agent is entitled to
reimbursement under this paragraph of this Section 4 shall be due and payable
upon receipt by the Company or the Bank of a written accounting therefor setting
forth in reasonable detail the expenses incurred by the Agent.
SECTION 5. CONDITIONS OF AGENT'S OBLIGATIONS. The Company, the Bank
and the Agent agree that the issuance and the sale of Securities and all
obligations of the Agent hereunder are subject to the accuracy of the
representations and warranties of the Company and the Bank herein contained as
of the date hereof and the Closing Time, to the accuracy of the statements of
officers and directors of the Company and the Bank made pursuant to the
provisions hereof, to the performance by the Company and the Bank of their
obligations hereunder, and to the following further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued under the Securities Act or proceedings
therefor initiated or threatened by the Commission, no order suspending the
Offerings or authorization for final use of the Prospectus shall have been
issued or proceedings therefor initiated or threatened by the FDIC or
Department of Banking and no order suspending the sale of the Securities in
any jurisdiction shall have been issued.
(b) At Closing Time, the Agent shall have received:
(1) The favorable opinion, dated as of Closing Time, of
Muldoon, Murphy & Faucette, LLP, counsel for the Company and the Bank,
in form and substance satisfactory to counsel for the Agent, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware.
(ii) The Company has full corporate power and authority to
own, lease and operate its properties and to conduct its business
as described in the Registration Statement and Prospectus and to
enter into and perform its obligations under this Agreement.
(iii) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in the
State of Connecticut and in each other jurisdiction in which such
qualification is required whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure to so qualify would not have a material adverse effect
upon the financial condition, results of operations or business
affairs of the Company, the Bank and its subsidiaries, considered
as one enterprise.
(iv) Upon consummation of the Conversion, and the issuance
of the Foundation Shares to the Foundation immediately upon
completion thereof
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and in the amount described in the Prospectus, and in compliance
with all conditions imposed upon the contribution thereof by the
FDIC and Department of Banking, the authorized, issued and
outstanding capital stock of the Company will be as set forth in
the Prospectus under "Capitalization" and no shares of Common
Stock have been or will be issued and outstanding prior to the
Closing Time.
(v) The Securities and the Foundation Shares have been
duly and validly authorized for issuance and sale and, when
issued and delivered by the Company pursuant to the Plan against
payment of the consideration calculated as set forth in the Plan,
or contributed by the Company pursuant to the Plan in the case of
the Foundation Shares, will be duly and validly issued and fully
paid and non-assessable.
(vi) The issuance of the Securities and the Foundation
Shares is not subject to preemptive or other similar rights
arising by operation of law or, to the best of their knowledge
and information, otherwise.
(vii) The Bank has been at all times since 1862 and prior
to the Closing Time duly organized, and is validly existing and
in good standing under the laws of the State of Connecticut as a
state chartered savings bank of mutual form, and, at Closing
Time, has become duly organized, validly existing and in good
standing under the laws of the State of Connecticut as a state
chartered savings bank of stock form, in both instances with full
corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus; and the Bank is duly
qualified as a foreign corporation in each jurisdiction in which
the failure to so qualify would have a material adverse effect
upon the financial condition, results of operations or business
affairs of the Bank.
(viii) The Bank is a member in good standing of the Federal
Home Loan Bank of Boston and the deposit accounts of the Bank are
insured by the FDIC up to the applicable limits.
(ix) Each direct and indirect subsidiary of the Bank has
been duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and is duly qualified as
a foreign corporation to transact business and is in good
standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect upon the financial
condition, results of operations or business of the Company, the
Bank and its subsidiaries, taken as a whole; the activities of
each such subsidiary are permitted to subsidiaries of a savings
and loan holding company and of a state chartered savings bank by
the rules, regulations, resolutions and practices of the OTS,
FDIC and Department of Banking; all of the issued and outstanding
capital stock of each such subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and is owned
by the Bank,
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<PAGE>
directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(x) The Foundation has been duly incorporated and is
validly existing as a non-stock corporation in good standing
under the laws of the State of Delaware with corporate power and
authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus; the Foundation is
not a savings and loan holding company within the meaning of 12
C.F.R. Section 574.2(q) as a result of the issuance of shares of
Common Stock to it in accordance with the terms of the Plan and
in the amounts as described in the Prospectus; no approvals are
required to establish the Foundation and to contribute the shares
of Common Stock thereto as described in the Prospectus other than
those set forth in any written notice or order of approval or
non-objection of the Conversion, the Conversion Application or
the Holding Company Application, copies of which were provided to
the Agent prior to the Closing Time.
(xi) Upon consummation of the Conversion, all of the
issued and outstanding capital stock of the Bank when issued and
delivered pursuant to the Plan against payment of consideration
calculated as set forth in the Plan and set forth in the
Prospectus, will be duly authorized and validly issued and fully
paid and nonassessable, and all such capital stock will be owned
beneficially and of record by the Company free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity.
(xii) The OTS has duly approved the Holding Company
Application and the FDIC and Department of Banking have duly
approved the Conversion Application and no action is pending, or
to the best of such counsel's knowledge, threatened respecting
the Holding Company Application or the Conversion Application or
the acquisition by the Company of all of the Bank's issued and
outstanding capital stock; the Holding Company Application and
the Conversion Application comply with the applicable
requirements of the OTS, FDIC and Department of Banking, as
required, includes all documents required to be filed as exhibits
thereto, and is, to the best of such counsel's knowledge and
information, truthful, accurate and complete; and the Company is
duly authorized to become a savings and loan holding company and
is duly authorized to own all of the issued and outstanding
capital stock of the Bank to be issued pursuant to the Plan.
(xiii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including
the establishment of the Foundation and the contribution thereto
of the Foundation Shares, (A) have been duly and validly
authorized by all necessary action on the part of each of the
Company and the Bank, and this Agreement constitutes the legal,
valid and binding agreement of each of the Company and the Bank,
enforceable in accordance with its terms, except as rights to
indemnity and contribution hereunder may be limited under
applicable law (it being understood that such counsel may avail
itself of customary exceptions concerning the effect of
bankruptcy, insolvency or similar laws and the
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<PAGE>
availability of equitable remedies); (B) will not result in any
violation of the provisions of the charter or by-laws of the
Company, the Bank or any of its subsidiaries; and, (C) will not
conflict with or constitute a breach of, or default under, and no
event has occurred which, with notice or lapse of time or both,
would constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance, that, individually
or in the aggregate, would have a material adverse effect on the
financial condition, results of operations or business affairs of
the Company, the Bank and its subsidiaries considered as one
enterprise, upon any property or assets of the Company, the Bank
or its subsidiaries pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to
which the Company, the Bank or its subsidiaries is a party or by
which any of them may be bound, or to which any of the property
or assets of the Company, the Bank or its subsidiaries is
subject.
(xiv) The Prospectus has been duly authorized by the FDIC
and Department of Banking for final use pursuant to the
Conversion Regulations and no action is pending, or to the best
of such counsel's knowledge, is threatened, by the FDIC or
Department of Banking to revoke such authorization.
(xv) The Registration Statement is effective under the
Securities Act and no stop order suspending the effectiveness of
the Registration Statement has been issued under the Securities
Act or, to the best of such counsel's knowledge, proceedings
therefor initiated or threatened by the Commission.
(xvi) No further approval, authorization, consent or other
order of any public board or body is required in connection with
the execution and delivery of this Agreement, the issuance of the
Securities and the consummation of the Conversion, except as may
be required under the securities or Blue Sky laws of various
jurisdictions as to which no opinion need be rendered.
(xvii) At the time the Registration Statement became
effective, the Registration Statement (other than the financial
statements and statistical data included therein, as to which no
opinion need be rendered) complied as to form in all material
respects with the requirements of the Securities Act and the
Securities Act Regulations and the Conversion Regulations.
(xviii) The Common Stock conforms to the description
thereof contained in the Prospectus, and the form of certificate
used to evidence the Common Stock is in due and proper form and
complies with all applicable statutory requirements.
(xix) There are no legal or governmental proceedings
pending or threatened against or affecting the Company, the Bank
or its subsidiaries which are required, individually or in the
aggregate, to be disclosed in the Registration Statement and
Prospectus, other than those disclosed therein, and
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<PAGE>
all pending legal or governmental proceedings to which the
Company, the Bank or any of its subsidiaries is a party or to
which any of their property is subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not
material.
(xx) The information in the Prospectus under "Risk
Factors - Contribution to the Foundation may not be tax
deductible which could hurt American Savings' earnings," "- Anti-
takeover provisions and statutory provisions could make takeover
attempts more difficult to achieve," "-Banking reform legislation
may reduce American Financial's powers," "Dividend Policy,"
"Business of American Savings - Legal Proceedings," "Regulation
and Supervision," "Federal and State Taxation on Income," "The
Conversion - Establishment of the Charitable Foundation," "-
Effects of Conversion to Stock Form," "- Prospective investors
are urged to consult with their own tax advisors regarding the
tax consequence of the conversion particular to them," "-
Limitations of Purchaser of Shares," "- Restrictions on
Repurchase of Stock," "- Restrictions on Transferability by
Directors and Officers and NASD Members," "- Interpretation,
Amendment and Termination," "Restriction on Acquisition of
American Financial and American Savings," "Description of
American Financial Stock," "Description of American Savings
Stock," "Registration Requirements," "Legal and Tax Opinions" to
the extent that it constitutes matters of law, summaries of legal
matters, documents or proceedings, or legal conclusions, has been
reviewed by them and is complete and accurate in all material
respects.
(xxi) To the best of such counsel's knowledge, there are no
contracts, indentures, mortgages, loan agreements, notes, leases
or other instruments required to be described or referred to in
the Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed as
exhibits thereto, the descriptions thereof or references thereto
are correct, and no default exists, and no event has occurred
which, with notice or lapse of time or both, would constitute a
default, in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or
other instrument so described, referred to or filed.
(xxii) The Plan has been duly authorized by the Board of
Directors of the Company and the Board of Directors of the Bank,
and the FDIC's and Department of Banking's approval of the Plan
remains in full force and effect; the Bank's charter has been
amended, effective upon consummation of the Conversion and the
filing of such amended charter with the Department of Banking, to
authorize the issuance of permanent capital stock; to the best of
such counsel's knowledge, the Company and the Bank have conducted
the Conversion and the establishment and funding of the
Foundation in all material respects in accordance with applicable
requirements of the Conversion Regulations, the Plan and all
other applicable regulations, decisions and orders thereunder,
including all material applicable terms,
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<PAGE>
conditions, requirements and conditions precedent to the
Conversion imposed upon the Company or the Bank by the FDIC and
Department of Banking and, no order has been issued by the FDIC
or Department of Banking to suspend the Conversion or the
Offerings and no action for such purpose has been instituted or
threatened by the FDIC or Department of Banking; and, to the best
of such counsel's knowledge, no person has sought to obtain
review of the final action of the FDIC or Department of Banking
in approving the Conversion Application (which includes the Plan
which provides for the establishment of the Foundation) or the
final action of the OTS in approving the Holding Company
Application.
(xxiii) To the best of such counsel's knowledge, the
Company and the Bank and its subsidiaries have obtained all
licenses, permits and other governmental authorizations currently
required for the conduct of their respective businesses as
described in the Registration Statement and Prospectus, and all
such licenses, permits and other governmental authorizations are
in full force and effect, and the Company and the Bank and its
subsidiaries are in all material respects complying therewith.
(xxiv) Neither the Company, the Bank nor any of its
subsidiaries is in violation of its certificate of incorporation,
organization certificate, articles of incorporation or charter,
as the case may be, or bylaws (and the Bank will not be in
violation of its charter in stock form upon consummation of the
Conversion) or, to the best of such counsel's knowledge, in
default (nor has any event occurred which, with notice or lapse
of time or both, would constitute a default) in the performance
or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Company, the Bank or
any of its subsidiaries is a party or by which the Company, the
Bank or any of its subsidiaries or any of their property may be
bound.
(xxv) The Company is not required to be registered as an
investment company under the Investment Company Act of 1940.
(2) The favorable opinion, dated as of Closing Time, of Tyler
Cooper & Alcorn, LLP, counsel for the Agent, with respect to the
matters set forth in Section 5(b)(1)(i), (iv), (v), (vi) (solely as to
preemptive rights arising by operation of law), (xii), (xiii), (xiv),
(xvi) and (xvii) and such other matters as the Agent may reasonably
require.
(3) In giving their opinions required by subsections (b)(l) and
(b)(2), respectively, of this Section, Murphy, Muldoon & Faucette, LLP
and Tyler Cooper & Alcorn, LLP shall each additionally state that
nothing has come to their attention that would lead them to believe
that the Registration Statement (except for financial statements and
schedules and other financial or statistical data included therein, as
to which counsel need make no statement), at the time it became
effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the
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Prospectus (except for financial statements and schedules and other
financial or statistical data included therein, as to which counsel
need make no statement), at the time the Registration Statement became
effective or at Closing Time, included an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. In giving their opinions,
Murphy, Muldoon & Faucette, LLP and Tyler Cooper & Alcorn, LLP may
rely as to matters of fact on certificates of officers and directors
of the Company and the Bank and certificates of public officials,
which opinions shall be in form and substance satisfactory to counsel
for the Agent, and Tyler Cooper & Alcorn, LLP may also rely on the
opinion of Murphy, Muldoon & Faucette, LLP.
(c) At Closing Time referred to in Section 2, the Company and the
Bank shall have completed in all material respects the conditions precedent
to the Conversion in accordance with the Plan, the applicable Conversion
Regulations and all other applicable laws, regulations, decisions and
orders, including all terms, conditions, requirements and provisions
precedent to the Conversion imposed upon the Company or the Bank by the
FDIC or Department of Banking, or any other regulatory authority other than
those which the FDIC or Department of Banking permits to be completed after
the Conversion.
(d) At Closing Time, there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in
the financial condition, results of operations or business affairs of the
Company, the Bank and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the Agent
shall have received a certificate of the Chief Executive Officer of the
Company and of the Bank, the President of the Company and the Bank and the
chief financial or chief accounting officer of the Company and of the Bank,
dated as of Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) there shall have been no material transaction
entered into by the Company or the Bank from the latest date as of which
the financial condition of the Company or the Bank as set forth in the
Registration Statement and the Prospectus other than transactions referred
to or contemplated therein and transactions in the ordinary cause of
business, (iii) neither the Company nor the Bank shall have received from
the OTS, FDIC or Department of Banking any direction (oral or written) to
make any material change in the method of conducting its business with
which it has not complied (which direction, if any, shall have been
disclosed to the Agent) or which materially and adversely would affect the
business, financial condition or results of operations of the Company, the
Bank or its subsidiaries, (iv) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as
though expressly made at and as of the Closing Time, (v) the Company and
the Bank have complied with all agreements and satisfied all conditions on
their part to be performed or satisfied at or prior to Closing Time, (vi)
no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been initiated or
threatened by the Commission and (vii) no order suspending the Public
Offering or Syndicated Community Offering or the authorization for final
use of the Prospectus has been issued and no proceedings for that purpose
have been initiated or threatened by the Department of Banking or the FDIC
and no person has sought to obtain regulatory or judicial review of the
action of the FDIC or Department of Banking in approving the Plan in
accordance with the Conversion Regulations
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nor has any person sought to obtain regulatory or judicial review of the
action of the OTS in approving the Holding Company Application.
(e) At the time of the execution of this Agreement, the Agent shall
have received from KPMG a letter dated such date, in form and substance
satisfactory to the Agent, to the effect that (i) they are independent
public accountants with respect to the Company, the Bank and its
subsidiaries within the meaning of the Code of Ethics of the American
Institute of Certified Public Accountants, the Securities Act and the
Securities Act Regulations and the Conversion Regulations; (ii) it is their
opinion that the consolidated financial statements and supporting schedules
included in the Registration Statement and covered by their opinions
therein comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Securities Act
Regulations; (iii) based upon limited procedures as agreed upon by the
Agent and KPMG set forth in detail in such letter, nothing has come to
their attention which causes them to believe that (A) the unaudited
financial statements and supporting schedules of the Bank and its
subsidiaries included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting requirements
of the Securities Act, the Securities Act Regulations and the Conversion
Regulations or are not presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that
of the audited financial statements included in the Registration Statement
and the Prospectus, (B) the unaudited amounts of net interest income and
net income set forth under "Consolidated Selected Financial Information" in
the Registration Statement and Prospectus do not agree with the amounts set
forth in unaudited consolidated financial statements as of and for the
dates and periods presented under such captions or such amounts were not
determined on a basis substantially consistent with that used in
determining the corresponding amounts in the audited financial statements
included in the Registration Statement, (C) at a specified date not more
than five days prior to the date of this Agreement, there has been any
increase in the consolidated long term or short term debt of the Bank and
its subsidiaries or any decrease in consolidated total assets, the
allowance for loan losses, total deposits or net worth of the Bank and its
subsidiaries, in each case as compared with the amounts shown in the May
31, 1999 balance sheet included in the Registration Statement or, (D)
during the period from May 31, 1999 to a specified date not more than five
days prior to the date of this Agreement, there were any decreases, as
compared with the corresponding period in the preceding year, in total
interest income, net interest income, net interest income after provision
for loan losses, income before income tax expense or net income of the Bank
and its subsidiaries, except in all instances for increases or decreases
which the Registration Statement and the Prospectus disclose have occurred
or may occur; and (iv) in addition to the examination referred to in their
opinions and the limited procedures referred to in clause (iii) above, they
have carried out certain specified procedures, not constituting an audit,
with respect to certain amounts, percentages and financial information
which are included in the Registration Statement and Prospectus and which
are specified by the Agent, and have found such amounts, percentages and
financial information to be in agreement with the relevant accounting,
financial and other records of the Company, the Bank and its subsidiaries
identified in such letter.
(f) At Closing Time, the Agent shall have received from KPMG a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (d) of this
Section, except that the specified date referred to shall be a date not
more than five days prior to Closing Time.
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(g) At Closing Time, the Securities shall have been approved for
listing on the Nasdaq National Market upon notice of issuance.
(h) At Closing Time, the Agent shall have received a letter from
FinPro, Inc., dated as of the Closing Time, confirming its appraisal.
(i) At Closing Time, counsel for the Agent shall have been
furnished with such documents and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities and the Foundation Shares as herein contemplated and related
proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection
with the issuance and sale of the Securities and Foundation Shares as
herein contemplated shall be satisfactory in form and substance to the
Agent and counsel for the Agent.
(j) At any time prior to Closing Time, (i) there shall not have
occurred any material adverse change in the financial markets in the United
States or elsewhere or any outbreak of hostilities or escalation thereof or
other calamity or crisis the effect of which, in the judgment of the Agent,
are so material and adverse as to make it impracticable to market the
Securities or to enforce contracts, including subscriptions or orders, for
the sale of the Securities, and (ii) trading generally on either the
American Stock Exchange, the New York Stock Exchange or the Nasdaq Stock
Market shall not have been suspended, and minimum or maximum prices for
trading shall not have been fixed, or maximum ranges for prices for
securities have been required, by either of said Exchanges or by order of
the Commission or any other governmental authority, and a banking
moratorium shall not have been declared by either Federal or New York
authorities.
SECTION 6. INDEMNIFICATION.
(a) The Company and the Bank, jointly and severally, agree to
indemnify and hold harmless the Agent, each person, if any, who controls the
Agent, within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, and its respective partners, directors, officers, employees
and agents as follows:
(i) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, related to or arising out of the
Conversion (including the establishment of the Foundation and the
contribution of the Foundation Shares thereto by the Company) or any action
taken by the Agent where acting as agent of the Company or the Bank or
otherwise as described in Section 2 hereof; provided, however, that this
indemnity agreement shall not apply to any loss, liability, claim, damage
or expense found in a final judgment by a court of competent jurisdiction
to have resulted primarily from the bad faith, willful misconduct or gross
negligence of the Agent seeking indemnification hereunder.
(ii) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, based upon or arising out of any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto), or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any
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<PAGE>
untrue statement or alleged untrue statement of a material fact contained
in the Proxy Statement or Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(iii) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any claim
whatsoever described in clauses (i) or (ii) above, if such settlement is
effected with the written consent of the Company or the Bank, which consent
shall not be unreasonably withheld; and
(iv) from and against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and disbursements of
counsel chosen by the Agent), reasonably incurred in investigating,
preparing for or defending against any litigation, or any investigation,
proceeding or inquiry by any governmental agency or body, commenced or
threatened, or any claim pending or threatened whatsoever described in
clauses (i) or (ii) above, to the extent that any such expense is not paid
under (i), (ii) or (iii) above;
provided, however, that the indemnification provided for in this paragraph (a)
shall not apply to any loss, liability, claim, damage or expense to the extent
arising out of any untrue statement or alleged untrue statement of a material
fact contained in the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading which was made in reliance upon and in conformity with
written information relating to the Agent furnished to the Company or the Bank
by the Agent expressly for use in the Prospectus (or any amendments or
supplements thereto), which information the Company and the Bank acknowledge is
included only in the sections captioned "The Conversion - Syndicate Community
Offering," "-Plan of Distribution for the Subscription, Direct Community
Offering and Syndicated Community Offering" and "-Description of Sales
Activities" of the Prospectus (the "Agent Information").
(b) The Agent agrees to indemnify and hold harmless the Company, the
Bank, their directors and trustees, each of their officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all loss, liability, claim, damage and expense described in
the indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, of a material fact made in the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with the Agent
Information.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability which it may have otherwise than on account of this indemnity
agreement. An indemnifying party may participate at its own expense in the
defense of any such action. In no event shall the indemnifying parties be liable
for fees and expenses of more than one counsel (in addition to no more than one
local counsel in each separate jurisdiction in which any action or proceeding is
commenced) separate from their own counsel for all indemnified parties in
connection with any one
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<PAGE>
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.
(d) The Company and the Bank also agree that the Agent shall not have
any liability (whether direct or indirect, in contract or tort or otherwise) to
the Bank, the Company, its security holders or the Bank's or the Company's
creditors relating to or arising out of the engagement of the Agent pursuant to,
or the performance by the Agent of the services contemplated by, this Agreement,
except to the extent that any loss, claim, damage or liability is found in a
final judgment by a court of competent jurisdiction to have resulted primarily
from the Agent's bad faith, willful misconduct or gross negligence.
(e) In addition to, and without limiting, the provisions of Section
(6)(a)(iv) hereof, in the event that any Agent, any person, if any, who controls
the Agent within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act or any of its partners, directors, officers, employees or
agents is requested or required to appear as a witness or otherwise gives
testimony in any action, proceeding, investigation or inquiry brought by or on
behalf of or against the Company, the Bank, the Agent or any of its respective
affiliates or any participant in the transactions contemplated hereby in which
the Agent or such person or agent is not named as a defendant, the Company and
the Bank jointly and severally agree to reimburse the Agent for all reasonable
and necessary out-of-pocket expenses incurred by it in connection with preparing
or appearing as a witness or otherwise giving testimony and to compensate the
Agent in an amount to be mutually agreed upon.
SECTION 7. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the Bank
and the Agent shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Company or the Bank and the Agent, as incurred, in such
proportions (i) that the Agent is responsible for that portion represented by
the percentage that the maximum aggregate marketing fees appearing on the cover
page of the Prospectus bears to the maximum aggregate gross proceeds appearing
thereon and the Company and the Bank are jointly and severally responsible for
the balance or (ii) if, but only if, the allocation provided for in clause (i)
is for any reason held unenforceable, in such proportion as is appropriate to
reflect not only the relative benefits to the Company and the Bank on the one
hand and the Agent on the other, as reflected in clause (i), but also the
relative fault of the Company and the Bank on the one hand and the Agent on the
other, as well as any other relevant equitable considerations; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section, each person, if any, who
controls the Agent within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Agent, and each director of the Company, each trustee of the Bank, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company or the Bank within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as the Company and the Bank. Notwithstanding anything to the
contrary set forth herein, to the extent permitted by applicable law, in no
event shall the Agent be required to contribute an aggregate amount in excess of
the aggregate marketing fees to which the Agent is entitled and actually paid
pursuant to this Agreement.
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<PAGE>
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company or the Bank
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Agent or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities.
SECTION 9. TERMINATION OF AGREEMENT.
(a) The Agent may terminate this Agreement, by notice to the Company,
at any time at or prior to Closing Time (i) if there has been, since the date of
this Agreement or since the respective dates as of which information is given in
the Registration Statement, any material adverse change in the financial
condition, results of operations or business affairs of the Company or the Bank,
or the Company, the Bank and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or elsewhere or any outbreak of hostilities or escalation thereof or
other calamity or crisis the effects of which, in the judgment of the Agent, are
so material and adverse as to make it impracticable to market the Securities or
to enforce contracts, including subscriptions or orders, for the sale of the
Securities, (iii) if trading generally on the Nasdaq Stock Market, the American
Stock Exchange or the New York Stock Exchange has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by either of said Exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by either Federal or New York authorities, (iv) if any condition
specified in Section 5 shall not have been fulfilled when and as required to be
fulfilled; (v) if there shall have been such material adverse change in the
condition or prospects of the Company or the Bank or the prospective market for
the Company's securities as in the Agent's good faith opinion would make it
inadvisable to proceed with the offering, sale or delivery of the Securities;
(vi) if, in the Agent's good faith opinion, the price for the Securities
established by FinPro, Inc. is not reasonable or equitable under then prevailing
market conditions, or (vii) if the Conversion is not consummated on or prior to
August 3, 2001.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof relating to the reimbursement of expenses and
except that the provisions of Sections 6 and 7 hereof shall survive any
termination of this Agreement.
SECTION 10. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Agent
shall be directed to the Agent at Two World Trade Center, 104th Floor, New York,
New York 10048, attention of Catherine A. Lawton, Principal; notices to the
Company and the Bank shall be directed to either of them at American Financial
Holdings, Inc., 102 West Main Street, New Britain, Connecticut 06501, attention
of Robert T. Kenney, Chairman of the Board, President and Chief Executive
Officer.
SECTION 11. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the Agent, the Company and the Bank and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Agent, the Company and the Bank and their respective successors and the
controlling
-29-
<PAGE>
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein or therein
contained. This Agreement and all conditions and provisions hereof and thereof
are intended to be for the sole and exclusive benefit of the Agent, the Company
and the Bank and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation.
SECTION 12. ENTIRE AGREEMENT; AMENDMENT. This Agreement represents
the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore made, except of the engagement letter dated July
30, 1999, by and between the Agent and the Company and the Bank, relating to the
Agent's providing conversion agent services to the Company and the Bank in
connection with the Conversion. No waiver, amendment or other modification of
this Agreement shall be effective unless in writing and signed by the parties
hereto.
SECTION 13. GOVERNING LAW AND TIME. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said State without regard to the
conflicts of laws provisions thereof. Unless otherwise noted, specified times
of day refer to Eastern time.
SECTION 14. SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 15. HEADINGS. Sections headings are not to be considered part
of this Agreement, are for convenience and reference only, and are not to be
deemed to be full or accurate descriptions of the contents of any paragraph or
subparagraph.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Agent, the Company and the Bank in accordance with its terms.
Very truly yours,
AMERICAN FINANCIAL HOLDINGS, INC.
By:_____________________________________
Title:
AMERICAN SAVINGS BANK
By:_____________________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
SANDLER O'NEILL & PARTNERS, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By:____________________________________
[Name]
Vice President
-31-
<PAGE>
AMERICAN FINANCIAL HOLDINGS, INC.
36,167,500 Shares
(Maximum Offered in Conversion, subject
to increase up to 41,592,625 shares in
the event of an over subscription)
Common Stock
(Par Value $0.01 Per Share)
SELECTED DEALER'S AGREEMENT
___________, 1999
We have agreed to assist American Financial Holdings, Inc. (the "Company")
in connection with the offer and sale of shares (the "Shares") of Common Stock,
par value $0.01 per share, of the Company, to be issued in connection with the
conversion of American Savings Bank, a state chartered savings bank (the "Bank")
from mutual to stock form. The Company, in connection with its plan to effect
such conversion, offered 36,167,500 Shares for subscription by the Company's and
the Bank's employee stock ownership plan and certain of the Bank's depositors,
in a subscription offering, and certain members of the general public in a
concurrent direct community offering. The Shares which were not subscribed for
pursuant to such subscription and direct community offerings are being offered
to the public in a syndicated community offering (the "Syndicated Community
Offering") in accordance with the rules of the Federal Deposit Insurance
Corporation ("FDIC") and the Banking Commissioner of the State of Connecticut
("Banking Commissioner"). The Shares, the bases on which the number of Shares
to be issued may change, and certain of the terms on which they are being
offered are more fully described in the enclosed Prospectus (the "Prospectus").
We are offering to Selected Dealers (of which you are one) the opportunity
to participate in the solicitation of offers to buy the Shares in the Syndicated
Community Offering and we will pay you a fee in the amount of ___________
percent (______%) of the dollar amount of the Shares sold on behalf of the
Company by you. The number of Shares sold by you shall be determined based on
the authorized designation of your firm on the order form or forms for such
Shares accompanying the funds transmitted for payment therefor (whether in the
form of a check payable to the Bank or a withdrawal from an existing account at
the Bank) to the special account established by the Company for the purpose of
holding such funds. It is understood, of course, that payment of your fee will
be made only out of compensation received by us for the Shares sold on behalf of
the Company by you, as evidenced in accordance with the preceding sentence. The
Bank has requested us to invite you to become a "Sponsoring Dealer," that is, a
Selected Dealer who solicits offers which result in the sale on behalf of the
Bank of at least ________ Shares. You may become a Sponsoring Dealer (subject
to your fulfillment of the requirement in the preceding sentence) by checking
the box on the confirmation at the end of this letter. If you become a
Sponsoring Dealer, you shall be entitled to an additional fee in the amount of
______ percent (_____%) of the dollar amount of the Shares sold on behalf of the
Company by you as evidenced in the manner set forth above.
Each order form for the purchase of Shares must set forth the identity,
---- --------
address and tax identification number of each person ordering Shares regardless
- ------- -------------------------
of whether the Shares will be
<PAGE>
registered in street name or in the purchaser's name. Such order form should
clearly identify your firm.
As soon as practicable after all the Shares are sold, we will remit to you,
out of our compensation as provided above, the fees to which you are entitled
hereunder, including your Sponsoring Dealer fee.
This offer is made subject to the terms and conditions herein set forth and
is made only to Selected Dealers which are (i) members in good standing of the
National Association of Securities Dealers, Inc. ("NASD") which agree to comply
with all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation With Respect to Free-Riding and Withholding and Section 24 of
Article III of the NASD's Rules of Fair Practice, or (ii) foreign dealers not
eligible for membership in the NASD which agree (A) not to sell any Shares
within the United States, its territories or possessions or to persons who are
citizens thereof or resident therein and (B) in making other sales to comply
with the above-mentioned NASD Interpretation, Sections 8, 24 and 36 of the
above-mentioned Article III as if they were NASD members and Section 25 of such
Article III as it applies to non-member brokers or dealers in a foreign country.
Orders for Shares will be strictly subject to confirmation and we, acting
on behalf of the Company, reserve the right in our absolute discretion to reject
any order in whole or in part, to accept or reject orders in the order of their
receipt or otherwise, and to allot. Neither you nor any other person is
authorized by the Company, the Bank or by us to give any information or make any
representations other than those contained in the Prospectus in connection with
the sale of any of the Shares. No Selected Dealer is authorized to act as agent
for us when soliciting offers to buy the Shares from the public or otherwise.
No Selected Dealer shall engage in any stabilizing (as defined in Regulation M
promulgated under the Securities Exchange Act of 1934, as amended) with respect
to the Company's Common Stock during the offering.
We and each Selected Dealer assisting in selling Shares pursuant hereto
agree to comply with the applicable requirements of the Securities Exchange Act
of 1934, as amended, and applicable rules and regulations issued by the FDIC and
Banking Commissioner. In addition, we and each Selected Dealer confirm that the
Securities and Exchange Commission interprets Rule 15c2-8 promulgated under the
Securities Exchange Act of 1934 as requiring that a prospectus be supplied to
each person who is expected to receive a confirmation of sale 48 hours prior to
delivery of such person's order form.
We and each Selected Dealer further agree to the extent that our customers
desire to pay for Shares with funds held by or to be deposited with us, in
accordance with the interpretation of the Securities and Exchange Commission of
Rule 15c2-4 promulgated under the Securities Exchange Act of 1934, as amended
either (a) upon receipt of an executed order form or direction to execute an
order form on behalf of a customer to forward the syndicated community offering
price for the Shares ordered on or before 12:00 p.m. on the business day
following receipt or execution of an order form by us to the Bank for deposit in
a segregated account or (b) to solicit indications of interest in which event
(i) we will subsequently contact any customers indicating interest to confirm
the interest and give instructions to execute and return an order form or to
receive authorization to execute an order form on their behalf, (ii) we will
mail acknowledgements of receipt of orders to each customer confirming interest
on the business day following such confirmation, (iii) we will debit accounts
of such customers on the fifth business day (the "debit date") following receipt
of the confirmation referred to in (i) and (iv) we will forward completed order
forms together with such funds to the
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<PAGE>
Bank on or before 12:00 p.m. on the next business day following the debit date
for deposit in a segregated account. We acknowledge that if the procedure in (b)
is adopted, our customer's funds are not required to be in their accounts until
the debit date. We and each Selected Dealer further acknowledge that, in order
to use the foregoing "sweep arrangements," we comply with the net capital
requirements for broker/dealers under Rule 15c3-1(a)(1) of the Securities
Exchange Act of 1934.
Unless earlier terminated by us, this Agreement shall terminate 45 full
business days after the date hereof, but may be extended by us for an additional
period or periods not exceeding 30 full business days in the aggregate. We may
terminate this Agreement or any provisions hereof at any time by written or
telegraphic notice to you. Of course, our obligations hereunder are subject to
the successful completion of the offering, including the sale of all of the
Shares.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of Shares sold on
behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem advisable
in respect to all matters pertaining to the offering. We shall be under no
liability to you except for lack of good faith and for obligations expressly
assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Shares have been qualified for sale under, or are exempt from the
requirements of, the respective blue sky laws of such states, but we assume no
responsibility or obligation as to your rights to sell Shares in any state.
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of New York.
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Sandler O'Neill &
Partners, L.P., Two World Trade Center, 104th Floor, New York, New York 10048.
The enclosed duplicate copy will evidence the agreement between us.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By:_____________________________________
-3-
<PAGE>
Sandler O'Neill & Partners, L.P.
Two World Trade Center - 104th Floor
New York, New York 10048
Re: (Name of Issuer)
----------------
We hereby confirm our agreement to all the terms and conditions stated in
the foregoing letter. We acknowledge receipt of the Prospectus relating to the
Shares and we further state that in agreeing thereto we have relied upon the
Prospectus and no other statement whatsoever, written or oral. We confirm that
we are (i) a member in good standing of the National Association of Securities
Dealers, Inc. ("NASD"), which agrees to comply with all applicable rules of the
NASD, including, without limitation, the NASD's Interpretation With Respect to
Free-Riding and Withholding and Section 24 of Article III of the NASD's Rules of
Fair Practice, or (ii) a foreign dealer not eligible for membership in the NASD
which agrees (A) not to sell any Shares within the United States, its
territories or possessions or to persons who are citizens thereof or resident
therein and (B) in making other sales to comply with the above-mentioned NASD
Interpretation, Sections 8, 24 and 26 of the above-mentioned Article III as if
they were NASD members and Section 25 of such Article III as it applies to a
non-member broker or dealer in a foreign country.
[_] We wish to become a "Sponsoring Dealer."
_____________________________________________
(Please print or type name of firm)
_____________________________________________
(Authorized Representative)
Dated:_________________
-4-
<PAGE>
EXHIBIT 2.1
AMENDED PLAN OF CONVERSION
FOR
AMERICAN SAVINGS BANK
1. INTRODUCTION.
This Amended Plan of Conversion (the "Plan") provides for the conversion of
American Savings Bank (the "Bank") from a state-chartered mutual to a state-
chartered capital stock savings bank. The Board of Directors has carefully
considered the alternatives available to the Bank with respect to its corporate
structure and has determined that a mutual to stock conversion as described in
this Plan is in the best interests of the Bank, its depositors and the
communities served by the Bank. The restructuring of the Bank into the stock
form of organization will enable the Bank to expand the Bank's franchise,
compete more effectively with commercial banks and other financial institutions
for new business opportunities, and as a stock institution, to increase its
equity capital base and access the capital markets when needed. The business
purposes of the Conversion are to provide the Bank with equity capital which
will enable it to increase its reserves and net worth to support future lending
and operational growth, branching activities and acquisitions of other financial
institutions or financial services companies, and to increase its ability to
render services to the communities it serves.
The Board of Directors of the Bank currently contemplates that all of the
stock of the Bank shall be held by a business corporation (the "Holding
Company") organized under the laws of the State of Delaware and that the Holding
Company will issue and sell its stock pursuant to this Plan. The use of the
Holding Company, if so utilized, would provide greater organizational and
operating flexibility. Shares of stock of the Bank will be sold to the Holding
Company and the Holding Company will offer the Conversion Stock upon the terms
and conditions set forth herein in a Subscription Offering to the Eligible
Account Holders, Supplemental Eligible Account Holders (if any) and any Tax-
Qualified Employee Stock Benefit Plan established by the Bank or Holding
Company, in the respective priorities set forth in this Plan. Any shares of
Conversion Stock not subscribed for by the foregoing classes of persons will be
offered for sale to certain members of the public either directly by the Bank or
the Holding Company through a Direct Community Offering or a Syndicated
Community Offering or through an underwritten firm commitment public offering or
through a combination thereof. In the event that the Bank decides not to utilize
the Holding Company in conversion, Conversion Stock of the Bank, in lieu of the
Holding Company, will be sold as set forth above and in the respective
priorities set forth in this Plan. In addition to the foregoing, the Bank and
the Holding Company intend to provide employment or severance agreements to
certain management employees and certain other benefits to the Directors,
officers and employees of the Bank as described in the Prospectus for the
Conversion Stock.
<PAGE>
In furtherance of the Bank's commitment to its community, this Plan
provides for the establishment of a charitable foundation as part of the
Conversion. The charitable foundation is intended to complement the Bank's
existing community reinvestment activities in a manner that will allow the
Bank's local communities to share in the growth and profitability of the Holding
Company and the Bank over the long term. Consistent with the Bank's goal, the
Holding Company intends to donate to the charitable foundation immediately
following the Conversion a number of shares of its authorized but unissued
Common Stock in an amount up to 8% of the common stock issued in the Conversion.
For these reasons, the Board of Directors, on May 24, 1999, unanimously
adopted, and, on June 28, 1999 and July 22, 1999, amended, this Plan to convert
the Bank from a mutual form of organization to a stock form of organization.
The terms of deposit accounts of the Bank's depositors will not be affected
by the Conversion provided for in this Plan. Each deposit account holder in the
converted Bank, prior to conversion, shall receive, without payment, a
withdrawable account or accounts in the converted Bank equal in withdrawable
amount to the withdrawable value of such account holder's account or accounts in
the Bank prior to conversion. All deposit accounts in the Bank following the
Conversion will continue to be insured by the Federal Deposit Insurance
Corporation (the "FDIC"). The stock to be issued in the Conversion, however,
will not be insured by the FDIC or any other insurer. The Bank, as chartered in
the stock form following the Conversion, will succeed to all of the presently
existing rights, interests, duties and obligations of the Bank to the extent
provided by law, including, but not limited to, all of its rights to and
interests in its assets and properties, both real and personal.
This Plan, which has been adopted by the Bank's Board of Directors by a
unanimous vote, must also be approved at a special meeting of the Corporators
called to consider the Plan by the affirmative vote of (1) a majority of the
total voting power of the Corporators eligible to vote, which total voting power
shall not be less than twenty-five (25) Corporators, and (2) a majority of
Independent Corporators who shall constitute not less than sixty percent (60%)
of the total voting power of the Corporators. Corporators are "independent" if
they are not employees, officers, directors, trustees or significant borrowers
of the Bank. Subsequent to the submission of this Plan to the Corporators for
their consideration, the Plan must be approved by the Banking Commissioner of
the State of Connecticut (the "Commissioner") and reviewed without objection by
the FDIC.
2. DEFINITIONS.
As used in this Plan, the following terms have the meanings indicated
below:
Acting in Concert. The term "Acting in Concert" includes a combination or
-----------------
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or
2
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otherwise. A person or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert with any
person or company who is also acting in concert with that other party, except
that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be
acting in concert with its trustee or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the trustee and
stock held by the plan will be aggregated.
Affiliate. An Affiliate of, or a person "affiliated" with a specified
---------
person, means a person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
person specified. The term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a person, whether through ownership of voting securities, by contract, or
otherwise.
Aggregate Purchase Price. The term "Aggregate Purchase Price" means the
------------------------
total sum paid for all Shares of Conversion Stock.
Associate. The term "Associate" when used to indicate a relationship with
---------
any person means: (1) any corporation or organization (other than the Holding
Company, the Bank or a majority-owned subsidiary of the Bank) of which such
person is an officer or partner or is, directly or indirectly, the beneficial
owner of ten percent or more of any class of equity securities; (2) any trust or
other estate in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary capacity, except
that for the purposes of Sections 5 and 6 hereof, the term "Associate" does not
include any Non Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified
Employee Stock Benefit Plan in which a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and that for
purposes of aggregating total shares that may be held by Officers and Directors
the term "Associate" does not include any Tax-Qualified Employee Stock Benefit
Plan; and (3) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director, trustee or
officer of the Holding Company, the Bank, or any of its parents or subsidiaries.
Bank. The term "Bank" means the American Savings Bank.
----
Bank Personnel. The term "Bank Personnel" means directors, officers and
--------------
employees of the Bank.
Broker-Dealer. The term "Broker-Dealer" means any person engaged in the
-------------
business of effecting transactions in securities for the account of others or
for his own account, other than those persons specifically excluded from the
definition of such term by Section 36b-3(5) of the Connecticut General Statutes.
Commissioner. The term "Commissioner" means Banking Commissioner of the
------------
State of Connecticut.
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Common Stock. The term "Common Stock" means any and all authorized common
------------
stock of the Holding Company outstanding subsequent to the Conversion.
Conversion. The term "Conversion" means the change in the form of the Bank
----------
from the mutual form to the stock form by the adoption of an amendment to the
Certificate of Incorporation of the Bank to authorize the issuance of stock in
accordance with the regulations of the Commissioner and to otherwise conform to
the requirements of a Connecticut capital stock savings bank and the issuance of
the stock of the Bank in accordance with this Plan.
Conversion Regulations. The term "Conversion Regulations" means Sections
----------------------
36-142m-1 et. seq. of the Regulations of Connecticut State Agencies and the
applicable regulations of the Federal Deposit Insurance Corporation, but only to
the extent such regulations do not conflict with Sections 36-142m-1 et. seq. of
the Regulations of Connecticut State Agencies.
Conversion Stock or Shares. The terms "Conversion Stock" or "Shares" mean
--------------------------
the common stock sold by the Holding Company or, if the holding company
structure is not utilized, the Bank in the Conversion.
Corporators. The term "Corporators" means the corporators of the Bank as
-----------
determined by the mutual Bylaws of the Bank.
Deposit Account. The term "Deposit Account" means a deposit account
---------------
maintained at the Bank but does not include escrow accounts established pursuant
to Section 49-2a of the Connecticut General Statutes.
Direct Community Offering. The term "Direct Community Offering" means the
-------------------------
offering of Conversion Stock to the Local Community with preference given to
natural persons residing in the Local Community.
Directors. The term "Directors" refers to the directors of the Bank or the
---------
Holding Company, as indicated by the context.
Eligible Account Holder. The term "Eligible Account Holder" means any
-----------------------
person holding a Qualifying Deposit in the Bank.
Eligibility Record Date. The term "Eligibility Record Date" means December
-----------------------
31, 1997, the record date set by the Bank for determining Eligible Account
Holders.
Estimated Price Range. The term "Estimated Price Range" means the range of
---------------------
minimum and maximum aggregate values determined by the Board of Directors of the
Bank within which the aggregate amount of common stock sold in the Conversion
will fall. The Estimated Price Range will be within the estimated pro forma
market value of the Conversion Stock as
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determined by the Independent Appraiser prior to the Subscription Offering and
as it may be amended from time to time thereafter.
FDIC. The term "FDIC" means the Federal Deposit Insurance Corporation.
----
Foundation. The term "Foundation" means a charitable foundation that will
----------
qualify as an exempt organization under Section 501(c)(3) of the Internal
Revenue Code, the establishment and funding of which is contemplated by Section
3A herein.
Holding Company. The term "Holding Company" means the Delaware corporation
---------------
formed for the purpose of acquiring all of the shares of capital stock of the
Bank to be issued upon its conversion to stock form unless the Holding Company
form of organization is not utilized.
Independent Appraiser. The term "Independent Appraiser" means the firm
---------------------
employed by the Bank to prepare an appraisal of the pro forma market value of
the Bank which will be used as the basis for determining the price of the
Conversion Stock.
Local Community. The term "Local Community" means all counties in which
---------------
the Bank has offices.
Officer. The term "Officer" means the chairman of the board, president,
-------
vice president, secretary, treasurer or principal financial officer, comptroller
or principal accounting officer, and any other person performing similar
functions of the Bank or the Holding Company, as indicated by the context.
Order Form. The term "Order Form" means any form together with attached
----------
cover letter, sent by the Bank to any Person containing among other things a
description of the alternatives available to such Person under the Plan and by
which any such Person may make elections regarding subscriptions for Conversion
Stock in the Subscription and Community Offerings.
Person. The term "Person" means an individual, a corporation, a
------
partnership, an association, a joint-stock company, a trust (including
Individual Retirement Accounts ("IRA") and KEOGH Accounts), any unincorporated
organization or similar company, a government or political subdivision, a
syndicate or a group acting in concert.
Plan. The term "Plan" means this Plan of Conversion as adopted by the
----
Board of Directors of the Bank and approved by the Commissioner, and any
amendments thereto.
Prospectus. The term "Prospectus" means the offering circular or prospectus
----------
by which the Common Stock of the Holding Company is being offered.
5
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Purchase Price. The term "Purchase Price" means the price per share of the
--------------
Conversion Stock, as offered for sale in the Conversion.
Qualifying Deposit. The term "Qualifying Deposit" means a Deposit Account
------------------
of $50 or more in the Bank at the close of business as of the Eligibility Record
Date or the Supplemental Eligibility Record Date (if any), whichever may be the
case. Deposit Accounts with total deposit balances of less than $50 shall not
constitute a Qualifying Deposit.
SEC. The term "SEC" means the Securities and Exchange Commission.
---
Special Meeting. The term "Special Meeting" means the meeting of the
---------------
Corporators, and any adjournments thereof, called for the specific purpose of
submitting the Plan to such Corporators for vote and approval.
Subscription Offering. The term "Subscription Offering" refers to the
---------------------
offering of Conversion Stock, through nontransferable Subscription Rights issued
to Eligible Account Holders, the Tax-Qualified Employee Stock Benefit Plan,
Supplemental Eligible Account Holders (if any), Directors, Officers and
employees of the Bank, and Corporators.
Supplemental Eligible Account Holder. The term "Supplemental Eligible
------------------------------------
Account Holder" means any person (other than Officers, Directors and employees
of the Bank) holding a Qualifying Deposit in the Bank as of the Supplemental
Eligibility Record Date (if any).
Supplemental Eligibility Record Date. The term "Supplemental Eligibility
------------------------------------
Record Date" means the last day of the calendar quarter preceding the
Commissioner's approval of the Bank's Application (as defined in Section 3).
Syndicated Community Offering. The term "Syndicated Offering" means the
-----------------------------
offering of Conversion Stock not subscribed for in the Subscription Offering, if
any, to certain members of the general public through a syndicate of registered
broker-dealers.
Tax-Qualified Employee Stock Benefit Plan. The term "Tax-Qualified Employee
-----------------------------------------
Stock Benefit Plan" means any defined benefit plan or defined contribution plan
of the Bank, such as an employee stock ownership plan, stock bonus plan, profit-
sharing plan or other plan, which, with any related trust, meets the
requirements to be "qualified" under section 401 of the Internal Revenue Code of
1986, as amended.
3. PROCEDURE FOR CONVERSION.
The Board of Directors of the Bank has adopted the Plan subject to its
approval by the Corporators. The effective date of the adoption of the Plan by
the Bank's Board of Directors will be the date on which the Plan is approved by
the Corporators. Upon the effectiveness of the
6
<PAGE>
adoption of the Plan by the Board of Directors of the Bank, the Plan will be
submitted, together with all other requisite material in an application for
conversion (the "Application"), to the Commissioner for approval and to the FDIC
with all other requisite material for non-objection. The Bank must also apply to
the Internal Revenue Service for a tax ruling or receive an opinion from counsel
which provides that the Conversion would not result in a taxable reorganization
of the Bank under the Internal Revenue Code of 1986, as amended, and with
respect to the federal tax consequences of the conversion.
No later than 15 days from the date of the filing of the Plan with the
Commissioner as part of the Bank's Application, the Bank shall mail by first
class mail a notice to each Eligible Account Holder indicating that: (i) the
Directors have approved the Plan; (ii) if the Plan is approved by the
Commissioner, each Eligible Account Holder shall have non-transferable
subscription rights to subscribe for shares of the Conversion Stock; and (iii)
subsequent to the consummation of the Conversion, the holders of the capital
stock of the Bank shall have exclusive voting rights in the Bank. (If the
holding company structure is utilized, the Holding Company shall have exclusive
voting rights in the Bank.) The Bank shall not include with such notice a
postage pre-paid expression of interest card required by Section 36-142m-6(a)(4)
of the Conversion Regulations; provided, however, that the Commissioner grants a
written waiver of such requirement. The Bank will follow all other notification
procedures as required by the Commissioner.
The Commissioner will review the Bank's Application. The Commissioner shall
approve the Bank's Application if the Commissioner determines that: (i) the Bank
has complied with applicable provisions of law; (ii) the Conversion would not
result in the reduction of the Bank's amount of equity capital, less any
subordinated debt recognized as bona fide capital; (iii) the Conversion would
not result in a taxable reorganization of the Bank under the Internal Revenue
Code of 1986, or any subsequent corresponding internal revenue code of the
United States, as from time to time amended; and (iv) the Plan is fair to
depositors of the Bank. Upon approval, the Commissioner shall issue a
certificate of approval of the Plan. The Bank, as converted, shall not commence
business unless its insurable deposits are insured by the FDIC or its successor
agency.
The Bank shall provide all Corporators with the Plan pursuant to
informational material or a proxy statement at least ten days prior to a special
meeting of Corporators called to consider the adoption of the Plan (the "Special
Meeting"). At the Special Meeting the Plan must be approved by (1) a majority of
the total voting power of the Corporators eligible to vote, which such total
voting power shall not be less than twenty-five (25) Corporators, and (2) a
majority of Independent Corporators who shall constitute not less than sixty
percent (60%) of the total voting power of the eligible Corporators. Corporators
of the Bank are "independent" if they are not employees, officers, directors,
trustees or significant borrowers of the Bank or if they do not have any
significant commercial relationships with the Bank. Following the vote, the Bank
shall file with the Commissioner a certificate of the Secretary of the Bank
certifying that the Special
7
<PAGE>
Meeting has been held and that the Plan has been duly approved by the
Corporators in accordance with the voting requirements stated herein.
If the Corporators approve the Plan, and the Commissioner authorizes the
sale of Conversion Stock pursuant to this Plan, Conversion Stock will be sold as
provided herein. The Conversion Stock to be issued pursuant to this Plan will be
offered in a Subscription Offering to Eligible Account Holders, any Tax-
Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holders (if
any), Directors, Officers and employees of the Bank, and the Corporators, as set
forth in Section 5 of this Plan after such Corporator approval and after
approval of the Plan by the Commissioner. If feasible, any Conversion Stock
remaining after such purchases will then be offered to the general public
through a Direct Community Offering as provided in Section 6 of this Plan. The
sale of all Conversion Stock ordered in the Subscription Offering may be
consummated simultaneously on the date the Direct Community Offering is
completed, or, if there is no Direct Community Offering, as soon as practicable
following expiration of the Subscription Offering.
The Board of Directors of the Bank intends to take all necessary steps to
form the Holding Company, including the filing of any necessary applications to
the appropriate regulatory authorities which will govern the activities of the
Holding Company. The Bank will be a wholly-owned subsidiary of the Holding
Company unless the Holding Company is not utilized in the Conversion. The
initial Directors of the Holding Company shall also be Directors of the Bank.
If the Holding Company is utilized, upon Conversion the Bank will issue its
stock to the Holding Company, and the Holding Company will issue and sell the
Conversion Stock in accordance with this Plan. The Holding Company will make
timely applications for any requisite regulatory approvals, including an
application to register as a bank or savings and loan holding company, and the
filing of a Registration Statement to register the sale of the Conversion Stock
with the SEC.
The Board of Directors of the Bank also intends to take all necessary steps
to establish the charitable foundation and to fund such charitable foundation in
the manner set forth in Section 3A hereof.
Upon the issuance of the Conversion Stock, the Holding Company will
purchase from the Bank all of the capital stock of the Bank to be issued by the
Bank in the Conversion in exchange for the Conversion proceeds that are not
permitted to be retained by the Holding Company. The Bank believes that the
Conversion will greatly enhance the Bank's ability, among other things, (i) to
expand its franchise through increased lending, (ii) to diversify products
offered to customers, (iii) to establish new branch locations, and (iv) to
acquire other financial institutions or financial services companies.
8
<PAGE>
The Board of Directors of the Bank may determine for any reason at any time
prior to the issuance of the Conversion Stock not to utilize a holding company
form of organization in the Conversion. If the Board of Directors of the Bank
determines not to complete the Conversion utilizing a holding company form of
organization, the stock of the Bank will be issued and sold in accordance with
the Plan. In such case, the Holding Company's registration statement will be
withdrawn from the SEC, the Bank will take steps necessary to complete the
conversion from the mutual to the stock form of organization, including filing
any necessary documents with the Commissioner and the FDIC and will issue and
sell the Conversion Stock in accordance with this Plan. In such event, any
subscriptions or orders received for Conversion Stock of the Holding Company
shall be deemed to be subscriptions or orders for Conversion Stock of the Bank,
and the Bank shall take such steps as permitted or required by the FDIC, the
Commissioner and the SEC.
3A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION.
As part of the Conversion, the Holding Company and the Bank intend to
establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Internal Revenue Code (the "Foundation") and to
donate to the Foundation from authorized but unissued shares of common stock of
the Holding Company, an amount up to 8% of the number of shares of Conversion
Stock sold in the Conversion. The Foundation is being formed in connection with
the Conversion in order to complement the Bank's existing community reinvestment
activities and to share with the Bank's local community a part of the Bank's
financial success as a locally headquartered, community minded, financial
services institution. The funding of the Foundation with common stock of the
Holding Company accomplishes this goal as it enables the community to share in
the growth and profitability of the Holding Company and the Bank over the long-
term.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will annually distribute total grants to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of Foundation assets each year,
less certain expenses. In order to serve the purposes for which it was formed
and maintain its Section 501(c)(3) qualification, the Foundation may sell, on an
annual basis, a limited portion of the Common Stock contributed to it by the
Holding Company.
The board of directors of the Foundation will be comprised of individuals
who are officers and/or directors of the Bank. The board of directors of the
Foundation will be responsible for establishing the policies of the Foundation
with respect to grants or donations, consistent with the stated purposes of the
Foundation.
9
<PAGE>
4. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK.
The total number of shares of Conversion Stock which will be issued in
connection with the Conversion will be determined by the Board of Directors of
the Bank and the Board of Directors of the Holding Company, if the holding
company form of organization is utilized, immediately prior to the commencement
of the Subscription Offering; provided, that the Boards of Directors may elect
to increase or decrease the number of shares of Conversion Stock to be offered
in the Subscription and Direct Community Offerings depending upon market and
financial conditions, with the approval of the Commissioner and the FDIC. In
particular, the total number of shares of Conversion Stock may be increased by
up to 15% of the number of shares offered for sale in the Conversion if the
Estimated Price Range is increased subsequent to the commencement of the
Subscription and Direct Community Offerings to reflect changes in market and
financial conditions and the Aggregate Purchase Price is not more than 15% above
the maximum of the Estimated Price Range.
An Independent Appraiser shall be employed by the Bank to provide it with
an independent valuation of the estimated pro forma market value of the
Conversion Stock to be issued in the Conversion as required by the Conversion
Regulations. The Directors of the Bank shall thoroughly review and analyze the
methodology and fairness of the independent appraisal. The valuation will be
made by a written report to the Bank, contain the factors upon which the
valuation was made and conform to procedures adopted by the Commissioner and the
FDIC. The valuation shall contain an estimated range of aggregate prices for the
Conversion Stock, which range shall reflect the anticipated pro forma market
value of the Conversion Stock to be issued in the Conversion. The maximum price
shall be no more than 15% above the estimated pro forma market value, and the
minimum price shall be no more than 15% below the estimated pro forma market
value. The number of shares of Conversion Stock to be issued and the Purchase
Price may be increased or decreased by the Bank. In the event that the Aggregate
Purchase Price of the Conversion Stock is below the minimum of the Estimated
Price Range, or materially above the maximum of the Estimated Price Range,
resolicitation of purchasers may be required, provided that up to a 15% increase
above the maximum of the Estimated Price Range will not be deemed material so as
to require a resolicitation and will not require the approval of the
Commissioner. Any such resolicitation shall be effected in such manner and
within such time as the Bank shall establish, with the approval of the
Commissioner and the FDIC. Up to a 15% increase in the number of shares of
Conversion Stock to be offered for sale which is supported by an appropriate
change in the estimated pro forma market value of the Holding Company will not
be deemed to be material so as to require a resolicitation of subscriptions.
All Shares to be sold in the Conversion shall be sold at a uniform price
per share. The Independent Appraiser shall evaluate the pro forma market value
of the Conversion Stock to be issued in the Conversion, which value shall be
included in the Prospectus (as described in Section 8 of this Plan) filed with
the Commissioner. The Independent Appraiser shall also present at the close of
the Subscription Offering a valuation of the pro forma market value of the
Conversion Stock to be issued in the Conversion. The Aggregate Purchase Price of
the
10
<PAGE>
Conversion Stock to be sold by the Bank shall be adjusted to reflect any
required changes in the pro forma market value of the Bank. If, as a result of
such adjustment, the Aggregate Purchase Price is more than 15% above the maximum
of the Estimated Price Range, the Bank shall obtain an amendment to the
Commissioner's approval. If appropriate, the Commissioner will condition his
approval by requiring a resolicitation of subscribers.
The price per share for each share of Conversion Stock when multiplied by
the number of shares of Conversion Stock, shall be equivalent to the pro forma
market value of the Conversion Stock to be issued in the Conversion in
accordance with the valuation furnished by the Independent Appraiser.
5. SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS,
TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN AND SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS.
A. CATEGORY NO. 1: ELIGIBLE ACCOUNT HOLDERS
(a) Each Eligible Account Holder shall receive, as first priority and
without payment, non-transferable Subscription Rights to purchase up to a
maximum of $500,000 worth of Conversion Stock, so long as the share equivalent
of such dollar amount does not exceed one-half of one percent (0.50%) of the
total number of shares of Conversion Stock offered for sale in the Conversion.
(b) In the event that subscriptions for Conversion Stock are received from
Eligible Account Holders upon exercise of Subscription Rights pursuant to
paragraph (a) in excess of the number of Shares offered for sale in the
Conversion, the Conversion Stock available for purchase will be allocated among
the subscribing Eligible Account Holders so as to permit each subscribing
Eligible Account Holder, to the extent possible, to purchase a number of Shares
sufficient to make his total allocation of Conversion Stock equal to the lesser
of 100 Shares or the number of Shares subscribed for by such Eligible Account
Holder. Any Shares remaining after such allocation will be allocated among the
subscribing Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion which the amount of each Eligible Account Holder's Qualifying
Deposit bears to the total amount of the Qualifying Deposits of all Eligible
Account Holders whose subscriptions remain unsatisfied. If the amount so
allocated exceeds the amount subscribed for by any one or more Eligible Account
Holders, the excess shall be reallocated on the same principle (one or more
times as necessary) among those Eligible Account Holders whose subscriptions are
still not fully satisfied until all available Shares have been allocated or all
subscriptions are satisfied.
(c) Nontransferable subscription rights held by Eligible Account Holders
who are also Directors, Corporators or Officers of the Bank and their
Associates, will be subordinated to those of other Eligible Account Holders to
the extent they are attributable to increased deposits during the one-year
period preceding the Eligibility Record Date.
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<PAGE>
B. CATEGORY NO. 2: TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN
(a) The Tax-Qualified Employee Stock Benefit Plan shall receive, without
payment, as a second priority, after the satisfaction of the subscriptions of
Eligible Account Holders, non-transferable Subscription Rights to purchase up to
5% of the shares of Conversion Stock offered for sale in the Conversion. If,
after the satisfaction of subscriptions of Eligible Account Holders, a
sufficient number of shares are not available to fill the subscriptions by such
plan, the subscription by such plan shall be filled to the maximum extent
possible. If all the Conversion Stock offered in the Conversion is purchased by
Eligible Account Holders, then the Tax-Qualified Employee Stock Benefit Plan may
purchase shares in the open market following consummation of the Conversion or
directly from the Holding Company through authorized but unissued shares. A Tax-
Qualified Employee Stock Benefit Plan shall not be deemed to be an Associate or
Affiliate of, or a Person Acting in Concert with, any Trustee, Director or
Officer of the Holding Company or the Bank. Notwithstanding any provision
contained herein to the contrary, the Bank may make scheduled discretionary
contributions to a Tax-Qualified Employee Stock Benefit Plan; provided, that
such contributions do not cause the Bank to fail to meet its regulatory capital
requirements.
(b) The Tax-Qualified Employee Stock Benefit Plan may purchase shares of
Common Stock in the open market after the effective date of the Conversion to
enable it to acquire, together with shares of Conversion Stock acquired in the
Conversion, up to 8% of the outstanding shares of Common Stock.
C. CATEGORY NO. 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS
(a) If required by the FDIC, each Supplemental Eligible Account Holder
shall receive, as third priority and without payment, nontransferable
subscription rights to purchase up to a maximum of $500,000 worth of Conversion
Stock, so long as the share equivalent of such dollar amount does not exceed
one-half of one percent (0.50%) of the total number of shares of Conversion
Stock offered for sale in the Conversion.
(b) In the event that subscriptions for Conversion Stock are received from
Supplemental Eligible Account Holders upon exercise of subscription rights
pursuant to paragraph (a) in excess of the number of Shares offered for sale in
the Conversion, the Conversion Stock available for purchase will be allocated
among the subscribing Supplemental Eligible Account Holders so as to permit each
subscribing Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of Shares sufficient to make his total allocation of
Conversion Stock equal to the lesser of 100 Shares or the number of Shares
subscribed for by such Supplemental Eligible Account Holder. Any Shares
remaining after such allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion which the amount of each Supplemental Eligible Account Holder's
Qualified Deposit bears to the total of the Qualifying Deposits of all
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied. If
the amount
12
<PAGE>
so allocated exceeds the amount subscribed for by any one or more Supplemental
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied on the same principle until all available Shares
have been allocated or all subscriptions satisfied.
(c) Subscription rights received pursuant to Section 5C shall be
subordinated to all rights received by Eligible Account Holders and any Tax-
Qualified Employee Stock Benefit Plans to purchase Conversion Stock.
(d) Subscription rights received by an Eligible Account Holder pursuant to
Section 5A shall be applied in partial satisfaction of the subscription rights
to be received as a Supplemental Eligible Account Holder pursuant to this
Section 5C.
D. CATEGORY NO. 4: DIRECTORS, OFFICERS AND EMPLOYEES
(a) Directors, Officers and employees of the Bank, who are not
Eligible Account Holders, shall receive, as fourth priority and without payment,
nontransferable subscription rights to purchase Shares of Common Stock in an
amount equal to $500,000 of Conversion Stock offered for sale in the Conversion,
so long as the share equivalent of such dollar amount does not exceed one-half
of one percent (0.50%) of the total number of shares of Conversion Stock offered
for sale in the Conversion.
(b) Subscription rights received pursuant to Section 5D shall be
subordinated to all rights to purchase Conversion Stock received by Eligible
Account Holders, any Tax-Qualified Employee Stock Benefit Plans and Supplemental
Eligible Account Holders.
E. CATEGORY NO. 5: CORPORATORS
(a) Corporators, who are not Eligible Account Holders or Supplemental
Eligible Account Holders, shall receive, as fifth priority and without payment,
nontransferable subscription rights to purchase Shares of Common Stock in an
amount equal to $500,000 of Conversion Stock offered for sale in the Conversion,
so long as the share equivalent of such dollar amount does not exceed one-half
of one percent (0.50%) of the total number of shares of Conversion Stock offered
for sale in the Conversion.
(b) Subscription rights received pursuant to Section 5E shall be
subordinated to all rights to purchase Conversion Stock received by Eligible
Account Holders, any Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders, and Directors, Officers and employees of the Bank.
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6. DIRECT COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND PUBLIC
OFFERING.
Conversion Stock which remains unsubscribed after the exercise of
subscription rights pursuant to the Subscription Offering pursuant to Section 5
shall be offered for sale to the general public through a Direct Community
Offering, with preference as to the purchase of Conversion Stock given first to
natural persons residing in the Bank's Local Community and then to the public at
large. The Direct Community Offering, if any, may commence simultaneously with
the Subscription Offering, or may commence during or after the commencement of
the Subscription Offering, as the Board so determines. The right to subscribe
for shares of Conversion Stock in the Direct Community Offering is subject to
the right of the Bank and Holding Company to accept or reject such subscriptions
in whole or in part. Stock being sold in the Direct Community Offering will be
offered and sold in a manner that will achieve the widest distribution of the
Conversion Stock. Purchases by Persons and their Associates in this phase of
the offering are limited to $500,000 of Conversion Stock subject to the maximum
purchase limitation specified in Section 7(a) and the minimum purchase
limitation specified in Section 7(b); provided, however, that the amount
permitted to be purchased in the Direct Community Offering may be increased to
5% of the total offering of shares without the further approval of the
Corporators or resolicitation of subscribers, unless required by the
Commissioner and/or the FDIC. If the maximum purchase limit is so increased,
orders accepted in the Direct Community Offering shall be filled up to a maximum
of 2% of the total offering and thereafter remaining shares shall be allocated
on an equal number of shares basis per order until all orders have been filled.
If any Conversion Stock remains unsold after the close of the Subscription
and Direct Community Offerings, the Bank may use the services of a syndicate of
registered broker-dealers to sell such unsold shares on a best efforts basis in
a Syndicated Community Offering. The syndicate of registered broker-dealers may
be managed by one of the syndicate members who will act as agent of the Holding
Company and the Bank to assist the Holding Company and the Bank in the sale of
the Conversion Stock. Neither the syndicate manager nor any other syndicate
member shall have any obligation to take or purchase any of the shares of
Conversion Stock in the Syndicated Community Offering. Purchases by Persons and
their Associates in this phase of the offering are limited to $500,000 of
Conversion Stock subject to the maximum purchase limitation specified in Section
7(a) and the minimum purchase limitation specified in Section 7(b); provided,
however, that the amount permitted to be purchased in the Syndicated Community
Offering may be increased to 5% of the total offering of shares without the
further approval of the Corporators or resolicitation of subscribers, unless
required by the Commissioner and/or the FDIC. If the maximum purchase limit is
so increased, orders accepted in the Syndicated Community Offering shall be
filled up to a maximum of 2% of the total offering and thereafter remaining
shares shall be allocated on an equal number of shares basis per order until all
orders have been filled.
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Any shares of Conversion Stock not sold in the Subscription Offering, the
Direct Community Offering or the Syndicated Community Offering may be offered
for sale through an underwritten firm commitment public offering. Any such
public offering shall be conducted in accordance with applicable law and
regulations, including Section 36-142m-9 of the Conversion Regulations.
7. LIMITATIONS ON PURCHASES.
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Section 5, the following limitations shall apply
to all purchases of shares of Conversion Stock:
(a) The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person,
together with any Associate or group or persons Acting in Concert, shall not
exceed 1.0% of the Conversion Stock sold (the "Maximum Overall Purchase
Limitation"), except for the Tax-Qualified Employee Stock Benefit Plan which may
subscribe for up to 5% of the Conversion Stock offered for sale in the
Conversion; provided, however, that Directors and Officers of the Bank and the
Holding Company shall not be deemed to be Associates or Persons Acting In
Concert solely as a result of their board membership or employment. This
maximum overall purchase limitation may be increased consistent with the
Conversion Regulations in the sole discretion of the Holding Company and the
Bank subject to any required regulatory approval.
(b) A minimum of 25 Shares must be purchased by each person purchasing
Conversion Stock to the extent Shares are available, provided, however, that
such minimum number of Shares will be reduced if the price per Share times such
minimum number of Shares exceeds $500.
(c) The maximum number of Shares which may be purchased, in their
individual capacity, in the Conversion by Directors, Officers, and their
Associates, of the Bank and the Holding Company, in the aggregate shall not
exceed thirty percent (30%) of the total number of Shares sold. Each Director
and Officer will be subject to the same purchase limitations as other Eligible
Account Holders and Supplemental Eligible Account Holders (if any).
(d) For purposes of this Section 7, the Directors and Officers of the Bank
and the Holding Company shall not be deemed to be Associates or a group
affiliated with each other or otherwise Acting in Concert solely as a result of
their being Directors or Officers of the Bank or the Holding Company.
(e) Depending upon market or financial conditions, the Board of Directors
of the Bank and the Board of Directors of the Holding Company, with the approval
of the Commissioner and the FDIC, if necessary, and without further approval of
the Corporators, unless such further approval is required by the Commissioner
and/or the FDIC, may increase the
15
<PAGE>
purchase limitations in this Plan, provided that the maximum purchase
limitations may not be increased in the Conversion to a percentage in excess of
5% of the Conversion Stock offered for sale. If the Bank or the Holding Company,
as the case may be, increases the maximum purchase limitations, the Bank or the
Holding Company, as the case may be, is only required to resolicit Persons who
subscribed for the maximum purchase amount and may, in the sole discretion of
the Bank or the Holding Company, as the case may be, resolicit certain other
large subscribers. Requests to purchase additional shares of the Conversion
Stock in the event that the purchase limitation is so increased will be granted
by the Board of Directors of the Bank and the Holding Company in their sole
discretion.
8. MANNER OF EXERCISING SUBSCRIPTION RIGHTS; ORDER FORMS.
(a) Promptly after the Commissioner has declared the Prospectus referred
to in paragraph (b) of this Section 8 effective, Order Forms for the exercise of
the subscription rights provided for in this Plan will be sent to all Eligible
Account Holders, Supplemental Eligible Account Holders (if any) and the Tax-
Qualified Employee Benefit Plan at their last known address appearing in the
records of the Bank.
(b) Each Order Form will be preceded or accompanied by a Prospectus
which must be approved by the Commissioner. Such Prospectus shall describe the
Bank, the Holding Company and the Conversion Stock being offered and will
contain all the information required by the Commissioner and all applicable laws
and regulations as necessary to enable the recipients of the Order Forms to make
informed investment decisions regarding the purchase of Conversion Stock.
(c) The Order Forms will contain or will be accompanied by, among other
things, the following:
(i) An explanation of the rights and privileges granted under this Plan
to each class of persons granted subscription rights pursuant to Section 5 of
this Plan with respect to the purchase of Conversion Stock including the maximum
and minimum number of shares that may be purchased;
(ii) A specified time by which Order Forms must be received by the Bank
for purposes of exercising the subscription rights of Eligible Account Holders
and Supplemental Eligible Account Holders under this Plan, as provided in
Section 10 of this Plan;
(iii) A statement that the Aggregate Purchase Price at which the
Conversion Stock will ultimately be purchased in the Conversion has not been
determined as of the date of mailing of the Order Form, but that such price will
be within the range of prices which will be stated in the Order Form;
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<PAGE>
(iv) The amount which must be returned with the Order Form to subscribe
for Conversion Stock. Such amount will be equal to the Purchase Price multiplied
by the number of Shares subscribed for in accordance with the terms of this
Plan;
(v) Instructions concerning how to indicate on such Order Form the
extent to which the recipient elects to exercise subscription rights under this
Plan, the name or names in which the Shares subscribed for are to be registered,
the address to which certificates representing such Shares are to be sent and
the alternative methods of payment for Conversion Stock which will be permitted;
(vi) Specifically designated blank spaces for indicating the number of
Shares of Conversion Stock which each person wishes to purchase and for dating
and signing the Order Form;
(vii) An acknowledgment that the recipient of the Order Form has
received, prior to signing the Order Form, the Prospectus referred to in
paragraph (b) of this Section 8;
(viii) A statement that the subscription rights provided for in this
Plan are nontransferable, will be void after the specified time referred to in
paragraph (c)(ii) above and can be exercised only by delivery of the Order Form,
properly completed and executed, to the Bank, together with the full required
payment (in the manner specified in Section 9 of this Plan) for the number of
Shares subscribed for prior to such specified time;
(ix) Provision for certification to be executed by the recipient of the
Order Form to the effect that, as to any Shares which the recipient elects to
purchase, such recipient is purchasing such Shares for his own account only and
has no present agreement or understanding regarding any subsequent sale or
transfer of such Shares;
(x) A statement to the effect that the executed Order Form, once
received by the Bank, may not be modified or amended by the subscriber without
the consent of the Bank; and
(xi) An explanation of the manner of required payment and a statement
that payment may be made by withdrawal from a certificate of deposit without
penalty.
Notwithstanding the above, the Bank and the Holding Company reserve the
right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
9. PAYMENT FOR CONVERSION STOCK.
(a) Full payment for all Shares subscribed for must be received by the
Bank, together with properly completed and executed order forms therefor, prior
to the expiration time, which will be specified on the Order Forms, unless such
date is extended by the Bank; provided, however, that if the Tax-Qualified
Employee Stock Benefit Plan subscribes for Conversion Stock
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<PAGE>
during the Subscription Offering, such plan will not be required to pay for
shares at the time they subscribe but may pay for such shares of Conversion
Stock subscribed for by such plan at the Actual Purchase Price upon consummation
of the Conversion, provided that there is in force from time of its subscription
until the consummation of the Conversion, a loan commitment to lend to the Tax-
Qualified Employee Stock Benefit Plan, at such time, the aggregated purchase
price of the shares for which it subscribed.
(b) If it is determined that the Aggregate Purchase Price should be
greater than the amount stated in the Order Forms, upon compliance with such
requirements as may be imposed by the Commissioner (which may include
resolicitation of votes for approval of this Plan by Corporators) each Person
who subscribed for Shares will be permitted to withdraw their Subscription and
have their payment for Shares returned to them in whole or in part, with
interest, or to make payment to the Bank of the additional amount necessary to
pay for the Shares subscribed for by him at the Purchase Price in the manner and
within the time prescribed by the Bank.
(c) If the Aggregate Purchase Price is outside the range of prices
established by the Independent Appraiser referred to in Section 4 of this Plan
and set forth in the Prospectus referred to in Section 8 of this Plan, the Bank
will apply for an amendment to the Commissioner's approval of this Plan and
comply with such requirements as the Commissioner may then establish.
(d) Payment for Shares ordered for purchase by Eligible Account Holders
and Supplemental Eligible Account Holders (if any) will be permitted to be made
in any of the following manners:
(i) In cash, if delivered in person;
(ii) By check, bank draft or money order, provided that checks will only
be accepted subject to collection;
(iii) By appropriate authorization of withdrawal from the subscriber's
deposit account at the Bank. The Order Forms will contain appropriate means by
which authorization of such withdrawals may be made. For purposes of
determining the withdrawable balance of such accounts, such withdrawals will be
deemed to have been made upon receipt of appropriate authorization therefor, but
interest at the rates applicable to the accounts from which the withdrawals have
been deemed to have been made will be paid by the Bank on the amounts deemed to
have been withdrawn until the date on which the Conversion is consummated, at
which date the authorized withdrawal will actually be made. Such withdrawals
may be made upon receipt of Order Forms authorizing such withdrawals, but
interest will be paid by the Bank on the amounts withdrawn as if such amounts
had remained in the accounts from which they were withdrawn until the date upon
which the sales of Conversion Stock pursuant to exercise of subscription rights
are actually consummated. Interest will be paid by the Bank at not less than
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<PAGE>
the rate per annum being paid by the Bank on its passbook accounts at the time
the Subscription Offering commences, on payments for Conversion Stock received
in the Subscription Offering in cash or by check, bank draft, money order or
negotiable order of withdrawal from the date payment is received until
consummation or termination of the Conversion. The Bank shall be entitled to
invest all amounts paid for subscriptions in the Subscription Offering for its
own account until completion or termination of the Conversion; and
(iv) Wire transfers as payment for Shares ordered for purchase will not
be permitted or accepted as proper payment.
(e) Orders for Conversion Stock submitted by subscribers which aggregate
$50,000 or more must be paid by official bank or certified check, a check issued
by a NASD-registered broker-dealer or by withdrawal authorization from a deposit
account of the Bank.
(f) Payments for the purchase of Conversion Stock in the Subscription
Offering will be permitted through authorization of withdrawals from certificate
accounts at the Bank without early withdrawal penalties. If the remaining
balances of the certificate accounts after such withdrawals are less than the
minimum qualifying balances under applicable regulations, the certificates
evidencing the accounts will be canceled upon consummation of the Conversion,
and the remaining balances will thereafter earn interest at the rate provided
for in the certificates in the event of cancellation.
10. EXPIRATION OF SUBSCRIPTION RIGHTS; UNDELIVERED, DEFECTIVE OR LATE ORDER
FORMS; INSUFFICIENT PAYMENT.
(a) All subscription rights provided for in this Plan, including,
without limitation the subscription rights of all persons whose Order Forms are
returned by the United States Post Office as undeliverable, will expire on a
specified date as described in the Prospectus which shall be not less than
twenty (20) days following the date on which Order Forms are first mailed to
Eligible Account Holders, provided that the Bank shall have the power to extend
such expiration time in its discretion, but in no event beyond forty-five (45)
days following the date on which Order Forms are first mailed to Eligible
Account Holders.
(b) In those cases in which the Bank is unable to locate particular
persons granted subscription rights under this Plan, and cases in which Order
Forms: (1) are returned as undeliverable by the United States Post Office; (2)
are not received back by the Bank or are received by the Bank after the
expiration date specified thereon; (3) are defectively filled out or executed;
or (4) are not accompanied by the full required payment for the Conversion Stock
subscribed for (including cases in which deposit accounts from which withdrawals
are authorized are insufficient to cover the amount of the required payment),
the subscription rights of the person to whom such subscription rights have been
granted will lapse as though such person failed to return the completed Order
Form within the time period specified thereon.
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<PAGE>
(c) The Bank may, but will not be obligated to, waive any irregularity
on any Order Form or require the submission of corrected Order Forms or the
remittance of full payment for Shares subscribed for by such date as it may
specify, and all interpretations by the Bank of terms and conditions of this
Plan and of the Order Forms will be final.
11. PERSONS IN NONQUALIFIED STATES OR IN FOREIGN COUNTRIES.
Subject to the following sentence, the Holding Company will make reasonable
efforts to comply with the securities laws of all states of the United States in
which Eligible Account Holders and Supplemental Eligible Account Holders (if
any) entitled to subscribe for Conversion Stock pursuant to this Plan reside.
However, no such person will be offered any subscription rights or sold any
Conversion Stock under this Plan who resides in a foreign country or who resides
in a state of the United States with respect to which both of the following
apply: (a) less than 100 persons eligible to subscribe for Shares under the Plan
reside in such state, and (b) the granting of subscription rights or the offer
or sale of Common Stock to such persons would require the Holding Company or its
employees under the securities laws of such state to register as a broker,
dealer or agent or to register or otherwise qualify the Common Stock for sale in
such state. No payments will be made in lieu of the granting of subscription
rights to such persons.
12. VOTING RIGHTS AFTER CONVERSION.
Following Conversion, voting rights with respect to the Bank will be held
and exercised exclusively by the holders of the stock of the Bank; the Holding
Company, if utilized, shall own all of the issued and outstanding stock of the
Bank.
13. ESTABLISHMENT OF A LIQUIDATION ACCOUNT.
(a) The Bank will, at the time of Conversion, establish a "Liquidation
Account" in an amount equal to the amount of equity capital of the Bank, less
any subordinated debt approved as bona fide capital of the Bank, as of the
latest practicable date prior to Conversion. The function of the Liquidation
Account is to establish a priority on liquidation and, except as provided for in
this Section 13, shall not operate to restrict the use or application of any of
the equity capital of the Bank.
(b) The Liquidation Account shall be maintained, for a period of ten
(10) years after the effective date of the Conversion, by the Bank for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
(if any) who continue to maintain deposit accounts at the Bank. Each Eligible
Account Holder and Supplemental Eligible Account Holder (if any) will have a
separate inchoate interest in the Liquidation Account in relation to each
deposit account making up a Qualifying Deposit. Such inchoate interests are
referred to herein as "Subaccount Balances."
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<PAGE>
(c) Each initial Subaccount Balance in the Liquidation Account held by
an Eligible Account Holder and/or Supplemental Eligible Account Holder (if any)
shall be an amount determined by multiplying the amount in the Liquidation
Account by a fraction, the numerator of which is the amount of Qualifying
Deposits in such deposit account on the Eligibility Record Date or the
Supplemental Eligibility Record Date (if any), as appropriate, and the
denominator of which is the total amount of all Qualifying Deposits of Eligible
Account Holders and Supplemental Account Holders (if any) on the corresponding
record date. For deposit accounts in existence at both dates, separate
Subaccounts shall be determined on the basis of the Qualifying Deposits in such
deposit accounts on such record dates.
(d) Each initial Subaccount Balance in the Liquidation Account shall
never be increased, but will be subject to downward adjustment as follows. If
the balance in the deposit account to which a Subaccount Balance relates, at the
close of business on any annual fiscal year closing date of the Bank subsequent
to the corresponding record date, is less than the lesser of (i) the deposit
balance in such savings account at the close of business on any other annual
fiscal year closing date subsequent to the Eligibility Record Date or
Supplemental Eligibility Record Date (if any), or (ii) the amount of the
Qualifying Deposit as of the Eligibility Record Date or Supplemental Eligible
Record Date (if any), then the Subaccount Balance for such deposit account shall
be adjusted by reducing such Subaccount Balance in an amount proportionate to
the reduction in such account balance. In the event of such downward adjustment,
the Subaccount Balance shall not be subsequently increased, notwithstanding any
increase in the deposit balance of the related deposit account. If any deposit
account is closed, its related Subaccount Balance shall be reduced to zero upon
such closing.
(e) In the event of a complete liquidation of the converted Bank (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder (if any) shall receive from the Liquidation Account a liquidation
distribution in the amount of the then-current adjusted Subaccount Balances for
deposit accounts then held, before any liquidation distribution may be made to
any holders of the conversion stock of the converted Bank. No merger,
consolidation, purchase of bulk assets with assumption of deposit accounts and
other liabilities, or similar transactions in which the converted Bank is not
the surviving institution, will be deemed to be a complete liquidation for this
purpose, and, in any such transaction, the Liquidation Account shall be assumed
by the surviving institution.
14. TRANSFER OF DEPOSIT ACCOUNT.
Each deposit account in the Bank at the time of the Conversion will
constitute, without payment or further action by the account holder, a
withdrawable deposit account in the converted Bank equivalent in withdrawable
amount to the withdrawable value, and subject to the same terms and conditions
(except as to voting and liquidation rights) as such deposit account in the Bank
at the time of the Conversion.
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<PAGE>
15. RESTRICTION ON TRANSFER OF CONVERSION STOCK OF OFFICERS AND DIRECTORS.
(a) All Conversion Stock purchased by Officers and Directors of the
Holding Company and the Bank and their Associates either directly from the
Holding Company or the Bank (by subscription or otherwise) or from an
underwriter of such Shares will be subject to the restriction that no such
Shares shall be sold for a period of one year following the date of purchase of
such Shares, except in the event of the death of the Officer or Director unless
such sale or exchange is approved by the Commissioner.
(b) With respect to all Conversion Stock subject to restriction on
subsequent disposition pursuant to the above paragraph, each of the following
provisions shall apply:
(i) Each certificate representing such Shares shall bear a legend
prominently stamped on its face giving notice of such restriction;
(ii) Instructions will be given to the transfer agent for the converted
Bank or the Holding Company not to recognize or effect any transfer of any
certificates representing such Shares, or any change of record ownership thereof
in violation of such restriction on transfer; and
(iii) Any stock of the Holding Company issued in respect of a stock
dividend, stock split or otherwise in respect of ownership of outstanding Shares
subject to restrictions on transfer hereunder will be subject to the same
restrictions as are applicable to the Conversion Stock in respect of which such
Shares are issued.
16. RESTRICTION ON STOCK PURCHASES BY OFFICERS AND DIRECTORS.
No purchases of outstanding shares of common stock of the Holding Company
by Directors, Officers and their Associates of the Holding Company and the Bank
may be made during the three-year period following the Conversion, except
through a broker or dealer registered with the SEC or the State of Connecticut
Department of Banking, except with the prior written approval of the
Commissioner. This restriction does not apply, however, to: (a) negotiated
transactions involving more than one percent of the outstanding common stock of
the Holding Company; (b) the purchase of common stock made pursuant to an
employee stock option plan or employee stock purchase plan which meets the
requirements of Section 423 of the Internal Revenue Code; or (c) the purchase of
common stock pursuant to a non-tax-qualified employee stock benefit plan which
may be attributable to individual Officers and Directors of the Bank or Holding
Company.
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17. AMENDMENT AND TERMINATION OF THE PLAN.
This Plan may be substantively amended by the Board of Directors of the
Bank in its sole discretion at any time with the concurrence of the Commissioner
and, if necessary, the FDIC, or as a result of comments from regulatory
authorities. Such amendment may be prior or subsequent to the approval of the
Corporators and, if subsequent to the approval of the Corporators, without their
further approval unless required by the Commissioner and/or the FDIC. This Plan
may be terminated by the Directors of the Bank at any time.
By adoption of this Plan, the Corporators of the Bank authorize the Board
of Directors to amend or terminate the Plan under the circumstances set forth in
this Section.
18. TIME PERIOD FOR COMPLETION OF CONVERSION.
The Conversion shall be completed within 24 months from the date this Plan
is approved by the Board of Directors of the Bank.
19. EXPENSES OF CONVERSION.
The expenses incurred in connection with the Conversion shall be
reasonable.
20. REGISTRATION UNDER SECURITIES EXCHANGE ACT OF 1934.
The Holding Company shall register its Conversion Stock under the
Securities Exchange Act of 1934, as amended, concurrently with or promptly
following the Conversion. The Holding Company shall not deregister such
securities for a period of three years thereafter.
21. MARKET FOR CONVERSION STOCK.
The Bank and Holding Company shall use its best efforts to (i) encourage
and assist a market maker to establish and maintain a market for the Conversion
Stock, and (ii) list or quote the shares on a national or regional securities
exchange or on the Nasdaq Stock Market.
22. CONVERSION STOCK NOT INSURED.
The Conversion Stock will not be insured by the FDIC or any other federal
or state government agency or authority.
23. NO LOANS TO PURCHASE STOCK.
The Bank shall not loan funds or otherwise extend credit to any Person to
purchase Conversion Stock in connection with the Conversion.
23
<PAGE>
24. RESTRICTIONS ON ACQUISITION.
Current Connecticut regulations provide that for a period of three years
following completion of the Conversion (unless this Plan provides for a longer
period), no Person, acting singly or with an Associate or group of Persons
Acting In Concert, shall directly, or indirectly, offer to acquire or acquire
the beneficial ownership of more than ten percent (10%) of any class of an
equity security of the Holding Company without the prior approval of the
Commissioner. This Section shall not apply to the acquisition of ownership by
one or more Tax-Qualified Employee Stock Benefit Plan of the Bank, provided that
the plan or plans do not have beneficial ownership in the aggregate of more than
twenty-five percent (25%) of any class of any equity security of the Holding
Company. Where any person directly or indirectly, acquires beneficial ownership
of more than ten percent (10%) of any class of any equity security of the
Holding Company within such three-year period without the prior approval of the
Commissioner, stock of the Holding Company beneficially owned by such person in
excess of ten percent (10%) shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matter submitted to the stockholders for a vote. The restrictions on
acquisition provided for by this Section shall apply for a period of five years
following the consummation of the Conversion.
25. STOCK CERTIFICATE OF INCORPORATION AND BYLAWS.
As part of the Conversion, an amended Stock Certificate of Incorporation
and Bylaws will be adopted to authorize the Bank to operate as a state-chartered
capital stock savings bank. By approving the Plan, the Corporators of the Bank
will thereby approve the amended Stock Certificate of Incorporation and Bylaws
of the Bank. Prior to completion of the Conversion, the proposed Stock
Certificate of Incorporation and Bylaws of the Bank may be amended in accordance
with the provisions and limitations for amending the Plan under Section 17
herein. The effective date of the adoption of the Stock Certificate of
Incorporation and Bylaws of the Bank shall be the date of filing of the amended
Stock Certificate of Incorporation and such other documents as required by the
Conversion Regulations with the Secretary of State of the State of Connecticut,
including the certificate of authority to operate as a state-chartered capital
stock savings bank as issued by the Commissioner, which shall be the date of
consummation of the Conversion.
26. CONDITIONS TO CONVERSION.
The conversion of the Bank pursuant to this Plan is expressly conditioned
upon the following:
(a) Prior receipt by the Bank of either rulings of the United States
Internal Revenue Service and the Connecticut taxing authorities, or opinions of
counsel or independent auditors, substantially to the effect that the conversion
will not result in any adverse federal or state tax consequences to Eligible
Account Holders or to the Bank and the Holding Company before or after the
Conversion;
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(b) The sale of all of the Conversion Stock offered in the Conversion
pursuant to this Plan; and
(c) The completion of the Conversion within the time period specified in
Section 3 of this Plan.
27. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Bank
shall be final, subject to the authority of the Commissioner and FDIC.
25
<PAGE>
EXHIBIT I
STOCK CERTIFICATE OF INCORPORATION
FOR
AMERICAN SAVINGS BANK
Section 1. Corporate Title. The full corporate title of the Bank is
--------------------------
"American Savings Bank."
Section 2. Office. The main office of the Bank shall be located in the
-----------------
City of New Britain, in the County of Hartford, State of Connecticut.
Section 3. Powers. The Bank is a stock savings bank chartered under Title
------------------
36a of the Connecticut General Law and has and may exercise all the express,
implied and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto.
Section 4. Duration. The duration of the Bank is perpetual.
--------------------
Section 5. Stock. The total number of shares of all classes of the stock
-----------------
which the Bank has authority to issue is two million (2,000,000), of which one
million (1,000,000) shall be common stock, par value $1.00 per share, and one
million (1,000,000) shall be serial preferred stock, par value $1.00 per share.
The shares may be issued by the Bank from time to time as approved by its board
of directors without the approval of its shareholders except as otherwise
provided in this Section 5, or subject to applicable law. The consideration for
the issuance of the shares shall be paid in full before their issuance and shall
not be less than the stated value per share and otherwise shall comply with all
requirements of Connecticut Law. Neither promissory notes nor future services
shall constitute payment or part payment for the issuance of shares of the Bank.
The consideration for the shares shall be cash, tangible or intangible property,
labor or services actually performed for the Bank or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor or services, as determined by the board of directors of the
Bank, shall be conclusive. Upon payment of such consideration such shares shall
be deemed to be fully paid and nonassessable. In the case of a stock dividend,
that part of the surplus of the Bank which is transferred to stated capital upon
the issuance of the shares as a stock dividend shall be deemed to be the
consideration for their issuance.
A description of the different classes and series of the Bank's stock and a
statement of the designations, and the relative rights, preferences and
limitations of the shares of each class of and series of stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
------------
supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such
holder.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund or
retirement fund or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends; but only
when and as declared by the board of directors.
In the event of any liquidation, dissolution, or winding up of the
Bank, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in
kind, the assets of the Bank's available for distribution remaining
after: (i) payment or provision for payment of the Bank's debts and
liabilities; (ii) distributions or provision for distributions in
settlement of its liquidation account;
<PAGE>
and (iii) distributions or provision for distributions to holders of
any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the Bank. Each share
of common stock shall have the same relative rights as and be
identical in all respects with all the other shares of common stock.
B. Preferred Stock. The Bank may provide for one or more classes of
---------------
preferred stock, which shall be separately identified. The shares of
any class may be divided into and issued in series, with each series
separately designated and the terms set forth so as to distinguish the
shares thereof from the shares of all other series and classes. All
shares of the same class shall be identical except as to the following
relative rights and preferences, as to which there may be variations
between different series:
1. The distinctive serial designation and the number of shares
constituting such series;
2. The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date or dates, the payment date or dates for
dividends, and the participating or other special rights, if any,
with respect to dividends;
3. The voting powers, full or limited, if any, of shares of such
series;
4. Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which,
such shares may be redeemed;
5. The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution or winding
up of the Bank;
6. Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price or prices at which such shares may be redeemed or
purchased through the application of such fund;
7. Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any
other series of the same or any other class or classes of stock
of the Bank and, if so convertible or exchangeable, the
conversion price or prices, or the rate or rates of exchange, and
the adjustments thereof, if any, at which such conversion or
exchange may be made, and any other terms and conditions of such
conversion or exchange;
8. The price or other consideration for which the shares of such
series shall be issued; and
9. Whether the shares of such series which are converted shall have
the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the
same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide any authorized class
of preferred stock into series, and, within the limitations set forth in this
section and the remainder of this Certificate of Incorporation, fix and
determine the relative rights and preferences of the shares of any series so
established.
2
<PAGE>
Prior to the issuance of any preferred shares of a series established by
resolution adopted by the board of directors, the Bank shall file a statement
with respect to the shares executed by the Bank with the Connecticut Secretary
of State. Such statement shall include, among other things, the resolution.
Upon the filing of the statement with the Connecticut Secretary of State or upon
an effective date otherwise specified in the statement, whichever is later, the
resolution shall become effective and shall operate as an amendment of the
Certificate of Incorporation.
Section 6. Preemptive Rights. Holders of the stock of the Bank shall not
-----------------------------
be entitled to preemptive rights with respect to shares of the Bank which may be
issued.
Section 7. Repurchase of Shares. The Bank may from time to time, pursuant
--------------------------------
to authorization by the board of directors of the Bank and without action by the
shareholders, purchase or otherwise acquire shares of any class, bonds,
debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or
other securities of the Bank in such a manner, upon such terms, and in such
amounts as the board of directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the express terms of
any class of shares of the Bank outstanding at the time of the purchase or
acquisition in question or as are imposed by law or by regulation or order of
the Connecticut Banking Commissioner. Such shares shall constitute authorized
but unissued shares.
Section 8. Liquidation Account. The Bank shall establish and maintain a
-------------------------------
liquidation account for the benefit of its deposit account holders as of
December 31, 1997 ("Eligible Account Holders") and its deposit account holders
as of _______, 1999 (if any) ("Supplemental Eligible Account Holders"). In the
event of a complete liquidation of the Bank it shall comply with applicable
rules and regulations with respect to the amount and the priorities on
liquidation of each of the Bank's Eligible Account Holder's and Supplemental
Eligible Account Holder's (if any) inchoate interests in the liquidation account
to the extent it is still existence; provided, however, that an Eligible Account
Holder's and Supplemental Eligible Account Holder's (if any) inchoate interest
in the liquidation account shall not entitle such Eligible Account Holder or
Supplemental Eligible Account Holder (if any) to any voting rights at meetings
of the Bank's shareholders. Such account shall terminate on the tenth
anniversary of the effective date of the conversion of the Bank from the mutual
to capital stock form of organization.
Section 9. Certain Provisions Applicable For Five Years. Notwithstanding
--------------------------------------------------------
anything contained in the Bank's certificate of incorporation or bylaws to the
contrary, for a period of five years from the date of consummation of the
conversion of the Bank from mutual to stock form, the following shall apply:
Beneficial Ownership Limitation. No person shall directly or indirectly
-------------------------------
offer to acquire or acquire the beneficial ownership of (1) more than five
percent (5%) of any class of equity security of the Bank without the prior
written approval of the Board of Directors of the Bank, or (2) more than
ten percent (10%) of any class of any equity security of the Bank without
the prior written approval of the Commissioner. This limitation shall not
apply to a transaction in which the Bank forms a holding company without a
change in the respective beneficial ownership interests of its shareholders
other than pursuant to the exercise of any dissenter and appraisal rights,
the purchase of shares by underwriters in connection with a public
offering, or the purchase of shares by one or more tax-qualified employee
stock benefit plans provided the plan or plans do not have beneficial
ownership, in the aggregate, of more than 25% of any class.
In the event shares are acquired in violation of this Section 9, all shares
beneficially owned by any person in excess of five percent (5%) or ten
percent (10%), as the case may be, shall be considered "excess shares" and
shall not be counted as shares entitled to vote, shall not be voted by any
person or counted as voting shares in connection with any matter submitted
to the shareholders for a vote, and shall not be counted as outstanding for
purposes of determining the affirmative vote necessary to approve any
matter submitted to the shareholders for a vote.
3
<PAGE>
For purposes of this Section 9, the following definitions apply:
1. The term "person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate
or any other group formed for the purpose of acquiring, holding or
disposing of the equity securities of the Bank.
2. The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for
value.
3. The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
4. The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) a combination
or pooling of voting or other interests in the securities of an issuer
for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangements, whether written or
otherwise.
Section 10. Directors. The Bank shall be under the direction of a board
----------------------
of directors. The board of directors shall consist of one or more individuals,
as fixed in the Bank's Bylaws.
Section 11. Liability of Directors. The personal liability of any
-----------------------------------
director to the Bank or its shareholder for monetary damages for breach of duty
as a director is hereby limited to the amount of the compensation received by
the director for serving the Bank during the year of the violation if such
breach did not (i) involve a knowing and culpable violation of law by the
director, (ii) enable the director or an associate, as defined in subdivision
(3) of Section 33-843 of the Connecticut General Statutes, to receive an
improper personal economic gain, (iii) show a lack of good faith and a conscious
disregard for the duty of the director to the Bank under circumstances in which
the director was aware that his or her conduct or omission created an
unjustifiable risk of serious injury to the Bank, (iv) constitute a sustained
and unexcused pattern of inattention that amounted to an abdication of the
director's duty to the Bank, or (v) create liability under Section 36a-58 of the
Connecticut General Statutes. Any lawful repeal or modification of this
provision by the shareholders and the Board of Directors of the Bank shall not
adversely affect any right or protection of a director existing at or prior to
the time of such repeal or modification.
Section 12. Amendment of Certificate of Incorporation and Bylaws. No
-----------------------------------------------------------------
amendment, addition, alteration, change or repeal of this Certificate of
Incorporation shall be made, unless such is first proposed by the Board of
Directors of the Bank and thereafter approved by the shareholders by the
affirmative vote of a majority of the total votes eligible to be cast at a legal
meeting.
The board of directors or the shareholders may adopt, alter, amend or
repeal the bylaws of the Bank. Such action by the board of directors shall
require the affirmative vote of a majority of the directors then in office.
Such action by the shareholders shall require the affirmative vote of a majority
of the total votes cast by shareholders.
Section 13. Cumulative Voting Limitation. Shareholders shall not be
-----------------------------------------
permitted to cumulate their votes for the election of directors.
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<PAGE>
Section 14. Call For Special Meetings. Special meeting of shareholders
--------------------------------------
relating to changes in control of the Bank or amendments to its certificate of
incorporation shall be called by the chairman of the board, the president or the
secretary upon the written request of five of the directors or the holders of at
least ten percent (10%) of all the votes entitled to be cast.
AMERICAN SAVINGS BANK
Attest: ___________________________ By: ____________________________
Richard J. Moore Robert T. Kenney
Senior Vice President and Secretary President and Chief Executive
Officer
5
<PAGE>
EXHIBIT II
STOCK BYLAWS
FOR
AMERICAN SAVINGS BANK
ARTICLE I - HOME OFFICE
The home office of American Savings Bank (the "Bank") shall be at 178 Main
Street, New Britain, in the County of Hartford, in the State of Connecticut.
ARTICLE II - SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
-----------------------------
shareholders shall be held at the home office of the Bank or at such other
convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Bank for
--------------------------
the election of directors and for the transaction of any other business of the
Bank shall be held annually on the last Wednesday of January of each year or at
such other date as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
----------------------------
purpose or purposes may be called at any time by the chairman of the board, the
president, or the secretary upon the written request of five of the directors or
the holders of not less than ten percent (10%) of all of the outstanding capital
stock of the Bank entitled to vote at the meeting. Such written request shall
state the purpose or purposes of the meeting and shall be delivered to the
secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
-------------------------------
conducted in accordance with any requirements prescribed by applicable law or
these bylaws or adopted by the board of directors. The board of directors shall
designate, when present, either the chairman of the board or president to
preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day, and
------------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the mail, addressed to the shareholder at the
address as it appears on the stock transfer books or records of the Bank as of
the record date prescribed in Section 6 of this Article II with postage prepaid.
When any stockholders' meeting, either annual or special, is adjourned to a
different date, time or place, notice need not be given of the new date, time or
place if the new date, time or place is announced at the meeting before
adjournment. If a new record date for the adjourned meeting is or must be
fixed, notice of the adjourned meeting must be given to persons who are
shareholders as of the new record date.
Section 6. Fixing of Record Date. For the purpose of determining
---------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 70 days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment,
unless such meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting.
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<PAGE>
Section 7. Voting Lists. After fixing the record date for the meeting, the
-----------------------
officer or agent having charge of the stock transfer books for shares of the
Bank shall make a complete list of the shareholders of record entitled to vote
at such meeting, or any adjournment thereof, arranged in alphabetical order,
with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Bank and shall be
subject to inspection by any shareholder of record, the shareholder's agent or
attorney at any time during usual business hours beginning two business days
after the notice of the meeting is given for which the list was prepared and
continuing through the meeting. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to inspection by any
shareholder of record, the shareholder's agent or attorney during the entire
time of the meeting. The original stock transfer book shall constitute prima
facie evidence of the shareholders entitled to examine such list or transfer
books or to vote at any meeting of shareholders.
Section 8. Quorum. A majority of the outstanding shares of the Bank
-----------------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. Once a share is
represented for any purpose at a meeting, it is deemed present for quorum
purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is set for that adjourned meeting. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to constitute less than a quorum. If a quorum is
present, the affirmative vote of the majority of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
shareholders, unless the vote of a greater number of shareholders voting
together or voting by classes is required by law or the charter. Directors,
however, are elected by a plurality of the votes cast at an election of
directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
------------------
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact and filed with the secretary of the Bank, the
inspector of election or the officer or agent of the Bank authorized to tabulate
votes. A proxy shall be filed with the secretary of the Bank prior to the
meeting to the extent required by Connecticut law. Proxies solicited on behalf
of the board of directors shall be voted as directed by the shareholder or, in
the absence of such direction, as determined by a person or persons acting as
proxy pursuant to the direction of the board of directors. A proxy, unless the
proxy states it is irrevocable and is coupled with an interest, shall be
revocable at will notwithstanding any agreement to the contrary, but the
revocation of a proxy shall not be effective until written notice thereof has
been given to the Bank. A proxy shall not be revoked by the death or
incompetency of the maker unless, before the vote is counted or the authority
exercised, written notice of such death or of an adjudication of such
incompetence is received by the secretary or other officer or agent authorized
to tabulate votes. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
---------------------------------------------------------------
ownership stands in the name of two or more persons, in the absence of written
directions to the Bank to the contrary, at any meeting of the shareholders of
the Bank any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
-----------------------------------------------
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares outstanding in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
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<PAGE>
Shares held in trust in an IRA or Keogh Account, however, may by voted by the
Bank if no other instructions are received. Shares outstanding in the name of a
receiver may be voted by such receiver, and shares held by or under control of a
receiver may be voted by such receiver without the transfer into his or her name
if authority to do so is consigned in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Bank nor shares held
by another Corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the Bank, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting.
Section 12. Inspectors of Election. In advance of any meeting of
----------------------------------
shareholders, the board of directors may appoint one or more inspectors to act
at a meeting of shareholders and make a written report of the inspector's
determinations. In case any person appointed as inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment by the board
of directors in advance of the meeting or at the meeting by the chairman of the
board or the president. Each inspector shall take and sign an oath to
faithfully execute the duties of inspector with strict impartiality and
according to the best of the inspector's ability. An inspector may be an
officer or employee of the Bank.
Unless otherwise prescribed by law, the duties of such inspectors shall
include: determining the number of shares outstanding and the voting power of
each share, the shares represented at the meeting, and the validity of proxies
and ballots; counting and tabulating all votes or consents; and determining the
result.
Section 13. Nominating Committee. The board of directors shall appoint a
--------------------------------
nominating committee for selecting the management nominees for election as
directors. Such committee shall consist of the chairman of the board, the
president and not less than three directors who are not officers. Except in the
case of a nominee substituted as a result of the death or other incapacity of a
management nominee, the nominating committee shall deliver written nominations
to the secretary at least 10 days prior to the date of the annual meeting. No
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by shareholders are
made in writing and delivered to the secretary of the Bank at least 30 days
prior to the date of the annual meeting. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 10 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 14. New Business. Any new business to be taken up at the annual
------------------------
meeting other than at the direction of the board of directors shall be stated in
writing and filed with the secretary of the Bank at least 30 days before the
date of the annual meeting, and all business so stated, proposed, and filed
shall be considered at the annual meeting; but no other proposal other than at
the direction of the board of directors shall be acted upon at the annual
meeting. This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors, and
committees.
Section 15. Informal Action by Shareholders. Any action required to be
-------------------------------------------
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if one or more
consents in writing, setting forth the action so taken, shall be given by all of
the shareholders entitled to vote with respect to the subject matter.
Section 16. Adjournment. Any meeting may be adjourned for any period.
-----------------------
3
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Bank shall be
-------------------------
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of that
--------------------------
number of directors specified by resolution adopted by the board of directors
and shall be divided into three classes as nearly equal in number as possible.
The members of each class shall be elected for a term of three years and until
their successors are elected and qualified. One class shall be elected by ballot
annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
---------------------------
shall be held without other notice than this bylaw following the annual meeting
of shareholders. The board of directors shall meet regularly without notice at
least once per month at a time and place fixed by resolution of the board of
directors. Directors may participate in a meeting by means of a conference
telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
Section 4. Qualification. A director need not be a resident of the State
------------------------
of Connecticut nor a shareholder of the Bank.
Section 5. Special Meetings. Special meetings of the board of directors
---------------------------
may be called at any time by the chairman of the board, the president, or in
their absence or disability, by a vice-president and shall be called by the
secretary whenever requested in writing by any five directors. Members of the
board of directors may participate in special meetings by making use of
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other. Such participation shall
constitute presence in person for all purposes.
Section 6. Notice. Notice of any special meeting shall be given to each
-----------------
director at least two (2) days prior to such meeting, by mail or otherwise
(including, when necessary, by facsimile or orally by telephone) specifying the
date, time and place of the meeting. Any director may waive notice of any
meeting by a writing filed with the secretary. The attendance of a director at
a meeting shall constitute a waiver of notice of such meeting, unless the
director at the beginning of the meeting, or promptly upon his arrival, objects
to holding the meeting and does not thereafter vote for or assent to action
taken at the meeting. Neither the business to be transacted at, nor the purpose
of, any meeting of the board of directors need be specified in the notice of
waiver of notice of such meeting.
Section 7. Quorum. Five members of the board of directors shall constitute
-----------------
a quorum for the transaction of business at any meeting of the board of
directors; but if less than five directors is present at a meeting, a majority
of the directors present may adjourn the meeting from time to time. Notice of
any adjourned meeting shall be given in the same manner as prescribed by Section
6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
---------------------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by law or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
-----------------------------------
be taken by the board of directors at a meeting may be taken without a meeting
if one or more consents in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
-----------------------
written notice of such resignation to the board of directors, the chairman of
the board or the Bank. Such resignation shall take effect when delivered unless
the notice specifies a later effective date upon receipt by the chairman of the
board or the president.
4
<PAGE>
Section 11. Vacancies. Any vacancy occurring on the board of directors may
---------------------
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the board of
directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated fee for
------------------------
their services. By resolution of the board of directors, a reasonable fixed sum,
and reasonable expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the board of directors. Members of either
standing or special committees may be allowed such compensation for attendance
at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Bank who is present
---------------------------------
at a meeting of the board of directors at which action on any association matter
is taken shall be presumed to have assented to the action taken unless: (a) he
or she objects at the beginning of the meeting, or promptly upon his arrival, to
holding it or transacting business at the meeting; (b) his or her dissent or
abstention from the action taken shall be entered in the minutes of the meeting;
or (c) he or she shall file a written notice of such dissent or abstention to
such action with the presiding officer of the meeting before the adjournment
thereof or to the Bank immediately after adjournment of the meeting. Such right
to dissent or abstain shall not apply to a director who voted in favor of such
action.
Section 14. Removal of Directors. At a meeting of shareholders called
--------------------------------
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. If a director is elected by a voting group of shareholders, only
the shareholders of that group may participate in the vote to remove him.
Section 15. Age Limitation. For all directors serving at the time these
---------------------------
bylaws are filed with the Secretary of State ("Current Directors"), the
retirement age shall be seventy-five (75) years of age and each such director
may not serve beyond December 31/st/ in the calendar year in which he or she
attains seventy-five (75) years of age; provided that any such Current Directors
who are seventy-five (75) years of age or older at the time of the filing of
these bylaws, or who will become seventy-five (75) years of age prior to
December 31, 1999, may serve until December 31, 2000. For all non-Current
Directors, the retirement age shall be seventy (70) years of age and each such
non-Current Director may not serve beyond December 31/st/ in the calendar year
in which he or she attains seventy (70) years of age.
ARTICLE IV - COMMITTEES
Section 1. Committees. The board of directors, by resolution adopted by a
---------------------
majority of the full board, may create one or more committees and appoint
members of the board of directors to serve on them. Each committee shall have
two or more members who serve at the pleasure of the board of directors. The
designation of any committee pursuant to this Section 1 of Article IV and the
delegation of authority shall not operate to relieve the board of directors, or
any director, of any responsibility imposed by law or regulation.
Section 2. Executive Committee. The executive committee, when the board of
------------------------------
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
certificate of incorporation or bylaws of the Bank, or recommending to the
shareholders a plan of merger, consolidation, or conversion; the sale, lease or
other disposition of all or substantially all of the property and assets of the
Bank other than in the usual and regular course of business; a voluntary
dissolution of the Bank; a revocation of any of the foregoing; or the approval
of a transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
5
<PAGE>
Section 3. Audit Committee. There shall be an audit committee composed of
--------------------------
not less than two directors, none of whom shall be officers of the Bank. The
chief executive officer shall, however, make himself available to the committee
to answer questions and provide information as are relevant to the committee's
responsibilities. The duties of this committee shall be to cause suitable
examinations to be made at least annually of the affairs of the Bank. The
results of such examinations shall be reported in writing to the board of
directors following completion of any such examination.
Section 4. Finance Committee. The board of directors shall appoint a
----------------------------
finance committee of not less than three directors, the president and the
chairman of the board who shall act as advisor to the chief executive officer in
the purchase for the Bank of such bonds, stock and other securities authorized
by statute; and in the sale of such bonds, stock and other securities owned by
the Bank, and whose recommendations concerning the same shall be reported to the
board of directors.
Section 5. Human Resources Committee. There shall be a human resources
------------------------------------
committee composed of the chairman of the board, the president and not less than
two other directors of the Bank. The committee shall have the power to
recommend to the board of directors compensation and benefit plans for officers
and employees. The committee shall also take into consideration other personnel
matters as they arise.
Section 6. Other Committees. The board of directors may by resolution
---------------------------
establish other committees composed of directors as they may determine to be
necessary or appropriate for the conduct of the business of the Bank and may
prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
Section l. Positions. The officers of the Bank shall be a president, one
--------------------
or more vice presidents, a secretary, and a treasurer, each of whom shall be
elected by the board of directors. The board of directors may also designate
the chairman of the board as an officer. The chairman of the board and the
president shall be a member of the board of directors. The same person may
serve as both chairman of the board and president. The board of directors may
designate one or more vice presidents as executive vice president or senior vice
president. The board of directors may also elect or authorize the appointment
of such other officers as the business of the Bank may require. The officers
shall have such authority and perform such duties as the board of directors may
from time to time authorize or determine. In the absence of action by the board
of directors, the officers shall have such powers and duties as generally
pertain to their respective offices.
Section 2. Appointment and Term of Office. The officers of the Bank shall
-----------------------------------------
be appointed annually at the first meeting of the board of directors held after
each annual meeting of the shareholders. If the appointment of officers is not
made at such meeting, such appointment shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
appointed and qualified or until the officer's death, resignation or removal in
the manner hereinafter provided. Appointment of an officer, employee, or agent
shall not of itself create contractual rights. The board of directors may
authorize the Bank to enter into an employment contract with any officer in
accordance with applicable regulations; but no such contract shall impair the
right of the board of directors to remove any officer at any time in accordance
with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
------------------
at any time with or without cause. An officer's removal does not affect the
officer's contract rights, if any, with the Bank.
Section 4. Vacancies. A vacancy in any office because of death,
--------------------
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
-----------------------
from time to time by the board of directors.
6
<PAGE>
Section 6. Chairman of the Board. If there be a chairman of the board, he
---------------------------------
or she shall preside at all meetings of the Bank and the board of directors and
shall have all powers and perform all duties incidental to his or her office and
as may be assigned to him or her from time to time by the board of directors.
He or she shall be an ex-officio member of all committees of the board of
directors, except the audit committee, on which he or she may not serve. The
chairman or the board or president, whichever shall be designated by the board
of directors, shall be the chief executive officer of the Bank, directing its
policy and the conduct of its affairs. Subject to the approval of the board of
directors and in consultation with the finance committee, the chief executive
officer is authorized to invest and reinvest funds of the Bank, and shall
perform such duties and have such powers as may from time to time be prescribed
by statute, by these bylaws and by the board of directors.
Section 7. President. The president shall preside at all meetings of the
---------------------
Bank and of the board of directors if there be no chairman of the board. The
president shall be chief executive officer unless the chairman of the board has
been so designated, in which case the president shall have such other powers and
duties as may be prescribed from time to time by the board of directors or as
shall be delegated to him or her by the chief executive officer. He or she
shall, in any event, be an ex-officio member on all committees, except the audit
committee, on which he or she may not serve. In the absence of the president, a
vice-president shall preside at all meetings of the Bank or the board of
directors, and if the president and all vice presidents shall be absent a
chairman pro-tem shall be elected.
Section 8. Vice-Presidents. The vice-president or vice-presidents shall
---------------------------
do and perform such duties as may be allocated to their offices by statute and
shall do and perform such other duties as from time to time may be assigned to
them by the chief executive officer and, in the absence of the chief executive
officer, they shall assume such duties as are or have been assigned to them by
the board of directors.
Section 9. Treasurer. The treasurer shall, subject to the supervision and
---------------------
control of the board of directors, have custody of the funds, securities and
other property of the Bank; shall have such powers and perform such duties as
may be allocated to his or her office by statute and shall do and perform such
other duties as from time to time may be assigned to him or her by the chief
executive officer or the board of directors.
Section 10. Secretary. The secretary shall keep the minutes of all
----------------------
meetings of the Bank and of the board of directors. He or she shall have charge
of the seal of the Bank and in general perform all the duties incident to this
office and such other duties as may from time to time be assigned to him or her
by the chief executive officer or the board of directors.
Section 11. Other Officers. Other officers, if any, shall have such
---------------------------
powers and perform such duties as may be assigned to them from time to time by
the chief executive officer or the board of directors.
Section 12. Powers Resolutions. The board of directors shall adopt, at
-------------------------------
the annual meeting of the Directors or more frequently as may appropriate,
"Powers Resolutions" pursuant to which it shall designate particular classes of
officers and employees to be authorized to perform designated powers on behalf
of the Bank. Such resolutions shall constitute authorization for any person
holding the appropriate office so long as such resolutions remain in effect.
Such Powers Resolutions shall be adopted in form similar to the specimen
attached as Schedule A to these bylaws. Such powers shall be in addition to
such general powers as officers and employees otherwise have by virtue of these
bylaws or applicable law.
ARTICLE VI - INDEMNIFICATION
The board of directors shall indemnify and reimburse each director, officer
or employee of this Bank, or any other agent or person performing on behalf of
the Bank, and his or her heirs, executors, or administrators, to the full extent
provided by law, including but not limited to those situations for which
reimbursement and indemnification is permitted under Sections 33-770 through 33-
778, inclusive, of the Connecticut General Statutes.
7
<PAGE>
ARTICLE VII - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts. To the extent permitted by applicable law and
--------------------
regulations, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the Bank to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Bank. Such authority may be
general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Bank and
----------------
no evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for
------------------------------
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Bank shall be signed by one or more officers, employees or agents of
the Bank in such manner as shall from time to time be determined by the board of
directors.
Section 4. Deposits. All funds of the Bank not otherwise employed shall be
-------------------
deposited from time to time to the credit of the Bank in any duly authorized
depositories as the board of directors may select.
ARTICLE VIII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
----------------------------------
capital stock of the Bank shall be in such form as shall be determined by the
board of directors and permitted by law. Such certificates shall be signed by
the chief executive officer or by any other officer of the Bank authorized by
the board of directors, attested by the secretary, and sealed with the corporate
seal or a facsimile thereof. The signatures of such officers upon a certificate
may be facsimiles if the certificate is manually signed on behalf of a transfer
agent or a registrar other than the Bank itself or one of its employees. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the owner of shares and date of issue, shall be entered on the
stock transfer books of the Bank. All certificates surrendered to the Bank for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
cancelled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Bank as the board
of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
-----------------------------
Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Bank. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the Bank shall be deemed by the Bank to be the owner for
all purposes.
ARTICLE IX - FISCAL YEAR
The fiscal year of the Bank shall end on the thirty-first day of December
of each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE X - DIVIDENDS
Subject to the terms of the Bank's certificate of incorporation and
applicable law and regulation, the board of directors may, from time to time,
declare, and the Bank may pay, dividends on its outstanding shares of capital
stock.
8
<PAGE>
ARTICLE XI - CORPORATE SEAL
The board of directors shall provide the Bank seal which shall be two
concentric circles between which shall be the name of the Bank. The year of
incorporation or an emblem may appear in the center.
ARTICLE XII - CONNECTICUT LAW
Any provision required by Connecticut law to be included in these bylaws
shall be deemed to be included herein and to the extent any other provision of
these bylaws is inconsistent with any such required provisions, the required
provisions shall govern.
ARTICLE XIII - AMENDMENTS
These bylaws may be amended by: (i) the approval of the amendment by a
majority vote of the authorized board of directors; or (ii) a majority vote of
the votes cast by the shareholders of the Bank at any legal meeting. When the
Bank fails to meet its quorum requirements, solely due to vacancies on the
board, then the affirmative vote of a majority of the sitting board will be
required to amend the bylaws.
9
<PAGE>
SCHEDULE A
----------
POWERS RESOLUTIONS
<TABLE>
<CAPTION>
OFFICE AUTHORIZED TO PERFORM FUNCTION POWER AUTHORIZED
- ---------------------------------------- ----------------
<S> <C>
1. President, Chief Executive 1. To execute documents conveying real property interests of the Bank
Officer, Executive Vice President, (quit-claim deeds, etc.).
Treasurer, Vice Presidents in Loan
Divisions
2. President, Chief Executive 2. To execute releases of mortgage.
Officer, Executive Vice President,
Treasurer, Officers in Loan
Divisions
3. President, Chief Executive 3. To sell, assign, transfer and deliver any and all stock
Officer, Executive Vice President, securities, bonds, notes, certificates of indebtedness or other
Treasurer, Finance Officer equity or obligations of the Banks.
4. President, Chief Executive 4. To execute checks or drafts drawn by or on behalf of the Bank and
Officer, Executive Vice President, drawn on the Bank or any other bank.
Treasurer, All Other Officers,
Managers, Administrative
Assistants, Loan Counselors,
Senior Loan Clerk
5. President, Chief Executive 5. To execute the transfer of Bank funds to and from correspondent
Officer, Chief Financial Officer, banks.
Treasurer, Finance Officer,
Controller
6. President, Chief Executive 6. To execute official Bank or correspondent bank checks, drafts or
Officer, Executive Vice President, other documents.
Treasurer
7. Executive Officers 7. To execute any and all agreements, contracts and documents
involving the Bank including the lease of real or personal
property.
8. President, Chief Executive 8. To execute any and all documents relating to the Bank's purchase
Officer, Executive Vice President, or sale of assets in the ordinary course of the Bank's business.
Treasurer
9. President, Chief Executive 9. To execute any and all documents relating to the loans for or on
Officer, Executive Vice President, behalf of the Bank and to give security for any such loans, all as
Treasurer is consistent with the ordinary course of the Bank's business.
10. President, Chief Executive 10. To execute any and all trust instruments, contracts, agreements
Officer, Executive Vice President, and other documents relating to the Bank's activity as a trustee
Treasurer, Trust Vice Presidents or other fiduciary, to assume on behalf of the Bank any and all
responsibilities as a trustee or other fiduciary, and to generally
take or supervise such actions as are necessary or appropriate to
the carrying out of such responsibilities on behalf of the Bank.
11. President, Chief Executive 11. To execute any and all contracts, agreements and other documents
Officer, Executive Vice President, relating to the establishment, maintenance and modification of
Treasurer, Trust Vice Presidents investment advisory relationships, brokerage accounts, trading
accounts and other securities related accounts, and to take any
and all such actions, including but not limited to effecting the
purchase and sale, margin, option, transfer or other acquisition
or disposition of securities or derivative securities and making
endorsements thereto as are necessary or appropriate pursuant to
such contracts, agreements and other documents.
</TABLE>
10
<PAGE>
[MULDOON, MURPHY & FAUCETTE LLP LETTERHEAD]
EXHIBIT 5.0
September 17, 1999
Board of Directors
American Financial Holdings, Inc.
102 West Main Street
New Britain, Connecticut 06051
Re: The issuance of up to 44,902,035 shares of
American Financial Holdings, Inc. Common Stock
Lady and Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of the American Savings Bank (the "Bank"), a
Connecticut savings bank, from the mutual to the stock form of ownership (the
"Conversion"), and the related subscription offering, direct community offering
and syndicated community offering (the "Offerings") by American Financial
Holdings, Inc. (the "Company"), a Delaware corporation and the proposed holding
company for the Bank, of up to 36,167,500 shares of its common stock, par value
$.01 per share ("Common Stock") (41,592,625 shares if the estimated valuation
range is increased up to 15% to reflect changes in market and financial
conditions following commencement of the Offerings) and the issuance of
2,893,400 shares of Common Stock to American Savings Charitable Foundation (the
"Foundation"), a privately-owned charitable foundation formed by the Company
(3,327,410 shares if the estimated valuation range is increased up to 15% to
reflect changes in market and financial conditions following commencement of the
Offerings), pursuant to a gift instrument.
We understand that the Company will lend to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP trust will use to
purchase shares of Common Stock for which the ESOP trust subscribes pursuant to
the Offerings and, for purposes of rendering the opinion set forth in paragraph
2 below, we assume that: (a) the Board of Directors of the Company (the
"Board") has duly authorized the loan to the ESOP trust (the "Loan"); (b) the
ESOP serves a valid corporate purpose for the Company; (c) the Loan will be made
at an interest rate and on other terms that are fair to the Company; (d) the
terms of the Loan will be set forth in customary and appropriate documents
including, without limitation, a promissory note representing the indebtedness
of the ESOP trust to the Company as a result of the Loan; and (e) the closing
for the Loan and for the sale of Common Stock to the ESOP trust will be held
<PAGE>
Board of Directors
American Financial Holdings, Inc.
September 17, 1999
Page 2
after the closing for the sale of the other shares of Common Stock sold in the
Offerings and the receipt by the Company of the proceeds thereof.
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on July 23, 1999 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as initially filed with the Securities and Exchange Commission on
August 4, 1999 and as amended (the "Registration Statement"); a consent of the
sole incorporator of the Company; the Plan of Conversion, as amended; the gift
instrument whereby shares will be granted to the Foundation; the ESOP trust
agreement and the ESOP Loan agreement; resolutions of the Board concerning the
organization of the Company, the Offerings and designation of a pricing
committee of the Board (the "Pricing Committee"); and the form of stock
certificate approved by the Board to represent shares of Common Stock. We have
also been furnished a certificate of the Delaware Secretary of State certifying
the Company's good standing as a Delaware corporation. Capitalized terms used
but not defined herein shall have the meaning given them in the Certificate of
Incorporation.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP trust) and the shares to be granted to a charitable foundation to be
established by the Company in connection with the Conversion will be duly
authorized and, when such shares are sold and paid for or granted (in the case
of the Foundation) in accordance with the terms set forth in the prospectus
which is included in the Registration Statement and such resolution of the
Pricing Committee or, in the case of the Foundation, in accordance with the gift
instrument and certificates representing such shares in the form provided to us
are duly and properly issued, will be validly issued, fully paid and
nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
<PAGE>
Board of Directors
American Financial Holdings, Inc.
September 17, 1999
Page 3
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of Subsection
C.7 of Article EIGHTH empowering the Board to determine the Fair
Market Value of property offered or paid for the Company's stock
by an Interested Stockholder, in each case to the extent, if any,
that a court applying Delaware law were to impose equitable
limitations upon such authority; and
(b) Article NINTH, which authorizes the Board to consider the effect
of any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
We assume no obligation to advise you of any events that occur subsequent
to the date of this opinion.
Very truly yours,
/s/ MULDOON, MURPHY & FAUCETTE LLP
----------------------------------
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
[MULDOON, MURPHY & FAUCETTE LLP LETTERHEAD]
EXHIBIT 8.0
September 15, 1999
Board of Directors
American Financial Holdings, Inc.
102 West Main Street
New Britain, Connecticut 06051
Board of Directors
American Savings Bank
178 Main Street
New Britain, Connecticut 06051
Re: Federal Tax Consequences of the Conversion of American Savings Bank
from a Connecticut-chartered Mutual Savings Bank to a State-chartered
Capital Stock Bank and the Offer and Sale of Common Stock of American
Financial Holdings, Inc. (the "Conversion")
To the Members of the Board:
You have requested an opinion regarding the federal income tax consequences
of the proposed conversion of American Savings Bank (the "Bank") from a
Connecticut-chartered mutual savings bank to a Connecticut-chartered capital
stock bank and the acquisition of the Bank's capital stock by American Financial
Holdings, Inc., a Delaware corporation (the "Holding Company"), pursuant to the
plan of conversion adopted by the Board of Directors on May 24, 1999 and
subsequently amended on June 28, 1999 and July 22, 1999 (the "Plan of
Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
September 15, 1999
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard factual representations of the
Holding Company and the Bank concerning the Holding Company and the Bank as well
as the transaction (the "Representations"). These Representations are required
to be furnished prior to the execution of this letter. We will rely upon the
accuracy of the Representations of the Holding Company and the Bank and the
statements of facts contained in the examined documents, particularly the Plan
of Conversion. We have also assumed the authenticity of all signatures, the
legal capacity of all natural persons and the conformity to the originals of all
documents submitted to us as copies. Each capitalized term used herein, unless
otherwise defined, has the meaning set forth in the Plan of Conversion. We have
assumed that the Conversion will be consummated strictly in accordance with the
terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided by
the Holding Company and the Bank are incorporated in this letter as part of the
statement of the facts.
American Savings Bank, with its headquarters in New Britain, Connecticut,
is a Connecticut-chartered mutual savings bank. As a savings bank, the Bank has
never been authorized to issue stock. Instead, the proprietary interest in the
reserves and undivided profits of the Bank belong to the deposit account holders
of the Bank, hereinafter sometimes referred to as "depositors." A depositor of
the Bank has a right to share, pro rata, with respect to the withdrawal value of
his respective deposit account in any liquidation proceeds distributed in the
event the Bank is ever liquidated. In addition, a depositor of the Bank is
entitled to interest on his account balance as fixed and paid by the Bank.
In order to provide organizational and financial strength to the Bank, the
Board of Directors has adopted the Plan of Conversion whereby the Bank will
convert itself into a Connecticut-chartered capital stock savings bank (the
"Converted Bank"), the stock of which will be held entirely by the Holding
Company. Assuming that the Holding Company form of organization is utilized, the
Holding Company will acquire the stock of the Bank by purchase, in exchange for
a portion of the Conversion proceeds. The Holding Company will apply to the
Office of Thrift Supervision ("OTS") to retain up to 50% of the proceeds
received from the Conversion. The aggregate sales price of the Common Stock
issued in the Conversion will be based on an independent appraiser's valuation
of the estimated pro forma market value of the Common Stock of the Converted
Bank. The Conversion and sale of the Common Stock will be subject to applicable
regulatory approval and to the affirmative vote of (1) a majority of the total
voting power of the Corporators and (2) a majority of the Independent
Corporators who shall not constitute less than 60% of the total voting power of
the Corporators.
<PAGE>
Board of Directors
September 15, 1999
Page 3
The Bank shall establish at the time of Conversion a liquidation account in
an amount equal to the amount of equity capital of the Bank, less any
subordinated debt approved as bona fide capital of the Bank, as of the latest
practicable date prior to Conversion. The liquidation account will be maintained
by the Bank for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders (if any) who continue to maintain their deposit
accounts at the Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder (if any) shall have a separate inchoate interest in a portion of
the liquidation account balance, in relation to his deposit account balance on
the Eligibility Record Date and/or Supplemental Eligibility Record Date (if any)
or to such balance as it may be subsequently reduced, as provided in the Plan of
Conversion.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
Account Holders to the extent of their deposit accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder (if any) shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his deposit accounts then held,
before any liquidation distribution may be made to any holders of the Bank's
capital stock. No merger, consolidation, purchase of bulk assets with assumption
of deposit accounts and other liabilities, or similar transaction in which the
Bank is not the surviving institution, shall be deemed to be a complete
liquidation for this purpose. In such transactions, the liquidation account
shall be assumed by the surviving institution.
As part of the Conversion, the Company and the Bank intend to establish a
charitable foundation (the "Foundation") that will qualify as an exempt
organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code") and to donate to the Foundation up to 8.0% of the number of
shares of Common Stock sold in the Conversion.
You have provided the following representations in a certificate dated
September 14, 1999:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
received under Section 13 of the Plan of Conversion will, in each
instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity of
the Bank) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Bank equal or exceed $50 as
of the Eligibility Record Date or the Supplemental Eligibility Record
Date (if any), then no amount of that individual's total deposits will
be excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Bank which
<PAGE>
Board of Directors
September 15, 1999
Page 4
have a balance of less than $50 on the Eligibility Record Date or the
Supplemental Eligibility Record Date (if any) will be less than 1% of
the total fair market value of all deposit accounts of the Bank.
(c) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders (if any) of the Bank will
own all of the outstanding interests in the liquidation account and
will own such interest solely by reason of their ownership of deposits
in the Bank immediately before the Conversion.
(d) After the Conversion, the Converted Bank will continue the business of
the Bank in the same manner as prior to the Conversion. The Converted
Bank has no plan or intention and the Holding Company has no plan or
intention to cause the Converted Bank to sell its assets other than in
the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in the
ordinary course of business.
(f) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of the
Bank immediately prior to the Conversion, plus the net proceeds from
the sale of the Converted Bank's common stock to the Holding Company
and any liability associated with indebtedness incurred by the
Employee Plans in the acquisition of Common Stock by the Employee
Plans.
(h) The Bank is a corporation chartered by Connecticut as a mutual savings
bank.
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
employees as compensation by means of the Tax-Qualified Employee Stock
Benefit Plans. Compensation to be paid to such Trustees and
depositor-employees will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
<PAGE>
Board of Directors
September 15, 1999
Page 5
(j) The fair market value of the assets of the Bank, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Bank which will be assumed by
the Converted Bank and any liabilities to which the transferred assets
are subject.
(k) The Bank is not insolvent and is not under the jurisdiction of a
bankruptcy or similar court, a receivership, foreclosure, or similar
proceeding in a Federal or State court.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the Converted Bank does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders (if any), or others in lieu of
(a) nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
(o) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Bank will each pay
expenses of the transaction attributable to them and will not pay any
expenses solely attributable to the depositors or to the Holding
Company shareholders.
(p) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders (if
any), and other holders of subscription rights to purchase Holding
Company Common Stock will be equal to the fair market value of the
stock of the Holding Company at the time of the completion of the
Conversion as determined by an independent appraisal.
(q) The liquidation account will be maintained by the Bank for the benefit
of the Eligible Account Holders and the Supplemental Eligible Account
Holders (if any) who continue to maintain deposit accounts at the
Bank.
<PAGE>
Board of Directors
September 15, 1999
Page 6
(r) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
(s) The liabilities of the Bank assumed by the Converted Bank plus the
liabilities, if any, to which the transferred assets are subject were
incurred by the Bank in the ordinary course of its business and are
associated with the assets transferred.
(t) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Bank has neither generated nor carried forward a net
operating loss for federal tax purposes in the past ten tax years.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Code, including applicable regulations thereunder and current judicial and
administrative authority. Any future amendments to the Code or applicable
regulations, or new judicial decisions or administrative interpretations, any of
which could be retroactive in effect, could cause us to modify our opinion. No
opinion is expressed herein with regard to the federal, state, or city tax
consequences of the Conversion under any section of the Code except if and to
the extent specifically addressed.
FEDERAL TAX OPINION
-------------------
Based upon the Representations and the other factual information referred
to in this letter, and assuming the transaction occurs in accordance with the
Plan of Conversion, and taking into consideration the limitations noted
throughout this opinion, it is our opinion that under current federal income tax
law:
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a shareholder
in a mutual savings bank is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Bank nor the Converted Bank
shall recognize gain or loss as a result of the Conversion. The Bank
and the Converted Bank shall each be "a party to a reorganization"
within the meaning of section 368(b) of the Code.
<PAGE>
Board of Directors
September 15, 1999
Page 7
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders (if any) of the Bank on
the issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Bank or to the other
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders (if any) upon the distribution
to them of the nontransferable subscription rights to purchase shares
of stock in the Holding Company (Section 356(a)). Gain realized, if
any, by the Eligible Account Holders and Supplemental Eligible Account
Holders (if any) on the distribution to them of nontransferable
subscription rights to purchase shares of Common Stock will be
recognized but only in an amount not in excess of the fair market
value of such subscription rights (Section 356(a)). Eligible Account
Holders and Supplemental Eligible Account Holders will not realize any
taxable income as a result of the exercise by them of the
nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B.
182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
(if any) and other shareholders of the Bank will be the same as the
basis of their deposit accounts in the Bank surrendered in exchange
therefor (Section 358(a)(1) of the Code). The basis
<PAGE>
Board of Directors
September 15, 1999
Page 8
of the interests in the liquidation account of the Converted Bank to
be received by the Eligible Account Holders of the Bank shall be zero
(Rev. Rul. 71-233, 1971-1 C.B. 113). The basis of the Holding Company
Common Stock to its stockholders will be the purchase price thereof
plus the basis, if any, of nontransferable subscription rights
(Section 1012 of the Code). Accordingly, assuming the nontransferable
subscription rights have no value, the basis of the Common Stock to
the Eligible Account Holders and Supplemental Eligible Account Holders
(if any) will be the amount paid therefor. The holding period of the
Common Stock purchased pursuant to the exercise of subscription rights
shall commence on the date on which the right to acquire such stock
was exercised (Section 1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the Representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders (if any), Directors, Officers and Employees have a fair market value of
zero. We understand that you have received a letter from FinPro that the
subscription rights do not have any value. We express no view regarding the
valuation of the subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * * * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referenced herein. Any change in the transaction could cause us
to modify our opinion.
<PAGE>
Board of Directors
September 15, 1999
Page 9
We consent to the inclusion of this opinion as an exhibit to the
Application for Conversion and Form S-1 Registration Statement of American
Financial Holdings, Inc. and the references to and summary of this opinion in
such Application for Conversion and Form S-1 Registration Statement.
Sincerely,
/s/ MULDOON, MURPHY & FAUCETTE LLP
----------------------------------
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
EXHIBIT 8.1
[KPMG LLP LETTERHEAD]
September 16, 1999
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
Board of Directors
American Financial Holdings, Inc.
102 West Main Street
New Britain, Connecticut 06050
Ladies and Gentlemen:
You have requested the opinion of KPMG LLP (KPMG) as to certain Connecticut
Corporation Business Tax, Delaware Corporate Income Tax, and Connecticut
Personal Income Tax consequences to American Savings Bank (the Bank), American
Financial Holdings, Inc., (the Holding Company), and Eligible Account Holders or
Supplemental Eligible Account Holders of the Bank, resulting from the proposed
conversion and reorganization of the Bank from a Connecticut-chartered mutual
savings bank to a Connecticut-chartered stock savings bank, under the name
American Savings Bank, in which the Bank will issue all of its stock to the
Holding Company, a newly formed savings and loan holding company, which will own
all of the Bank's capital stock (the Conversion). The opinion contained herein
is rendered only with respect to the holdings set forth herein under the heading
OPINION and KPMG expresses no opinion with respect to any other legal, federal,
state or local tax aspect of these transactions.
In preparing this opinion letter, we have relied, in part, upon certain factual
descriptions provided in the PLAN OF CONVERSION dated May 24, 1999, and
subsequently amended June 28, 1999 and July 22, 1999 as well as the facts and
representations which are provided below under the headings "STATEMENT OF FACTS"
and "REPRESENTATIONS" and the federal income tax opinion of Muldoon, Murphy &
Faucette LLP. If any fact or representation contained herein is not complete or
accurate it is important that we be notified immediately in writing as this may
cause us to change our opinion.
<PAGE>
Page 2
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
STATEMENT OF FACTS
American Savings Bank, a Connecticut-chartered mutual savings bank organized
and operated in the State of Connecticut, desires to convert to a Connecticut-
chartered stock savings bank which similarly, will be organized and operated
under the laws of the State of Connecticut. The conversion will be
accomplished by the use of a holding company to purchase and hold the stock of
the Bank. The Holding Company, a Delaware corporation, will offer for sale,
through a subscription offering, direct community offering and a syndicated
community offering, shares of its common stock. The Bank, upon the amendment
of its charter to authorize and issue stock, will simultaneously sell its
capital stock to the Holding Company pursuant to a plan of conversion. The
Holding Company will authorize 120 million shares of common stock, with a par
value of $.01per share. In addition, the Holding Company will authorize 10
million shares of preferred stock, with a par value of $.01 per share. Based
upon preliminary estimates provided by the Bank, the Holding Company will
initially issue between 26,732,500 and 41,592,625 of their authorized shares
of common stock.
The plan of conversion provides that nontransferable subscription rights to
purchase the common stock of the Holding Company will be granted, in order of
priority: (i) to each of the Bank's Eligible Account Holders (depositors whose
savings accounts in the Bank totaled $50 or more as of the Eligibility Record
Date), (ii) to the Bank's employee benefit plans, consisting of the Employee
Stock Ownership Plan (ESOP) which intends to subscribe for 5% of the common
stock issued in connection with the Conversion, (iii) to each of the Bank's
Supplemental Eligible Account Holders, if any, (depositors whose savings
accounts in the Bank totaled $50 or more as of the Supplemental Eligibility
Record Date, (iv) to Directors, Officers and Employees of the Bank and the
Holding Company who are not Eligible Account Holders or Supplemental Eligible
Account Holders to subscribe up to $500,000 of common stock, and (v) to Bank's
Corporators (to the extent there are sufficient shares of common stock
remaining after the satisfaction of subscriptions by classifications (i-iv)
above) to the extent of $500,000 of common stock.
<PAGE>
Page 3
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
The Holding Company will offer its shares of common stock unsubscribed for in
the above subscription offering for sale in a community offering or, if
necessary, in a syndicated community offering, to certain members of the
general public with preference given to natural persons residing in Hartford,
Middlesex, Tolland and Windham Counties, Connecticut.
FinPro has issued an opinion as of August 4, 1999, stating that, pursuant to
its valuation, the subscription rights have no value based on the fact that
such rights are acquired by the recipients without cost, are nontransferable
and of short duration, and afford the recipients the right only to purchase
shares of common stock of the Holding Company at a price equal to its
estimated fair market value, which will be the same price paid by purchasers
in the direct community offering for unsubscribed share of Holding Company
common stock.
In the event of a complete liquidation of the Bank before the conversion, each
depositor of the Bank would receive a pro rata share of any assets of the Bank
remaining after payment of claims of all creditors (including the claims of
all depositors up to the withdrawal value of their accounts). Each depositor's
pro rata share of the remaining assets would be in the same proportion as the
value of his or her deposit account to the total value of all deposit accounts
of the Bank at the time of the liquidation.
Upon the change in legal form of the Bank to a stock institution, a
"liquidation account" will be created for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders in an amount equal to the
amount of the surplus, undivided profits and general loss reserve, less any
subordinated debt as of the latest practicable date prior to conversion. Each
Eligible Account Holder and Supplemental Eligible Account Holder shall, with
respect to each savings account held, have a related inchoate interest in a
sub-account portion in the liquidation account balance.
The initial subaccount balance for a savings account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the
<PAGE>
Page 4
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
opening balance in the liquidation account by a fraction of which the
numerator is the amount of the holder's "qualifying deposit" in the savings
account and the denominator is the total amount of all "qualifying deposits"
of all of Eligible Account Holders and Supplemental Eligible Account Holders.
The initial subaccount balance shall not be increased, and it shall be
decreased as provided below.
If the deposit balance in any savings account of an Eligible Account Holder
and Supplemental Eligible Account Holder at the close of business on any
closing day of the Bank after the Eligibility Record Date, or the Supplemental
Eligibility Record Date is less than the lesser of the deposit balance in a
savings account at the close of business on any other annual closing date
after the Eligibility Record Date, or the Supplemental Eligibility Record Date
or the amount of the "qualifying deposit" in a savings account on the
Eligibility Record Date, or the Supplemental Eligibility Record Date, then the
subaccount balance for a savings account shall be adjusted by reducing the
subaccount balance in an amount proportionate to the reduction in the deposit
balance. Once reduced, the subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
savings account. If any savings account is closed, the related subaccount
balance shall be reduced to zero.
Only upon a complete liquidation of the American Savings Bank, each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidation distribution from the liquidation account in the amount
of the then current adjusted subaccount balance(s) for savings account(s) held
by the holder before any liquidation distribution may be made to stockholders.
In the event the Bank is liquidated after the conversion, depositors will be
entitled to full payment of their deposit accounts before any payment is made
to the Holding Company as the sole stockholder of the Bank.
<PAGE>
Page 5
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
REPRESENTATIONS
KPMG is relying on the following representations in rendering the opinions
contained herein. It is understood that KPMG has not independently verified
the accuracy of any of these representations:
(1) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the converted Bank to be
constructively received under the PLAN OF CONVERSION will, in each
instance, be equal to the fair market value of the withdrawable deposit
accounts (plus the related interest in the residual equity of the Bank)
deemed to be surrendered in exchange therefor.
2. If an individual's total deposits in the Bank equal or exceed $50 as of
the Eligibility Record Date or the Supplemental Eligibility Record Date,
then no amount of that individual's total deposits will be excluded from
participating in the liquidation account.
(3) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Bank will own all of the
outstanding interests in the liquidation account and will own such
interest solely by reason of their ownership of deposits in the Bank
immediately before the Conversion.
(4) After the Conversion, the converted Bank will continue the business of
the Bank in the same manner as prior to the Conversion. The converted Bank
has no plan or intention and the Holding Company has no plan or intention
to cause the converted Bank to sell its assets other than in the ordinary
course of business.
(5) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the converted Bank other than in the
ordinary course of business.
<PAGE>
Page 6
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
(6) The Holding Company and the converted Bank have no current plan or
intention to redeem or otherwise acquire any of the common stock issued
in the Conversion transaction.
(7) Immediately after the Conversion, the assets and liabilities of the
converted Bank will be identical to the assets and liabilities of the
Bank immediately prior to the Conversion, plus the net proceeds from the
sale of the converted Bank's common stock to the Holding Company and any
liability associated with indebtedness incurred by the Employee Plans in
the acquisition of Holding Company common stock by the Employee Plans.
(8) The Bank and the Holding Company are corporations within the meaning
of section 7701(a)(3) of the Internal Revenue Code (the Code).
(9) None of the shares of the Holding Company common stock to be purchased
by the depositor-employees of the Bank in the Conversion will be issued
or acquired at a discount. However, shares may be given to certain
directors and employees as compensation by means of the Employee Plans.
Compensation to be paid to such directors and depositor-employees will
be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
(10) The fair market value of the assets of the Bank, which will be
transferred to the converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Bank which will be assumed by
the converted Bank and any liabilities to which the transferred assets
are subject.
(11) The Bank is not under the jurisdiction of a bankruptcy or similar
court in any Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
(12) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
converted Bank and
<PAGE>
Page 7
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
no other shares of capital stock of the converted Bank will be issued
and/or outstanding. At the time of the Conversion, the converted Bank
does not have any plan or intention to issue additional shares of its
stock following the transaction. No shares of preferred stock of the
converted Bank are authorized, issued, and/or outstanding.
(13) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the converted Bank, nor will there be
any securities outstanding which are convertible into the capital stock
of the converted Bank.
(14) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the converted Bank.
(15) The Bank has maintained a reserve for bad debts in accordance with
sections 593 and 585 of the Code and, following the Conversion, to the
extent allowed under the Code, the converted Bank shall maintain a
reserve for bad debts in accordance with the applicable provisions of
the Code.
(16) Depositors will pay the expense of the Conversion solely applicable to
them, if any. The Holding Company and the Bank will each pay expenses of
the transaction attributable to them and will not pay any expenses
solely attributable to the depositors or to the Holding Company
shareholders.
(17) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription rights to purchase Holding Company common
stock will be equal to the fair market value of the stock of the Holding
Company at the time of the completion of the Conversion as determined by
an independent appraisal.
<PAGE>
Page 8
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
(18) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Bank arise solely by virtue
of the fact that they are account holders in the Bank.
(19) There is no plan or intention for the converted Bank to be liquidated
or merged with another corporation following this proposed transaction.
(20) The liabilities of the Bank assumed by the converted Bank plus the
liabilities, if any, to which the transferred assets are subject were
incurred by the Bank in the ordinary course of its business and are
associated with the assets transferred.
(21) External legal counsel, Muldoon, Murphy & Faucette LLP, has opined
that for federal income tax purposes no gain or loss will be recognized
as a result of the proposed Conversion by either the Bank or the Holding
Company, and that the proposed conversion of the Bank from a
Connecticut-chartered mutual savings bank to a Connecticut-chartered
stock savings bank qualifies as a tax-free reorganization for federal
income tax purposes pursuant to Section 368(a)(1)(F) of the Code.
(22) External legal counsel, Muldoon, Murphy & Faucette LLP, has opined
that for federal income tax purposes, no gain or loss will be recognized
by Eligible Account Holders and Supplemental Eligible Account Holders of
the Bank on the issuance to them of withdrawable deposit accounts in the
converted Bank plus interests in the liquidation account of the
converted Bank in exchange for deposit accounts in the Bank and their
related interest in the residual equity of the Bank or to the other
depositors on the issuance to them of withdrawable deposit accounts.
(23) External legal counsel, Muldoon, Murphy & Faucette LLP, has opined
that for federal income tax purposes, no gain or loss will be recognized
by Eligible Account Holders and Supplemental Eligible Account Holders of
the Bank upon the distribution to them of the nontransferable
subscription rights to purchase shares of
<PAGE>
Page 9
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
stock in the Holding Company, provided that the amount paid for the
Holding Company common stock is equal to the fair market value of such
stock. Gain realized, if any, by the Eligible Account Holders and
Supplemental Eligible Account Holders of the Bank on the distribution to
them of nontransferable subscription rights to purchase the Holding
Company stock will be recognized but only in an amount not in excess of
the fair market value of such subscription rights. Eligible Account
Holders and Supplemental Eligible Account Holders of the Bank will not
realize any taxable income for federal income tax purposes as a result
of the exercise by them of the nontransferable subscription rights.
(24) Based on the opinion of FinPro dated August 4, 1999, the
nontransferable subscription rights do not have any value.
(25) No gain or loss will be recognized by the Bank under generally
accepted accounting principles (GAAP) as a result of the Conversion and
the purchase accounting method will not be used by the Bank to account
for the transaction in accordance with GAAP.
(26) The Bank is a Connecticut-chartered mutual savings bank. The Bank is
neither incorporated nor currently conducting business in the State of
Delaware.
(27) The Holding Company is a domestic Delaware corporation, organized at
the direction of the Bank to become a savings and loan holding company
and own all of the Bank's capital stock to be issued upon its conversion
from mutual form to stock form. The Holding Company does not maintain
any physical presence in nor conduct any business in the State of
Delaware. The Holding Company conducts its business activities in the
State of Connecticut.
<PAGE>
Page 10
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
State Income Tax Opinion
Connecticut Corporate Business Tax
DISCUSSION -Connecticut Corporate Business Tax (CBT)
Connecticut Corporate Business Tax is imposed on every mutual savings bank,
savings and loan association and every other company carrying on, or having
the right to carry on, business in this state, including a dissolved
corporation which continues to conduct business under Connecticut General
Statute (CGS) (S)12-214(a)(1). Certain entities are specifically excluded
from the tax but neither the Bank nor the Holding Company are exempt from CBT
taxation under the exceptions noted in CGS (S)12-214(a)(2).
Every corporation has to separately compute its tax liability under the
regular corporation business tax (net income tax) and an additional tax
(capital stock tax) and pay the larger of the two. Both the Bank and the
Holding Company are subject to the regular corporation business tax under CGS
(S)12-214(a)(1) while the Bank is exempt from the capital tax under Public
Act 98-110 (S)(S) 11 and 19.
The computation of Connecticut taxable income begins by starting with current
year's federal taxable income before net operating loss and special
deductions. CGS (S)12-213(a)(9)(A). Certain modifications are made to federal
taxable income to arrive at Connecticut taxable income.
Adjustments that would increase Connecticut taxable income include:
. State taxes imposed on or measured by the income or profits of a
corporation which are paid or accrued in the income year. CGS (S)12-
217(a)(1)(A)(i).
. Federally exempt interest including interest paid on federal, state and
local securities, including Connecticut and its political subdivisions.
CGS (S)12-213(a)(9)(A).
<PAGE>
Page 11
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
. Income attributable to the recovery of a bad debt deducted in any prior
year, unless the bad debt has already been charged to a reserve account
pursuant to a provision of the Internal Revenue Code. Conn. Agencies Regs.
(S)12-242-3.
. Losses from prior years which were excluded in calculating federal taxable
income. CGS (S)12-213(a)(9)(A).
. Interest expenses and costs and intangible expenses and costs directly or
indirectly connected with one or more related members of the corporation
subject to rebuttal. Public Act 98-110 (S) 20.
Adjustments that would decrease Connecticut taxable income include:
. All dividends not otherwise deducted from federal taxable income (subject
to certain percentage limitations) in Connecticut General Statutes
section12-217(a)(1)(D) less expenses related to dividends. CGS (S)12-
217(a)(2)(A).
. Capital loss deductions. CGS (S)12-217(a)(4)(B).
. Connecticut net operating loss deduction. CGS (S)12-217(a)(4).
The computation of the Connecticut capital tax is computed by adding the
average value of a corporation's issued and outstanding capital stock,
including treasury stock at par or face value, fractional shares, scrip
certificates convertible into stock and amounts received on capital stock
subscriptions plus the average value of its surplus and undivided profit and
the average value of its surplus reserves less the average value of any
deficit carried on its balance sheets and the average value of any stock it
owns in private corporations, including treasury shares. CGS (S) 12-
219(a)(1).
OPINION
Based solely on the Statement of Facts, Representations, and Discussion as
set forth in this opinion letter and the opinion of Muldoon, Murphy &
Faucette LLP that for federal tax purposes no gain or loss will be recognized
in the proposed Conversion by
<PAGE>
Page 12
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
the Bank or the Holding Company, it is the opinion of KPMG that:
1. Neither the Bank nor the Holding Company will recognize gain or loss for
Connecticut Corporation Business Tax purposes; and
2. The Conversion will not give rise to any positive or negative tax base
adjustments for Connecticut Business Tax purposes.
Connecticut Personal Income Tax
DISCUSSION -Connecticut Personal Income Tax
Muldoon, Murphy & Faucette LLP, has opined that for federal income tax
purposes, no gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders of the Bank on the issuance to them of
withdrawable deposit accounts in the Bank plus interests in the liquidation
account of the converted Bank in exchange for their deposit accounts in the
Bank and their related interest in the residual equity of the Bank or to the
other depositors on the issuance to them of withdrawable deposit accounts.
Muldoon, Murphy & Faucette LLP has opined that for federal income tax
purposes, no gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders of the Bank upon the distribution to
them of the nontransferable subscription rights to purchase shares of stock in
the Holding Company, provided that the amount paid for the Holding Company
common stock is equal to the fair market value of such stock. Gain realized,
if any, by the Eligible Account Holders and Supplemental Eligible Account
Holders of the Bank on the distribution to them of nontransferable
subscription rights to purchase the Holding Company stock will be recognized
but only in an amount not in excess of the fair market value of such
subscription rights. Eligible Account Holders and Supplemental Eligible
Account Holders of the Bank will not realize any taxable income for federal
income tax purposes as a result of the exercise by them of the nontransferable
subscription rights.
<PAGE>
Page 13
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
In addition, FinPro has issued an opinion dated August 4, 1999, stating that,
pursuant to its valuation, the subscription rights have no value based on the
fact that such rights are acquired by the recipients without cost, are
nontransferable and of short duration, and afford the recipients the right
only to purchase the Holding Company stock at a price equal to its estimated
fair market value, which will be the same price as the actual purchase price
for any unsubscribed shares of Holding Company stock.
Federal adjusted gross income is the starting point in determining Connecticut
personal taxable income. CGS (S) 12-701(a)(19). Certain modifications are made
to federal adjusted gross income to arrive at Connecticut personal taxable
income.
Adjustments that would increase Connecticut personal taxable income include:
. Interest on federal obligations exclusive of Connecticut based interest.
CGS (S) 12-701(a)(20)(A)(i).
. Exempt-interest dividends, exclusive of Connecticut based exempt-interest
dividends. CGS (S) 12-701(a)(20)(A)(ii).
. Other certain interest and dividend income. CGS (S) 12-701(a)(20)(A)(iii).
. Certain lump sum distributions. CGS (S) 12-701(a)(20)(A)(iv).
. Certain losses from the sale or other disposition of capital assets issued
by various public entities created under the laws of the state of
Connecticut. CGS (S) 12-701(20)(a)(A)(v).
. Income taxes imposed by Connecticut. CGS (S) 12-701(a)(20)(A)(vi).
. Interest on indebtedness incurred or continued to purchase or carry
obligations or securities the interest on which is exempt from tax under
this chapter. CGS (S) 12-701(a)(20)(A)(vii).
. Certain expenses and amortizable bond premium as noted in CGS (S) 12-
701(a)(20)(A)(vii).
<PAGE>
Page 14
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
Adjustments that would decrease Connecticut personal taxable income include:
. Income with respect to which taxation by any state is prohibited by
federal law. CGS (S) 12-701(a)(20)(B)(i).
. Certain exempt dividends paid by a regulated investment company. CGS (S)
12-701(a)(20)(B)(ii).
. The amount of any refund or credit for overpayment of income taxes imposed
by Connecticut of any other state of the United States or political
subdivision thereof, or the District of Columbia or any province of Canada,
to the extent properly includable in gross income for federal purpose. CGS
(S) 12-701(a)(20)(B)(iii);
. Any Tier 1 railroad retirement benefits to the extent properly includable
in federal gross income. CGS (S) 12-701(a)(20)(B)(iv).
. With respect to a natural person who is a shareholder of an S corporation,
the individuals pro rata share of such corporation's non-separately stated
items of income. CGS (S) 12-701(a)(20)(B)(v).
. Interest income derived from Connecticut obligations. CGS (S) 12-
701(a)(20)(B)(vi).
. Gain from sale or exchange of Connecticut government obligations. CGS (S)
12-701(a)(20)(B)(vii).
. Interest incurred to buy or carry any obligation or securities, interest
income on which is exempt from federal income tax but subject to
Connecticut tax. CGS (S) 12-(a)(20)(B)(viii).
. Ordinary and necessary expenses paid or incurred during the taxable year
for the production or collection of income that is exempt from federal
income tax but subject to Connecticut tax. CGS (S) 12-701(a)(20)(B)(ix).
. Amounts of Social Security benefits that first became subject to federal
income tax in 1993. CGS (S) 12-701(a)(20)(B)(x).
. Amount rebated to taxpayers for property tax paid on a primary residence
or motor vehicle. CGS (S) 12-701(a)(20)(B)(xi).
. Distributions from a Connecticut-administered qualified state tuition
program as
<PAGE>
Page 15
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
defined in Internal Revenue Code section 529(b), to the extent included in
federal income. Connecticut P.A. 98-252.
Eligible Account Holders and Supplemental Account Holders of the Bank will be
receiving withdrawable deposit accounts in the Bank plus interests in the
liquidation account of the converted Bank in exchange for their deposit
accounts and their related interest in the residual equity of the Bank, along
with nontransferable subscription rights to purchase shares of stock in the
Holding Company.
As opined by Muldoon, Murphy & Faucette LLP: (1) the Conversion will receive
tax-free treatment with respect to tax-free reorganizations pursuant to
Section 368(a)(1)(F) of the Internal Revenue Code; (2) no gain or loss shall
be recognized by the Eligible Account Holders and the Supplemental Eligible
Account Holders (if any) of the Bank on the issuance to them of withdrawable
deposit accounts in the Converted Bank plus interest in the liquidation
account of the Converted Bank in exchange for their deposit accounts in the
Bank or to the other depositors on the issuance to them of withdrawable
deposit account (Section 354(a) of the Code); and (3) gain realized, if any,
by the Eligible Account Holders and Supplemental Eligible Account Holders (if
any) on the distribution to them to nontransferable subscription rights to
purchase shares of Common Stock will be recognized but only in an amount not
in excess of the fair market value of such subscription rights (Section 356(a)
of the Code).
OPINION
Based solely on the Statement of Facts, Representations, and Discussion as set
forth in this opinion letter and the opinion of Muldoon, Murphy & Faucette
LLP, it is the opinion of KPMG that for Connecticut Personal Income Tax
purposes:
(1) No gain or loss will be recognized by Eligible Account Holders and
Supplemental Account Holders of the Bank on the issuance to them of
withdrawable deposit accounts in the Bank plus interests in the
liquidation account
<PAGE>
Page 16
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
of the converted Bank in exchange for their deposit accounts and their
related interest in the residual equity of the Bank, or to the other
depositors on the issuance to them of withdrawable deposit accounts.
(2) No gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders of the Bank upon the distribution to
them of the nontransferable subscription rights to purchase shares of stock
in the Holding Company, provided that the amount paid for the Holding
Company common stock is equal to the fair market value of such stock. Gain
realized, if any, by the Eligible Account Holders and Supplemental Eligible
Account Holders of the Bank on the distribution to them of nontransferable
subscription rights to purchase the Holding Company stock will be
recognized but only in an amount not in excess of the fair market value of
such subscription rights. Eligible Account Holders and Supplemental
Eligible Account Holders of the Bank will not realize any taxable income
for state income tax purposes as a result of the exercise by them of the
nontransferable subscription rights.
Delaware Corporate Income Tax
DISCUSSION -Delaware Corporate Income Tax
The Bank is neither incorporated nor currently conducting business in the State
of Delaware. Accordingly, no Delaware corporate income tax will arise to the
Bank as a result of the Conversion.
The Holding Company is a domestic Delaware corporation, organized at the
direction of the Bank to become a savings and loan holding company and own all
of the Bank's capital stock to be issued upon its conversion from mutual form
to stock form. The Holding Company does not maintain any physical presence in
nor conduct any business in the State of Delaware.
<PAGE>
Page 17
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
Delaware Tax Law Section 1902(b)(6) exempts an entity from Delaware
corporation income tax if the corporation maintains a statutory corporate
office in Delaware but is not doing business in Delaware. Thus, if a company
has no physical presence in Delaware and derives no income from Delaware
activities, it will be exempt from Delaware corporate income taxation.
OPINION
Based solely on the Statement of Facts, Representations, and Discussion as set
forth in this opinion letter and the opinion of Muldoon, Murphy & Faucette
LLP, it is the opinion of KPMG that the following Delaware Corporate Income
Tax consequences will occur as a result of the above Conversion:
(1) The Bank will not be subject to Delaware taxation because it is not
organized under the laws of Delaware and it does not have any physical
presence or conduct any business in Delaware.
(2) Although the Holding Company will be organized in Delaware, it will not
be subject to Delaware corporate income tax if it does not maintain any
physical presence in Delaware nor conduct any business within Delaware.
*************
The opinions expressed above are rendered with respect to the specific matters
discussed herein and we express no opinion with respect to any other federal
or state income tax, or other state and local taxes, or legal aspect of the
Conversion. Our opinions are based on the completeness and accuracy of the
above-stated facts and representations. If any of the foregoing are not
entirely complete or accurate, it is imperative that we be informed
immediately in writing, as the inaccuracy or incompleteness could have a
material effect on our conclusions. References to Connecticut and Delaware
law, regulations and pronouncements are based upon current laws as enacted and
pronouncements thereunder
<PAGE>
Page 18
Board of Directors
American Savings Bank
102 West Main Street
New Britain, Connecticut 06050
as of the date of this memorandum. We are relying upon the relevant provisions
of the Internal Revenue Code of 1986, as amended, the regulations thereunder,
and judicial and administrative interpretations thereof, and state and local
tax authorities which are subject to change or modification by subsequent
legislative, regulatory, administrative, or judicial decisions. Any such
changes could also have an effect on the validity of our opinions. The
opinions contained herein are not binding upon the Internal Revenue Service,
any other tax authority or any court, and no assurance can be given that a
position contrary to that expressed herein will not be asserted by a tax
authority and ultimately sustained by a court. Unless you specifically request
otherwise, we will not update these opinions for subsequent changes or
modifications to the law and regulations, or to the judicial and
administrative interpretations thereof.
/s/ KPMG LLP
<PAGE>
EXHIBIT 10.4
AMERICAN SAVINGS BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the American Savings Bank Employee Severance Compensation
Plan is to assure for American Savings Bank (the "Bank") the services of
Employees of the Bank in the event of a Change in Control (capitalized terms are
defined in section 2.1) of American Financial Holdings, Inc. (the "Holding
Company") or the Bank. The benefits contemplated by the Plan recognize the value
to the Bank of the services and contributions of the Employees of the Bank and
the effect upon the Bank resulting from the uncertainties of continued
employment, reduced Employee benefits, management changes and relocations that
may arise in the event of a Change in Control of the Bank or the Holding
Company. The Bank's and the Holding Company's Boards of Directors believe that
it is in the best interests of the Bank and the Holding Company to provide long
term and key Employees of the Bank with such benefits in order to defray the
costs and changes in Employee status that could follow a Change in Control. The
Board of Directors believes that the Plan will also aid the Bank in attracting
and retaining highly qualified individuals who are essential to its success and
the Plan's assurance of fair treatment of the Bank's Employees will reduce the
distractions and other adverse effects on Employees' performance in the event of
a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes an employee severance compensation plan to be known as "American
Savings Bank Employee Severance Compensation Plan." The purposes of the Plan are
as set forth above.
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees of
the Bank, who, at or after the Effective Date, meet the eligibility requirements
of Article III, except for those executive officers who have entered into, or
who enter into in the future, and continue to be subject to an employment or
change in control agreement with the Employer.
1.3 Contractual Right to Benefits
-----------------------------
This Plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer, Bank, or both.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
(a) "Annual Compensation" of a Participant (other than a Designated
Officer) means and includes all wages, salary, bonus, and cash compensation, if
any, paid (including accrued amounts) by an Employer as consideration for the
Participant's service during the 12 months ended the date as of which Annual
Compensation is to be determined, which are or would be includable in the gross
income of the Participant receiving the same for federal income tax purposes. In
the case of a Participant who is a Designated Officer, "Annual Compensation"
means the Participant's annual salary in effect immediately prior to the Change
in Control plus the average of the Participant's bonus or incentive compensation
for the three (3) most recently completed years preceding the effective date of
the Change in Control.
(b) "Bank" means American Savings Bank or any successor as provided for in
Article VII hereof.
(c) "Change in Control" shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a), with
respect to the Bank, and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), with respect to the
Holding Company, as in effect on the date of this Agreement; or (iii) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of voting securities of the
Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company and any voting securities purchased by any employee benefit plan of the
Holding Company or its Subsidiaries, or (B) individuals who constitute the Board
on the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was approved by a
Nominating Committee solely composed of members which are Incumbent Board
members, shall be, for purposes of this clause (B), considered as though he were
a member of the Incumbent Board, or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Bank or the
Holding Company or similar transaction occurs or is effectuated in which the
Bank or Holding Company is not the resulting entity, or (D) a proxy statement
has been distributed soliciting
2
<PAGE>
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or Bank
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed, or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or Holding Company then outstanding.
(d) "Conversion Date" means the date the Holding Company first issues
common stock pursuant to its initial public offering and the Bank's mutual-to-
stock conversion.
(e) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board of Directors must advise the Board that it is either not possible
to determine if or when such Disability will terminate or that it appears
probable that such Disability will be permanent during the remainder of said
employees lifetime.
(f) "Effective Date" means the date the Plan is approved by the Board of
Directors of the Bank, or such other date as the Board shall designate in its
resolution approving the Plan.
(g) "Employee" means any Employee of the Bank or any subsidiary thereof
who has completed at least one year of service with the Bank, or any subsidiary
thereof, provided, however, that any Employee who is covered or hereinafter
becomes covered by an employment contract or change in control agreement with
the Employer shall not be considered to be an Employee for purposes of this
Plan.
(h) "Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
(i) "Employer" means the Bank or a subsidiary of the Bank or a parent of
the Bank which has adopted the Plan pursuant to Article VI hereof.
(j) "Just Cause" shall mean termination because of Participant's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure or unjustified neglect to perform
stated duties, conviction of or pleading guilty or nolo contendere to any crime
or offense punishable as a felony or to any crime or offense involving moral
turpitude, or violation of any final cease-and desist order. In determining
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the savings institutions industry.
(k) "Leave of Absence" and "LOA" mean (i) the taking of an authorized or
approved leave of absence under the provisions of the federal Family and Medical
Leave Act ("FMLA"), (ii) any state law providing qualitatively similar benefits
as the FMLA, or (iii) a leave of absence
3
<PAGE>
authorized under the policies of the Bank. "Leave of Absence" and "LOA" are
defined in this paragraph for the exclusive purposes of this Plan.
(l) "Payment" means the payment of severance compensation as provided in
Article IV hereof.
(m) "Participant" means an Employee who meets the eligibility requirements
of Article III.
(n) "Plan" means American Savings Bank Employee Severance Compensation
Plan.
(o) "Year of Service" means each consecutive 12 month period, beginning
with an Employee's date of hire and running without a termination of employment
in which an Employee is credited with at least one hour of service in each of
the 12 calendar months in such period. The taking of an LOA shall not eliminate
a period of time from being a Year of Service if such period of time otherwise
qualifies as such. Further if a particular 12 month period of time would not
otherwise qualify under the Plan as a Year of Service because one hour of
service is not credited during each month of such period due to the taking of a
LOA, then such period of time shall be deemed to be a Year of Service for all
other sections of this Plan.
2.2 Applicable Law
--------------
The laws of the State of Connecticut shall be the controlling law in all
matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
For purposes of this Plan, the term "Participant" shall include:
(a) Without regard to Years of Service, all Employees who were employed by
the Employer as of the Conversion Date; and
(b) All Employees employed after the Conversion Date who have completed at
least One Year of Service with the Employer at the time of any termination
pursuant to Section 4.2 herein; and
4
<PAGE>
(c) Without regard to Years of Service, each Vice President of the Bank or
other Employee who is designated as a Participant by the Board of Directors of
the Bank (a "Designated Officer").
Notwithstanding the foregoing, persons who have entered into and continue
to be covered by an employment contract or change in control agreement with the
Employer shall not be entitled to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to receipt
of a Payment shall remain a Participant in this Plan until the full amount of
such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from its respective Employer a
Payment in the amount provided in Section 4.3 if there has been a Change in
Control of the Bank or the Holding Company and if, within twenty-four (24)
months thereafter, the Participant's employment by an Employer shall terminate
for any reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, Disability, or for Just Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a Payment
if employment by an Employer is terminated, voluntarily or involuntarily, for
any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause Participant's position to be one of lesser
responsibility, importance or scope with the Employer than immediately prior to
the change in control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty (30) miles from the location of the Participant's job
or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
5
<PAGE>
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control,
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Bank on a nondiscriminatory basis
would not trigger a payment pursuant to this Plan.
(e) A successor to the Bank fails or refuses to assume the Bank's
obligations under this Plan, as required by Article VII.
(f) The Bank or any successor to the Bank breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant who was employed by the Employer as of the
Conversion Date (other than a Participant who is a Designated Officer), and is
entitled to a Payment under this Plan, shall receive from the Bank a lump sum
cash payment equal to one-twelfth (1/12th) of Annual Compensation for each year
of service. The maximum benefit paid under this subsection shall be 1.99 times
Annual Compensation and the minimum benefit shall be 1.00 times Annual
Compensation.
(b) Each Participant who was employed by the Employer after the
Conversion Date (other than a Participant who is a Designated Officer) and who
is entitled to a Payment under this Plan shall receive from the Bank, a lump sum
cash payment equal to one-twelfth of Annual Compensation for each year of
service up to a maximum of 1.99 times Annual Compensation.
(c) Each Participant who is a Designated Officer and who is entitled
to a Payment under this Plan shall receive from the Bank, a lump sum cash
payment equal to the greater of (i) a Payment determined under the preceding
sentence of this Section 4.3(a) or (ii) three (3) times the average of their
Annual Compensation.
(d) In the case of a Participant who is a Designated Officer and who
is entitled to a Payment under this Plan, the Bank shall continue for a period
of thirty-six (36) months after the Participant's termination of employment to
provide medical, life and disability benefits to the Participant and/or the
Participant's eligible dependents at least equal to that which would have been
provided in accordance with the Bank's plans and policies in effect immediately
prior to the Change in Control if the Participant's employment had not been
terminated. If the terms of the plans do not permit continued participation by
the Participant or his eligible dependents, the Bank shall either arrange for
substantially similar coverage or provide the Participant with a cash payment
equal to the monetary equivalent thereof.
(e) The Participant shall not be required to mitigate damages on the
amount of the Payment by seeking other employment or otherwise, nor shall the
amount of such Payment
6
<PAGE>
be reduced by any compensation earned by the Participant as a result of
employment after termination of employment hereunder.
(f) Notwithstanding anything in this Plan to the contrary, in the
event of the involuntary termination of employment of a Participant by the Bank,
other than for Just Cause, during the twelve-month period beginning on the
second anniversary of the effective date of the Change in Control, the
Participant shall be entitled to receive severance benefits in an amount and
kind not less than those which the Participant would have received under the
Bank's employee severance policy as in effect immediately prior to the effective
date of the Change in Control if the Participant's employment had been
involuntarily terminated as of such date.
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of the
employment but before all amounts have been paid, such unpaid amounts shall be
paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
4.5 Tax Indemnification
-------------------
(a) If a Payment and any other compensation or benefits paid to any
Participant in the event of a Change in Control are determined to be subject to
the excise tax imposed under Section 4999 of the Code, the Bank shall pay the
Participant one or more cash payments ("Gross-up Payment") sufficient to pay the
Excise Tax and an additional amount sufficient to pay all taxes due on the
Gross-up Payment determined at the Participant's highest marginal tax rate for
the year of payment (the "Supplemental Payment").
(b) Subject to the provisions of subsection (c) of this Section 4.5, all
determinations required to be made under this Section 4.5, including without
limitation whether the Gross-up Payment is required and the amount of the Gross-
up Payment and the Supplemental Payment, shall be made by a nationally
recognized independent accounting firm to be selected by the Bank (the
"Accounting Firm"). Each Participant shall provide the Accounting Firm any
information reasonably requested by it necessary to make such determination,
including without limitation copies of the Participant's tax returns for the
periods affected, all of which shall be maintained in confidence by the
Accounting Firm. The Accounting Firm shall provide detailed supporting
calculations together with its written opinion with respect to the accuracy of
such calculations to the Bank and the Participant within fifteen (15) business
days of the date of termination. All fees and expenses of the Accounting Firm
shall be borne solely by the Bank. The initial Gross-up Payment and Supplemental
Payment, if any, as determined pursuant to this Section 4.5 shall be paid to the
Participant within five (5) business days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Participant, it shall also furnish the Participant with an
opinion that failure to report the Excise Tax on the Participant's applicable
federal income tax return would not result in the imposition of a negligence or
similar penalty and in the absence of such an opinion, a Gross-up Payment and
7
<PAGE>
Supplemental Payment in the amount which the Accounting Firm determines to be
payable shall be due and payable to the Participant. Except as provided in the
preceding sentence, any determination by the Accounting Firm shall be binding
upon the Bank and the Participant. As a result of uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-up Payments and
Supplemental Payments which shall not have been made by the Bank should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Bank exhausts the remedies provided in Section
4.5 hereof and the Participant thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the Bank
to or for the benefit of the Participant.
(c) The Participant shall notify the Bank in writing of any claim by the
Internal Revenue Service ("IRS") that, if successful, would require the payment
by the Bank of the Gross-up Payment and Supplemental Payment; provided, that
failure by the Participant to give such notification shall not affect any of the
Participant's rights or the obligations of the Bank under this Plan. Such
notification shall be given as soon as practicable but no later than ten (10)
business days after the Participant knows of such claim and shall apprise the
Bank of the nature of such claim and the date on which such claim is requested
to be paid. The Participant shall not pay such claim prior to the expiration of
the thirty (30) calendar day period following the date on which the Participant
gives such notice to the Bank (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Bank notifies
the Participant in writing prior to the expiration of such period that it
desires to contest such claim, the Participant shall:
(i) give the Bank any information reasonably requested
relating to such claim,
(ii) take such action in connection with contesting such
claim as the Bank may reasonably request in writing from
time to time, including without limitation accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Bank,
(iii) cooperate with Bank in good faith in order effectively
to contest such claim, and
(iv) permit the Bank to participate in any proceedings
relating to such claim; provided, however, that the Bank
shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold
the Participant harmless, on an after-tax basis, for any
Excise Tax or income tax, including interest and penalties
with respect thereto, imposed as a result of such
representation, and payment of costs and expenses. Without
limiting the foregoing, the Bank shall control all
proceedings taken in connection with such
8
<PAGE>
contest and, at the sole option of the Bank may pursue or
forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either
direct the Participant to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and
the Participant shall prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Bank may determine; provided, however, that if the
Bank directs the Participant to pay such claim and sue for a
refund, the Bank shall advance the amount of such payment to
the Participant, on an interest-free basis, and shall
indemnify and hold the Participant harmless, on an after-tax
basis, from any Excise Tax or income tax, including interest
or penalties with respect thereto, imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and further provided, that any
extension of the statute of limitations relating to payment
of taxes for the taxable year of the Participant with
respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the
control of the contest by the Bank shall be limited to
issues with respect to which a Gross-up Payment and
Supplemental Payment would be payable hereunder and the
Participant shall be entitled to settle or contest, as the
case may be, any other issue raised by the IRS or any other
taxing authority.
(d) If, after the receipt by the Participant of an amount advanced by the
Bank pursuant to Section 4.5(c) hereof, the Participant becomes entitled to
receive any refund with respect to such claim, the Participant shall (subject to
compliance by the Bank with the requirements of Section 4.5(c) hereof) promptly
pay to the Bank the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Participant of an amount advanced by the Bank pursuant to Section 4.5(c) hereof,
a determination is made that the Participant is not entitled to any refund with
respect to such claim and the Bank does not notify the Participant in writing of
its intent to contest such denial of refund prior to the expiration of thirty
(30) calendar days after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-up Payment and Supplemental
Payment required to be paid. Any contest of a denial refund shall be controlled
by Section 4.5(c) hereof.
9
<PAGE>
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan may be
adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent. The term "Subsidiary" means any corporation in which the Bank, directly
or indirectly, holds a majority of the voting power of its outstanding shares of
capital stock. The term "Parent" means any corporation which holds a majority of
the voting power of the Bank's outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
10
<PAGE>
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of Directors of the Bank, unless a Change in Control
has previously occurred. If a Change in Control occurs, the Plan no longer shall
be subject to amendment, change, substitution, deletion, revocation or
termination in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each Participant's rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under
this Plan shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employee and the Bank and their respective successors and assigns.
11
<PAGE>
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the Employee's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Employee's right to compensation or other benefits under this Agreement.
Employee shall not have the right to receive compensation or other benefits for
any period after termination for Just Cause as defined in Section 2.1
hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1), all obligations of the Bank
under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be under the
-------------------
supervision of the Board of Directors of the Bank or a Committee appointed by
the Board (the "Board"). It shall be a principal duty of the Board to see that
the Plan is carried out in accordance with its terms, for the exclusive benefit
of persons entitled to participate in the Plan without discrimination among
them. The Board will have full power to administer the Plan in all of its
details subject, however, to the requirements of ERISA. For this purpose, the
Board's powers will include, but will not be limited to, the following
authority, in addition to all other powers
12
<PAGE>
provided by this Plan: (a) to make and enforce such rules and regulations as it
deems necessary or proper for the efficient administration of the Plan; (b) to
interpret the Plan, its interpretation thereof in good faith to be final and
conclusive on all persons claiming benefits under the Plan; (c) to decide all
questions concerning the Plan and the eligibility of any person to participate
in the Plan; (d) to compute the amount of Payment that will be payable to any
Participant or other person in accordance with the provisions of the Plan, and
to determine the person or persons to whom such benefits will be paid; (e) to
authorize Payments; (f) to appoint such agents, counsel, accountants,
consultants and actuaries as may be required to assist in administering the
Plan; and (g) to allocate and delegate its responsibilities under the Plan and
to designate other persons to carry out any of its responsibilities under the
Plan, any such allocation, delegation or designation to be by written instrument
and in accordance with Section 405 of ERISA.
11.2 Named fiduciary. The Board will be a "named fiduciary" for purposes
----------------
of Section 402(a)(1) of ERISA with authority to control and manage the operation
and administration of the Plan, and will be responsible for complying with all
of the reporting and disclosure requirements of Part 1 of Subtitle B of Title I
of ERISA.
11.3 Claims and review procedures.
-----------------------------
(a) Claims procedure. If any person believes he is being denied any
-----------------
rights or benefits under the Plan, such person may file a claim in writing
with the Board. If any such claim is wholly or partially denied, the Board
will notify such person of its decision in writing. Such notification will
be written in a manner calculated to be understood by such person and will
contain (i) specific reasons for the denial, (ii) specific reference to
pertinent Plan provisions, (iii) a description of any additional material
or information necessary for such person to perfect such claim and an
explanation of why such material or information is necessary and (iv)
information as to the steps to be taken if the person wishes to submit a
request for review. Such notification will be given within 90 days after
the claim is received by the Board (or within 180 days, if special
circumstances require an extension of time for processing the claim, and if
written notice of such extension and circumstances is given to such person
within the initial 90 day period). If such notification is not given within
such period, the claim will be considered denied as of the last day of such
period and such person may request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a
-----------------
person receives a written notice of a denied claim (or, if applicable,
within 60 days after the date on which such denial is considered to have
occurred) such person (or his duly authorized representative) may (i) file
a written request with the Board for a review of his denied claim and of
pertinent documents and (ii) submit written issues and comments to the
Board. The Board will notify such person of its decision in writing. Such
notification will be written in a manner calculated to be understood by
such person and will contain specific reasons for the decision as well as
specific references to pertinent Plan provisions. The decision on review
will be made within 60 days after the request for review is received by the
Board (or within 120 days, if special circumstances require an extension of
time for processing the requests such as an election by the Board to hold a
13
<PAGE>
hearing, and if written notice of such extension and circumstances is given
to such person within the initial 60 day period). If the decision on review
is not made within such period, the claim will be considered denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
----------------------------------------
administration of the Plan, any discretionary action by the Board is required,
the Board shall exercise its authority in a nondiscriminatory manner so that all
persons similarly situated will receive substantially the same treatment.
11.5 Indemnification of Board. The Bank will indemnify and defend to the
-------------------------
fullest extent permitted by law any person serving on the Board or as a member
of a committee designated as Board (including any person who formerly served as
a Board member or as a member of such committee) against all liabilities,
damages, costs and expenses (including attorneys fees and amounts paid in
settlement of any claims approved by the Bank) occasioned by any act or omission
to act in connection with the Plan, if such act or omission is in good faith.
11.6 "Plan Year" means the period beginning on the Effective Date and
-----------
ending on _________, 200_ and the 12 consecutive-month period ending each year
thereafter.
11.7 Benefits solely from general assets. The benefits provided hereunder
------------------------------------
will be paid solely from the general assets of the Bank. Nothing herein will be
construed to require the Bank or the Board to maintain any fund or segregate any
amount for the benefit of any Participant, and no Participant or other person
shall have any claim against, right to, or security or other interest in, any
fund, account or asset of the Bank from which any payment under the Plan may be
made.
[The remainder of this page has been intentionally left blank]
14
<PAGE>
Having been adopted by its Board of Directors on ____________, this Plan is
executed by its duly authorized officers this ___ day of ________, 1999.
Attest: AMERICAN SAVINGS BANK
__________________________________ By: _________________________________
For the Entire Board of Directors
Having been adopted by its Board of Directors on ______________, this Plan is
executed by its duly authorized officers this ___ day of ________, 1999.
Attest: AMERICAN FINANCIAL HOLDINGS, INC.
__________________________________ By: _________________________________
For the Entire Board of Directors
15
<PAGE>
EXHIBIT 10.5
FORM OF
AMERICAN SAVINGS BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
Form of
American Savings Bank
Supplemental Executive Retirement Plan
Table of Contents
<TABLE>
<S> <C>
Article I - Introduction.................................................... 1
Article II - Definitions.................................................... 2
Article III - Eligibility and Participation................................. 5
Article IV - Benefits....................................................... 6
Article V - Accounts........................................................ 9
Article VI - Supplemental Benefit Payments.................................. 11
Article VII - Claims Procedures............................................. 14
Article VIII - Amendment and Termination.................................... 16
Article IX - General Provisions............................................. 17
Article X - Required Regulatory Provisions.................................. 20
</TABLE>
i
<PAGE>
Article I
Introduction
Section 1.01 Purpose, Design and Intent.
--------------------------
(a) The purpose of the American Savings Bank Supplemental Executive Retirement
Plan (the "Plan") is to assist American Savings Bank (the "Bank") and its
affiliates in retaining the services of key employees until their
retirement, to induce such employees to use their best efforts to enhance
the business of the Bank and its affiliates, and to provide certain
supplemental retirement benefits to such employees.
(b) The Plan, in relevant part, is intended to constitute an unfunded "excess
benefit plan" as defined in Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended. The Plan is specifically designed to
provide certain key employees with retirement benefits that would have been
payable under the various tax-qualified retirement plans sponsored by the
Bank but for the limitations placed on the benefits and contribution under
such plans by various provisions of the Internal Revenue Code of 1986, as
amended.
1
<PAGE>
Article II
Definitions
Section 2.01 Definitions. In this Plan, whenever the context so indicates,
-----------
the singular or the plural number and the masculine or feminine gender shall be
deemed to include the other, the terms "he," "his," and "him," shall refer to a
Participant or Beneficiary, as the case may be, and, except as otherwise
provided, or unless the context otherwise requires, the capitalized terms shall
have the following meanings:
(a) "Affiliate" means any "parent corporation" or any "subsidiary corporation"
of the Bank, as such terms are defined in Sections 424(e) and 424(f),
respectively, of the Code.
(b) "Applicable Limitations" means one of the following:
(i) the maximum limitation on annual benefits payable by a qualified
defined benefit plan under Section 415(b) of the Code;
(ii) the maximum limitations on annual additions to a qualified defined
contribution plan under Section 415(c) of the Code;
(iii) the maximum limitation on the aggregate projected annual benefits
payable by qualified defined benefit plans and the annual additions
to qualified defined contribution plans under Section 415(e) of the
Code;
(iv) the maximum limitation on the annual amount of compensation that
may, under Section 401(a)(17) of the Code, be taken into account in
determining contributions to and benefits under qualified plans; and
(v) the maximum limitations, under Sections 401(k), 401(m), or 402(g) of
the Code, on pre-tax contributions that may be made to a qualified
defined contribution plan.
(c) "Bank" means American Savings Bank, and its successors.
(d) "Board of Directors" means the Board of Directors of the Bank.
(e) "Change in Control" means with respect to the Bank or the Company, an event
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a), with respect to the Bank, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange
2
<PAGE>
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of voting securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Holding Company or its
Subsidiaries, or (B) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs or is effectuated in which the Bank or Holding Company is not
the resulting entity, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or Bank
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed, or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or Holding Company then outstanding.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the person(s) designated by the Board of Directors,
pursuant to Section 9.02 of the Plan, to administer the Plan.
(h) "Common Stock" means the common stock of the Company.
(i) "Company" means American Financial Holdings, Inc. and its successors.
(j) "Eligible Individual" means any Employee of the Bank or an Affiliate who
participates in the ESOP or the Savings Plan, as the case may be, and whom the
Board of Directors determines is one of a "select group of management or highly
compensated employees," as such phrase is used for purposes of Sections 101,
201, and 301 of ERISA.
(k) "Employee" means any person employed by the Bank or an Affiliate.
(l) "Employer" means the Bank or Affiliate that employs the Employee.
(m) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(n) "ESOP" means the American Savings Bank Employee Stock Ownership Plan, as
amended from time to time.
3
<PAGE>
(o) "ESOP Acquisition Loan" means a loan or other extension of credit incurred
by the trustee of the ESOP in connection with the purchase of Common Stock on
behalf of the ESOP.
(p) "ESOP Valuation Date" means any day as of which the investment experience
of the trust fund of the ESOP is determined and individuals' accounts under the
ESOP are adjusted accordingly.
(q) "Effective Date" means [January 1, 1999].
(r) "Participant" means an Eligible Employee who is entitled to benefits under
the Plan.
(s) "Plan" means this American Savings Bank Supplemental Executive Retirement
Plan.
(t) "Retirement" means termination of employment at any time following the
satisfaction the requirements for early or normal retirement under either the
ESOP or the Savings Plan, as appropriate.
(u) "Savings Plan" means the American Savings Bank 401(k) Plan, as amended from
time to time.
(v) "Supplemental ESOP Account" means an account established by an Employer,
pursuant to Section 5.01 of the Plan, with respect to a Participant's
Supplemental ESOP Benefit.
(w) "Supplemental ESOP Benefit" means the benefit credited to a Participant
pursuant to Section 4.01 of the Plan.
(x) "Supplemental Savings Benefit" means the benefit credited to a Participant
pursuant to Section 4.03 of the Plan.
(y) "Supplemental Savings Account" means an account established by an Employer,
pursuant to Section 5.03 of the Plan, with respect to a Participant Supplement
Savings Benefit.
(z) "Supplemental Stock Ownership Account" means an account established by an
Employer, pursuant to Section 5.02 of the Plan, with respect to a Participant's
Supplemental Stock Ownership Benefit.
(aa) "Supplemental Stock Ownership Benefit" means the benefit credited to a
Participant pursuant to Section 4.02 of the Plan.
(bb) "Wrap Benefit" means the benefit credited to a Participant pursuant to
Section 4.04 of the Plan.
4
<PAGE>
Article III
Eligibility and Participation
Section 3.01 Eligibility and Participation.
-----------------------------
(a) Each Eligible Employee may participate in the Plan. An Eligible Employee
shall become a Participant in the Plan upon designation as such by the
Board of Directors. An Eligible Employee whom the Board of Directors
designates as a Participant in the Plan shall commence participation as of
the date established by the Board of Directors. The Board of Directors
shall establish an Eligible Employee's date of participation at the same
time it designates the Eligible Employee as a Participant in the Plan.
(b) The Board of Directors may, at any time, designate an Eligible Employee as
a Participant for any or all supplemental benefits provided for under
Article IV of the Plan.
5
<PAGE>
Article IV
Benefits
Section 4.01 Supplemental ESOP Benefit.
-------------------------
As of the last day of each plan year of the ESOP, the Employer shall credit the
Participant's Supplemental ESOP Account with a Supplemental ESOP Benefit equal
to the excess of (a) over (b), where:
(a) Equals the annual contributions made by the Employer and/or the number of
shares of Common Stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that would otherwise be allocated to
the accounts of the Participant under the ESOP for the applicable plan year
if the provisions of the ESOP were administered without regard to and of
the Applicable Limitations; and
(b) Equals the annual contributions made by the Employer and for the number of
shares of common stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that are actually allocated to the
accounts of the Participant under the provisions of the ESOP for that
particular plan year after giving effect to any reduction of such
allocation required by the limitations imposed by any of the Applicable
Limitations.
Section 4.02 Supplemental Stock Ownership Benefit.
------------------------------------
(a) Upon a Participant's Retirement from the Employer, the Employer shall
credit to the Participant's Supplemental Stock Ownership Account a
Supplemental Stock Ownership Benefit equal to (i) less (ii), the result of
which is multiplied by (iii), where:
(i) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP Acquisition
Loans) that would have been allocated or credited for the benefit of
the Participant under the ESOP and/or this Plan, as the case may be,
had the Participant continued in the employ of the Employer through
the first ESOP Valuation Date following the last scheduled payment
of principal and interest on all ESOP Acquisition Loans outstanding
at the time of the Participant's Retirement; and
(ii) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP acquisition
Loans) and allocated for the benefit of the Participant under the
ESOP as of the first ESOP Valuation Date following the Participant's
Retirement; and
(iii) Equals the higher of the closing price of the Common Stock as of:
(A) The first ESOP Valuation Date following the Participant's
Retirement, or
(B) The last day of the Participant's employment with the Employer.
6
<PAGE>
(b) For purposes of clause:
(i) of subsection (a) of this Section 4.02, the total number of shares
of Common Stock shall be determined by multiplying the sum of (i)
and (ii) by (iii), where: (i) equals the average of the total shares
of Common Stock acquired with the proceeds of an ESOP Acquisition
Loan and allocated for the benefit of the Participant under the ESOP
as of three most recent ESOP Valuation Dates preceding the
Participant's Retirement (or lesser number if the Participant has
not participated in the ESOP for three full years);
(ii) equals the average number of shares of Common Stock credited to the
Participant's Supplemental ESOP Account for the three most recent
plan years of the ESOP (such that the three recent plan years
coincide with the three most recent ESOP Valuation Dates referred to
in (i) above); and
(iii) equals the total number of scheduled annual payments remaining on
the ESOP Acquisition Loans as of the Participant's Retirement.
(c) In the event of a Change in Control:
(i) A Participant's Retirement shall be deemed to have occurred as of
the effective date of the Change in Control, as determined by the
Board of Directors, regardless of whether the Participant continues
in the employ of the Employer following the Change in Control; and
(ii) The determination of fair market value of the Common Stock shall be
made as the effective date of the Change in Control.
Section 4.03 Supplemental Savings Benefit.
----------------------------
A Participant's Supplemental Savings Benefit under the Plan shall be equal to
the excess of (a) over (b), where:
(a) is the sum of the matching contributions and other contributions of the
Employer that would otherwise be allocated to an account of the Participant
under the Savings Plan for a particular year if the provisions of the
Savings Plan were administered without regard to any of the Applicable
Limitations; and
(b) is the sum of the matching contributions and other contributions of the
Employer that are actually allocated to an account of the Participant under
the provisions of the Savings Plan for that particular year after giving
effect to any reduction of such allocation required by any of the
Applicable Limitations.
Section 4.04 401(K) Wrap Benefit
-------------------
7
<PAGE>
(a) Prior to the beginning of any calendar year, an eligible individual may
elect to participate under this Section 4.04 by directing that all or part
of his or her "Compensation" (as defined for purposes of making elective
deferrals under the Savings Plan) which such individual would otherwise
receive in such calendar year and/or subsequent calendar years, be credited
to a deferral account established in his or her name on the books of the
Employer. The Employer shall, with respect to such compensation, provide a
matching contribution at the same rate matching contributions are credited
under the Savings Plan. Any individual who participates under the Plan
pursuant to this Section 4.04 shall not be eligible for any benefit under
the Plan pursuant to Section 4.03 of the Plan.
(b) Notwithstanding the general election timing requirement set forth in
Paragraph (a) of this Section 4.04, upon first becoming eligible to
participate under this provision, an eligible individual may make an
election to defer any Compensation yet to be paid, within thirty (30) days
of first becoming eligible to participate.
(c) Any election to participate in the Plan shall be in the form of a document
acceptable to the Committee and executed by the eligible individual and
filed with the Committee. An election related to Compensation otherwise
payable currently in any calendar year shall become irrevocable on the last
day prior to the beginning of such calendar year.
(d) Unless otherwise specified in the election filed pursuant to Paragraph (c)
of this Section 4.04, an election under this provision shall continue with
respect to Compensation earned by a Participant and yet to be paid until
such individual terminates or modifies such election by written notice
acceptable to the Committee. Any such termination or modification shall
become effective as of the end of the calendar year in which such
individual gives such notice with respect to Compensation otherwise payable
in any subsequent calendar year. Notwithstanding, a termination shall
become effective as soon as practicable upon the determination of an
"unforeseeable emergency," as determined by the Committee in accordance
with the definition of "unforeseeable emergency" in Paragraph (i) of
Section 6.04 of the Plan.
(e) A Participant who has filed a termination of election pursuant to Paragraph
(d) of this Section 4.04 may thereafter again file an election to
participate under this provision with respect to Compensation otherwise
payable in calendar years commencing subsequent to the filing of such
election.
8
<PAGE>
Article V
Accounts
Section 5.01 Supplemental ESOP Benefit Account.
---------------------------------
For each Participant who is credited with a benefit pursuant to Section 4.01 of
the Plan, the Employer shall establish, as a memorandum account on its books, a
Supplemental ESOP Account. Each year, the Committee shall credit to the
Participant's Supplemental ESOP Account the amount of benefits determined under
Section 4.01 of the Plan for that year. The Committee shall credit the account
with an amount equal to the appropriate number of shares of Common Stock or
other medium of contribution that would have otherwise been made to the
Participant's accounts under the ESOP but for the limitations imposed by the
Code. Shares of Common Stock shall be valued under this Plan in the same manner
as under the ESOP. Cash contributions credited to a Participant's Supplemental
ESOP Account shall be credited annually with interest at a rate equal to the
combined weighted return provided to the Participant's non-stock accounts under
the ESOP.
Section 5.02 Supplemental Stock Ownership Account.
------------------------------------
The Employer shall establish, as a memorandum account on its books, a
Supplemental Stock Ownership Account. Upon a Participant's Retirement or in the
event of a Change in Control, the Committee shall credit to the Participant's
Supplemental Stock Ownership Account the amount of benefits determined under
Section 4.02 of the Plan. The Committee shall credit the account with an amount
equal to the appropriate number of shares of Common Stock or other medium of
contribution that would have otherwise been made to the Participant's accounts
under the ESOP but for the Participant's Retirement. Shares of Common Stock
shall be valued under this Plan in the same manner as under the ESOP. Cash
contributions credited to a Participant's Supplemental ESOP Account shall be
credited annually with interest at a rate equal to the combined weighted return
provided to the Participant's non-stock accounts under the ESOP.
Section 5.03 Supplemental Savings Account.
----------------------------
The Employer shall establish a memorandum account, the "Supplemental Savings
Account" for each Participant on its books, and each year the Committee will
credit the amount of contributions determined under Section 4.03 of the Plan.
Contributions credited to a Participant's Supplemental Savings Account shall be
credited monthly with interest at a rate equal to the combined weighted return
provided to the Participant's matching contribution and/or other Employer
contribution account(s) under the Savings Plan.
Section 5.04 Deferral Accounts of Wrap Benefits.
----------------------------------
The Committee shall credit to a deferral account established for the Participant
deferred amounts related to Compensation, including applicable matching
contributions, and such deferral account shall bear a rate of return
commensurate with the rate of return earned on investment vehicles selected by
the Participant under the Savings Plan from the date that such Compensation
would otherwise have been paid; provided, however, that at the discretion of the
Committee, the Participant
9
<PAGE>
may elect to have the value of his deferred compensation account valued on some
other basis of measurement approved by the Committee.
10
<PAGE>
Article VI
Supplemental Benefit Payments
Section 6.01 Payment of Supplemental ESOP Benefit.
------------------------------------
(a) A Participant's Supplemental ESOP Benefit shall be paid to the Participant
or in the event of the Participant's death, to his beneficiary in the same
form, time and medium (i.e., cash and/or shares of Common Stock) as his
benefits are paid under the ESOP.
(b) A Participant shall have a non-forfeitable right to the Supplemental ESOP
Benefit credited to him under this Plan in the same percentage as he has to
benefits allocated to him under the ESOP at the time the benefits become
distributable to him under the ESOP.
Section 6.02 Payment of Supplemental Stock Ownership Benefit.
-----------------------------------------------
(a) A Participant's Supplemental Stock Ownership Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, time and medium (i.e., cash and/or shares of Common
Stock) as his benefits are paid under the ESOP.
(b) A Participant shall always have a fully non-forfeitable right to the
Supplemental Stock Ownership Benefit credited to him under this Plan.
Section 6.03 Payment of Supplemental Savings Benefit.
---------------------------------------
(a) A Participant's Supplemental Savings Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, and at the same time as his benefits are paid under the
Savings Plan.
(b) A Participant shall have a non-forfeitable right to his Supplemental
Savings Benefit under this Plan in the same percentage as he has to his
accrued benefits under the Savings Plan at the time the benefits become
distributable to him under the Savings Plan.
Section 6.04 Distributions of Wrap Benefits.
------------------------------
(a) At the time an individual makes an election to participate under the
provisions of Section 4.04 of the Plan, he shall also make an election with
respect to the distribution (during his lifetime or in the event of his
death) of the amounts credited to his deferral accounts.
(b) As soon as practicable following each plan year end of the Savings Plan and
not later than each January 31 of the next ensuing year, the Committee
shall perform preliminary actual deferral percentage, actual contribution
percentage and annual additions limitations testing to determine the
maximum amount of elective deferrals and matching contributions that could
be made for such plan year to the Savings Plan on behalf of each
Participant. The lesser of the amounts determined in accordance with the
immediately preceding sentence or the amount of compensation deferred by
the Participant under Section 4.04 of the Plan, together with any related
matching contributions, shall be distributed to the Participant as soon as
practicable following the plan year end of the Savings Plan and in no event
later than March 15 of the year
11
<PAGE>
following the plan year for which such determination is made, unless the
Participant previously elects to have such amounts contributed to the
Savings Plan. A Participant may make such an election with respect to his
Compensation deferred pursuant to Section 4.04 of the Plan, prior to the
last day of the prior calendar year.
(c) A Participant may make an election with respect to amounts credited to his
deferral accounts to be distributed to the Participant during the
Participant's lifetime, of amounts otherwise payable currently in any
calendar year, and such election shall become irrevocable on the last day
prior to the beginning of such calendar year; provided, however, that a
Participant may elect to extend the period of deferral if the Participant
makes such an election no later than 24 full calendar months prior to the
date payments are otherwise to begin under the Plan.
(d) A Participant may make an election with respect to amounts credited to his
deferral accounts to be distributed in the event of the Participant's
death, and such election, including the designation of a beneficiary or
beneficiaries, may be changed by the individual at any time by filing the
appropriate document with the Committee.
(e) Any amounts credited as deferred shares of Common Stock shall be
distributed in the form of an equal number of shares of Common Stock or
cash, at the discretion of the Committee. Fractional shares of Common Stock
shall be distributed in cash. All other amounts credited to a Participant's
accounts shall be distributed in cash.
(f) A Participant may elect to receive the amounts credited to his deferral
accounts in one payment or in some other number of approximately equal
annual installments (not exceeding 10); provided, however, that the number
of annual installments may not extend beyond the life expectancy of such
Participant or beneficiary determined as of the date the first installment
is paid. The Participant's election shall also specify that the first
installment (or the single payment if the Participant or beneficiary has so
elected) shall be paid either (i) on the first day of the calendar quarter
next following the end of the month in which the Participant attains the
age specified in such election, which age shall not be earlier than age 55
or later than age 70; (ii) on the first day of the calendar quarter next
following the end of the month in which the Participant retires from the
Bank or an Affiliate or otherwise terminates employment with the Bank or an
Affiliate; provided, however, that the Board of Directors may, in its sole
discretion, direct that the first installment (or the single payment) be
paid on the first day of the first calendar quarter in the calendar year
next following the year of retirement; or (iii) on the first day of the
first calendar year in which the Participant retires from the Bank or an
Affiliate or otherwise terminates employment with the Bank or an Affiliate.
(g) A Participant may elect that, in the event he or she should die before full
payment of all amounts credited to his or her deferral accounts, the
balance of the deferred amounts shall be distributed in one payment or in
some other number of approximately equal annual installments (not
exceeding10) to the beneficiary or beneficiaries designated in writing by
the Participant, or if no designation has been made, to his or her estate.
The first installment (or the single payment if the Participant has so
elected) shall be paid on the first day of the calendar quarter next
following the month of death; provided, however, that the Committee
12
<PAGE>
may, in its sole discretion, direct that the first installment (or the
single payment) be paid on the first day of the first calendar quarter in
the calendar year next following the year of death.
(h) Installments subsequent to the first installment to a Participant, or to a
beneficiary or to the Participant's estate, shall be paid on the first day
of the applicable calendar quarter in each succeeding calendar year until
the entire amount credited to the Participant's deferral accounts shall
have been paid. Deferred amounts held pending distribution shall continue
to be credited with interest or additional deferred shares of Common Stock,
as applicable, determined in accordance with Sections 5.04 of the Plan.
(i) The Committee may, at its sole discretion, allow for the early payment of a
Participant's deferred Compensation account in the event of an
"unforeseeable emergency" or in the event of the death or disability of the
Participant. An "unforeseeable emergency" means an unanticipated emergency
caused by an event beyond the control of the Participant that would result
in severe financial hardship if the distribution were not permitted. Such
distributions shall be limited to the amount necessary to sufficiently
address the financial hardship. Any distributions under this provision,
shall be consistent with the Code and regulations.
(j) The obligation to make a distribution of deferred amounts credited to a
Participant's deferral accounts during any calendar year plus the
additional amounts credited on such deferred amounts pursuant to Sections
5.04 of the Plan shall be borne by the Bank or Affiliate which otherwise
would have paid the related Compensation.
Section 6.04 Alternative Payment of Benefits.
-------------------------------
Notwithstanding the other provisions of this Article VI, a Participant may, with
prior written consent of the Committee and upon such terms and conditions as the
Committee may impose, request that the Supplemental ESOP Benefit and/or the
Supplemental Stock Ownership Benefit and/or the Supplemental Savings Benefit to
which he is entitled be paid commencing at a different time, over a different
period, in a different form, or to different persons, than the benefit to which
he or his beneficiary may be entitled under the ESOP or the Savings Plan.
13
<PAGE>
Article VII
Claims Procedures
Section 7.01 Claims Reviewer.
---------------
For purposes of handling claims with respect to this Plan, the "Claims Reviewer"
shall be the Committee, unless the Committee designates another person or group
of persons as Claims Reviewer.
Section 7.02 Claims Procedure.
----------------
(a) An initial claim for benefits under the Plan must be made by the
Participant or his or her beneficiary or beneficiaries in accordance with
the terms of this Section 7.02.
(b) Not later than ninety (90) days after receipt of such a claim, the Claims
Reviewer will render a written decision on the claim to the claimant,
unless special circumstances require the extension of such 90-day period.
If such extension is necessary, the Claims Reviewer shall provide the
Participant or the Participant's beneficiary or beneficiaries with written
notification of such extension before the expiration of the initial 90-day
period. Such notice shall specify the reason or reasons for the extension
and the date by which a final decision can be expected. In no event shall
such extension exceed a period of ninety (90) days from the end of the
initial 90-day period.
(c) In the event the Claims Reviewer denies the claim of a Participant or any
beneficiary in whole or in part, the Claims Reviewer's written notification
shall specify, in a manner calculated to be understood by the claimant, the
reason for the denial; a reference to the Plan or other document or form
that is the basis for the denial; a description of any additional material
or information necessary for the claimant to perfect the claim; an
explanation as to why such information or material is necessary; and an
explanation of the applicable claims procedure.
(d) Should the claim be denied in whole or in part and should the claimant be
dissatisfied with the Claims Reviewer's disposition of the claimant's
claim, the claimant may have a full and fair review of the claim by the
Committee upon written request submitted by the claimant or the claimant's
duly authorized representative and received by the Committee within sixty
(60) days after the claimant receives written notification that the
claimant's claim has been denied. In connection with such review, the
claimant or the claimant's duly authorized representative shall be entitled
to review pertinent documents and submit the claimant's views as to the
issues, in writing. The Committee shall act to deny or accept the claim
within sixty (60) days after receipt of the claimant's written request for
review unless special circumstances require the extension of such 60-day
period. If such extension is necessary, the Committee shall provide the
claimant with written notification of such extension before the expiration
of such initial 60-day period. In all events, the Committee shall act to
deny or accept the claim within 120 days of the receipt of the claimant's
written request for review. The action of
14
<PAGE>
the Committee shall be in the
form of a written notice to the claimant and its contents shall include all
of the requirements for action on the original claim.
(e) In no event may a claimant commence legal action for benefits the claimant
believes are due the claimant until the claimant has exhausted all of the
remedies and procedures afforded the claimant by this Article VII.
15
<PAGE>
Article VIII
Amendment and Termination
Section 8.01 Amendment of the Plan.
---------------------
The Bank may from time to time and at any time amend the Plan; provided,
however, that such amendment may not adversely affect the rights of any
Participant or beneficiary with respect to any benefit under the Plan to which
the Participant or beneficiary may have previously become entitled prior to the
effective date of such amendment without the consent of the Participant or
beneficiary. The Committee shall be authorized to make minor or administrative
changes to the Plan, as well as amendments required by applicable federal or
state law (or authorized or made desirable by such statutes); provided, however,
that such amendments must subsequently be ratified by the Board of Directors.
Section 8.02 Termination of the Plan.
-----------------------
The Bank may at any time terminate the Plan; provided, however, that such
termination may not adversely affect the rights of any Participant or
beneficiary with respect to any benefit under the Plan to which the Participant
or beneficiary may have previously become entitled prior to the effective date
of such termination without the consent of the Participant or beneficiary. Any
amounts credited to the supplemental accounts of any Participant shall remain
subject to the provisions of the Plan and no distribution of benefits shall be
accelerated because of termination of the Plan.
16
<PAGE>
Article IX
General Provisions
Section 9.01 Unfunded, Unsecured Promise to Make Payments in the Future.
----------------------------------------------------------
The right of a Participant or any beneficiary to receive a distribution under
this Plan shall be an unsecured claim against the general assets of the Bank or
its Affiliates and neither a Participant nor his designated beneficiary or
beneficiaries shall have any rights in or against any amount credited to any
account under this Plan or any other assets of the Bank or an Affiliate. The
Plan at all times shall be considered entirely unfunded both for tax purposes
and for purposes of Title I of ERISA. Any funds invested hereunder shall
continue for all purposes to be part of the general assets of the Bank or an
Affiliate and available to its general creditors in the event of bankruptcy or
insolvency. Accounts under this Plan and any benefits which may be payable
pursuant to this Plan are not subject in any manner to anticipation, sale,
alienation, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of a Participant or a Participant's beneficiary. The
Plan constitute a mere promise by the Bank or Affiliate to make benefit payments
in the future. No interest or right to receive a benefit may be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such Participant or beneficiary, including claims
for alimony, support, separate maintenance and claims in bankruptcy proceedings.
Section 9.02 Committee as Plan Administrator.
-------------------------------
(a) The Plan shall be administered by the Committee designated by the Board of
Directors.
(b) The Committee shall have the authority, duty and power to interpret and
construe the provisions of the Plan as it deems appropriate. The Committee
shall have the duty and responsibility of maintaining records, making the
requisite calculations and disbursing the payments hereunder. In addition,
the Committee shall have the authority and power to delegate any of its
administrative duties to employees of the Bank or Affiliate, as they may
deem appropriate. The Committee shall be entitled to rely on all tables,
valuations, certificates, opinions, data and reports furnished by any
actuary, accountant, controller, counsel or other person employed or
retained by the Bank with respect to the Plan. The interpretations,
determination, regulations and calculations of the Committee shall be final
and binding on all persons and parties concerned.
Section 9.03 Expenses.
--------
Expenses of administration of the Plan shall be paid by the Bank or an
Affiliate.
Section 9.04 Statements.
----------
The Committee shall furnish individual annual statements of accrued benefits to
each Participant, or current beneficiary, in such form as determined by the
Committee or as required by law.
17
<PAGE>
Section 9.05 Rights of Participants and Beneficiaries.
----------------------------------------
(a) The sole rights of a Participant or beneficiary under this Plan shall be to
have this Plan administered according to its provisions, to receive
whatever benefits he or she may be entitled to hereunder.
(b) Nothing in the Plan shall be interpreted as a guaranty that any funds in
any trust which may be established in connection with the Plan or assets of
the Bank or an Affiliate will be sufficient to pay any benefit hereunder.
(c) The adoption and maintenance of this Plan shall not be construed as
creating any contract of employment or service between the Bank or an
Affiliate and any Participant or other individual. The Plan shall not
affect the right of the Bank or an Affiliate to deal with any Participants
in employment or service respects, including their hiring, discharge,
compensation, and conditions of employment or other service.
Section 9.06 Incompetent Individuals.
-----------------------
The Committee may from time to time establish rules and procedures which it
determines to be necessary for the proper administration of the Plan and the
benefits payable to a Participant or beneficiary in the event that such
Participant or beneficiary is declared incompetent and a conservator or other
person legally charged with that Participant's or beneficiary's care is
appointed. Except as otherwise provided herein, when the Committee determines
that such Participant or beneficiary is unable to manage his or her financial
affairs, the Committee may pay such Participant's or beneficiary's benefits to
such conservator, person legally charged with such Participant's or
beneficiary's care, or institution then contributing toward or providing for the
care and maintenance of such Participant or beneficiary. Any such payment shall
constitute a complete discharge of any liability of the Bank or an Affiliate and
the Plan for such Participant or beneficiary.
Section 9.07 Sale, Merger, or Consolidation of the Bank.
------------------------------------------
The Plan may be continued after a sale of assets of the Bank, or a merger or
consolidation of the Bank into or with another corporation or entity only if and
to the extent that the transferee, purchaser or successor entity agrees to
continue the Plan. Additionally, upon a merger, consolidation or other change
in control any amounts credited to Participant's deferral accounts shall be
placed in a grantor trust to the extent not already in such a trust. In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall be terminated subject to the provisions of Section
8.02 of the Plan. Any legal fees incurred by a Participant in determining
benefits to which such Participant is entitled under the Plan following a sale,
merger, or consolidation of the Bank or an Affiliate of which the Participant is
an Employee or, if applicable, a member of the Board of Directors, shall be paid
by the resulting or succeeding entity.
18
<PAGE>
Section 9.08 Location of Participants.
------------------------
Each Participant shall keep the Bank informed of his or her current address and
the current address of his or her designated beneficiary or beneficiaries. The
Bank shall not be obligated to search for any person. If such person is not
located within three (3) years after the date on which payment of the
Participant's benefits payable under this Plan may first be made, payment may be
made as though the Participant or his or her beneficiary had died at the end of
such three-year period.
Section 9.09 Liability of the Bank and its Affiliates.
----------------------------------------
Notwithstanding any provision herein to the contrary, neither the Bank nor any
individual acting as an employee or agent of the Bank shall be liable to any
Participant, former Participant, beneficiary, or any other person for any claim,
loss, liability or expense incurred in connection with the Plan, unless
attributable to fraud or willful misconduct on the part of the Bank or any such
employee or agent of the Bank.
Section 9.10 Governing Law.
-------------
All questions pertaining to the construction, validity and effect of the Plan
shall be determined in accordance with the laws of the United States and to the
extent not preempted by such laws, by the laws of ________________________.
19
<PAGE>
Article X
Required Regulatory Provisions
Section 10.01 Required Regulatory Provisions.
------------------------------
(a) The Employer may terminate an Employee's employment at any time, but
any termination by the Employer, other than termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Plan. An Employee shall not have the right to receive compensation or other
benefits for any period after a termination for cause as otherwise provided
hereunder.
(b) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this Plan shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the Bank under
this Plan shall terminate as of the date of default, but this paragraph shall
not affect any vested rights of the Participants.
(e) Any payments made to Participants pursuant to this Plan, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k),
12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and regulations
promulgated thereunder.
Having been adopted by its Board of Directors on the_____________, 199__, this
Plan is executed by its duly authorized officer this ___ day of________________.
AMERICAN SAVINGS BANK
Attest:
________________________ By:______________________________
20
<PAGE>
EXHIBIT 10.6
DRAFT 1
8/30/99
AMERICAN SAVINGS BANK
RETIREMENT PLAN FOR
CERTAIN OUTSIDE DIRECTORS
Effective as of January 1, 2000
<PAGE>
AMERICAN SAVINGS BANK
RETIREMENT PLAN FOR CERTAIN OUTSIDE DIRECTORS
The American Savings Bank Retirement Plan for Certain Outside Directors has
been authorized and adopted by the Board of Directors of American Savings Bank
effective as of January 1, 2000. The purpose of the Plan is to provide
retirement benefits to individuals who are outside directors of the Bank at the
time of the conversion of the Bank from a mutual company to a stock company.
The Plan is unfunded and all benefits payable under the Plan shall be paid
out of the general assets of the Bank. The Bank may establish and fund one or
more grantor trusts in order to aid it in providing benefits due under the Plan;
provided, that the establishment of any such trust shall not cause the Plan to
be other than "unfunded."
<PAGE>
AMERICAN SAVINGS BANK
RETIREMENT PLAN FOR CERTAIN OUTSIDE DIRECTORS
<TABLE>
<S>
ARTICLE
<C>
I DEFINITIONS...................................................... 4
II PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS
2.01 Participation.............................................. 5
2.02 Vesting.................................................... 5
2.03 Amount of Benefits......................................... 5
2.04 Payment of Benefits........................................ 5
2.05 Death...................................................... 5
2.06 Resumption of Membership on the Board of Directors......... 6
2.07 Change-in-Control.......................................... 6
III PLAN ADMINISTRATION
3.01 Administration............................................. 7
3.02 Claims Procedure........................................... 7
3.03 Expenses................................................... 8
IV GENERAL PROVISION
4.01 No Funding................................................. 9
4.02 Amendment of the Plan...................................... 9
4.03 Termination of the Plan.................................... 9
4.04 Plan Not a Directorship Agreement.......................... 10
4.05 Facility of Payment........................................ 10
4.06 Withholding Taxes.......................................... 10
4.07 Nonalienation.............................................. 10
4.08 Forfeiture for Cause....................................... 11
4.09 Construction............................................... 11
APPENDIX A
</TABLE>
<PAGE>
AMERICAN SAVINGS BANK
RETIREMENT PLAN FOR CERTAIN OUTSIDE DIRECTORS
ARTICLE I
DEFINITIONS
The following terms when capitalized herein shall have the meanings assigned
below.
1.01 Bank shall mean American Savings Bank, a Bank organized under the laws of
Connecticut, or any successor by merger, purchase or otherwise.
1.02 Board of Directors shall mean the Board of Directors of the Bank.
1.03 Change-in-Control shall mean a change in control as defined in the American
Savings Bank Supplemental Executive Retirement Plan, as amended from time
to time.
1.04 Code shall mean the Internal Revenue Code of 1986, as amended from time to
time.
1.05 Director shall mean a member of the Board of Directors.
1.06 Effective Date shall mean January 1, 2000.
1.07 Participant shall mean a Director who is participating in the Plan pursuant
to Section 2.01 hereof.
1.08 Plan shall mean the American Savings Bank Retirement Plan for Certain
Outside Directors, as set forth herein and as may be amended from time to
time.
4
<PAGE>
ARTICLE II
PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS
2.01 Participation
(a) A Director of the Bank who is listed in Appendix A shall participate in the
Plan as of the Effective Date.
(b) A Participant's participation in the Plan shall terminate upon the
Participant's death or upon the Participant ceasing to be a member of the
Board of Directors, unless a benefit is payable under the Plan with respect
to the Participant or his or her spouse under the provisions of this
Article II.
2.02 Vesting
A Participant shall be fully vested in, and have a nonforfeitable right
to, the benefit payable under this Article II upon completion of 120
months of service, whether or not consecutive, as a Director. A Director
who ceases to be a Participant before becoming vested shall receive no
benefit under the Plan.
2.03 Amount of Benefits
A Participant's benefit under the Plan shall be one thousand dollars
($1,000) per month, payable monthly for the life of the Participant.
2.04 Payment of Benefits
(a) A Participant shall receive the benefit payable under Section 2.03,
commencing as of the first of the month next following the later of (i) the
Participant's attainment of age seventy-five (75) or his (ii) or her last
day as a Director.
(b) A Participant who ceases to be a Director before attaining age seventy-five
may elect to receive a reduced benefit commencing as of the first of any
month next following the later of (i) the Participant's attainment of age
65, or (ii) his or her last day as a Director. The amount of this benefit
will be the benefit determined under Section 2.03 reduced by five and
seven-twelfths percent (5 7/12th%) for each year that the benefit
commencement date precedes the first of the month next following the
Director's 75th birthday, with a prorated reduction for any partial year.
2.05 Death
(a) If a Participant who is entitled to a vested benefit under the Plan dies
before his benefit payments begin, such Participant's surviving spouse
shall receive a monthly payment for life commencing as of the first of the
month next following the date the Participant would
5
<PAGE>
have attained age seventy-five (75) or the date of the Participant's death,
if later. The amount of such benefit shall be five hundred dollars ($500)
per month.
Such surviving spouse may elect to begin receiving monthly benefits as of
the first day of any month after the Participant would have attained age
65, but before the date the Participant would have attained age 75, in
which case the $500 benefit shall be reduced in the same manner as for
early commencement of benefits under Section 2.04.
(b) If a Participant dies after benefit payments have commenced, such
Participant's surviving spouse shall receive a monthly benefit for life
commencing as of the first of the month next following the Participant's
death. The amount of such benefit shall be fifty percent (50%) of the
monthly benefit being received by the Participant immediately before his
death.
(c) If a Participant is not married at the time of death, no further benefits
will be paid under the Plan.
2.06 Resumption of Membership on the Board of Directors
If a Participant who is receiving benefits under the Plan again becomes a
Director, all benefit payments to such Participant shall cease during the
period of service as a Director. Payments shall resume upon subsequent
termination of membership on the Board of Directors, without adjustment for
the period during which payments were not made.
2.07 Change-in-Control
In the event of a Change-in-Control of the Bank, each Participant shall
become fully vested in his benefit, and shall be entitled to receive such
benefit in accordance with Sections 2.04 and 2.05.
In addition, within a reasonable period following a Change-in-Control, the
Bank shall establish a grantor trust, as described in Section 4.01(b). The
Bank shall contribute to such trust the amount necessary in cash or cash
equivalents to fund all benefits accrued as of the Change-in-Control,
determined using actuarial factors as determined by an actuary appointed by
the Bank, using reasonable actuarial factors based on the actuarial
standards set forth in Section 417(e) of the Code, or any successor
thereto. Following a Change-in-Control, a change in the actuary may only
take effect with the unanimous written consent of all Participants in the
Plan including in the case of a deceased Participant, any surviving spouse
who is entitled to benefits under the Plan.
6
<PAGE>
ARTICLE III
PLAN ADMINISTRATION
3.01 Administration
The administration of the Plan, the exclusive power to interpret it, and
the responsibility for carrying out its provisions are vested in the Bank
or its designate. The Bank or its designate shall have the authority to
resolve any question under the Plan. The determination of the Bank or its
designate as to the interpretation of the Plan or any disputed question
shall be conclusive and final to the extent permitted by applicable law.
3.02 Claims Procedure
(a) Claims for benefits under the Plan shall be submitted in writing to the
Bank or to an individual designated by the Bank for this purpose.
(b) If any claim for benefits is wholly or partially denied, the claimant shall
be given written notice within a reasonable period following the date on
which the claim is filed, which notice shall set forth:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions on which the denial
is based;
(iii) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(iv) an explanation of the Plan's claim review procedure.
If the claim has not been granted and written notice of the denial of the
claim is not furnished in a timely manner following the date on which the
claim is filed, the claim shall be deemed denied for the purpose of
proceeding to the claim review procedure.
(c) The claimant or his authorized representative shall have 30 days after
receipt of written notification of denial of a claim to request a review
of the denial by making written request to the Bank, and may review
pertinent documents and submit issues and comments in writing within such
30-day period.
After receipt of the request for review, the Bank or its designate shall,
in a timely manner, render and furnish to the claimant a written
decision, which shall include specific reasons for the decision and shall
make specific references to pertinent Plan provisions on which it is based.
Such decision by the Bank shall not be subject to further review. If a
7
<PAGE>
decision on review is not furnished to a claimant, the claim shall be
deemed to have been denied on review.
(d) No claimant shall institute any action or proceeding in any state or
federal court of law or equity or before any administrative tribunal or
arbitrator for a claim for benefits under the Plan until the claimant has
first exhausted the procedures set forth in this section.
3.03 Expenses
Expenses attributable to the administration of the Plan shall be paid
directly by the Bank.
8
<PAGE>
ARTICLE IV
GENERAL PROVISIONS
4.01 No Funding
(a) All amounts payable in accordance with the Plan shall constitute a general
unsecured obligation of the Bank. Such amounts, as well as any
administrative costs relating to the Plan, shall be paid out of the general
assets of the Bank, to the extent not paid from the assets of any trust
established pursuant to paragraph (b) below.
(b) The Bank may, for administrative reasons, establish a grantor trust with an
independent trustee for the benefit of Participants in the Plan. The assets
placed in said trust shall be held separate and apart from other Bank funds
and shall be used exclusively for the purposes set forth in the Plan and
the applicable trust agreement, subject to the following conditions:
(i) the Bank shall be treated as "grantor" of said trust for purposes of
Section 677 of the Code; and
(ii) the agreement of said trust shall provide that its assets may be used
upon the insolvency or bankruptcy of the Bank to satisfy claims of the
Bank's general creditors and that the rights of such general creditors
are enforceable by them under federal and state law.
4.02 Amendment of the Plan
The Bank reserves the right to modify or amend the Plan, in whole or in
part, at any time, and from time to time. However, no modification or
amendment shall adversely affect the right of any Participant or surviving
spouse of a deceased Participant to receive the vested benefits accrued as
of the date of such modification, amendment or discontinuance without their
unanimous written consent.
Notwithstanding the foregoing, no amendment or modification to the Plan may
be made in connection with, or after, a Change-in-Control without the
unanimous written consent or the Participants and, in the case of any
deceased Participants, the surviving spouses who are entitled to benefits
under the Plan.
4.03 Termination of the Plan
The Bank reserves the right to terminate the Plan at any time, provided,
however, that no termination shall be effective retroactively. As of the
effective date of termination of the Plan:
(a) the benefits of any Participant or spouse whose benefit payments have
9
<PAGE>
commenced shall continue to be paid, and
(b) any Participant whose benefit is vested in accordance with Section
2.02 and spouse thereof shall be entitled to receive such benefit in
accordance with the terms of the Plan.
Notwithstanding the foregoing, the Plan may not be terminated in connection
with, or after, a Change-in-Control without the unanimous written consent
of the Participants and, in the case of any deceased Participant, the
surviving spouses who are entitled to benefits under the Plan.
4.04 Plan Not a Directorship Agreement
The Plan is not a directorship agreement, and the Participant's service as
a Director shall not be affected in any way by the Plan or related
instruments, except as specifically provided therein. The establishment of
the Plan shall not be construed as conferring any legal rights upon any
person for a continuation of service as a Director. Each Participant and
all persons who may have or claim any right by reason of his participation
shall be bound by the terms of the Plan and all agreements entered into
pursuant thereto.
4.05 Facility of Payment
In the event that the Bank shall find that a Participant or surviving
spouse is unable to care for his affairs because of illness or accident, or
because such individual is a minor or has died, the Bank may, unless claim
shall have been made therefor by a duly appointed legal representative,
direct that any benefit payment due him be paid on his behalf to his
spouse, a child, a parent or other blood relative, or to a person with whom
he resides, and any such payment so made shall be a complete discharge of
the liabilities of the Bank and the Plan therefor.
4.06 Withholding Taxes
The Bank shall have the right to deduct from each payment to be made under
the Plan any required withholding taxes.
4.07 Nonalienation
Subject to any applicable law, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt to do so shall be void, nor
shall any such benefit be in any manner liable for or subject to
garnishment, attachment, execution or levy, or liable for or subject to the
debts, contracts, liabilities, engagements or torts of the person entitled
to such benefits.
10
<PAGE>
4.08 Forfeiture for Cause
In the event that the Participant's service as a Director is involuntarily
terminated for reason of serious misconduct, including by way of example,
dishonesty or fraud on the part of such Participant in his relationship
with the Bank, all benefits that would otherwise be payable to him or to
his spouse under the Plan shall be forfeited. Notwithstanding the
foregoing, no forfeiture shall take place following a Change-in-Control
unless the Participant is convicted of a felony involving dishonesty or
fraud on the part of such Participant in his relationship with the Bank.
4.09 Construction
(a) The Plan shall be construed, regulated and enforced under the laws of the
State of Connecticut.
(b) The masculine pronoun shall mean the feminine wherever appropriate.
(c) The illegality of any particular provision of this document shall not
affect the other provisions and the document shall be construed in all
respects as if such invalid provision were omitted.
(d) The headings and subheadings in the Plan have been inserted for
convenience of reference only, and are to be ignored in any construction of
the provisions thereof.
11
<PAGE>
AMERICAN SAVINGS BANK
RETIREMENT PLAN FOR CERTAIN OUTSIDE DIRECTORS
APPENDIX A
PARTICIPANTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
SOCIAL SECURITY DATE OF SERVICE AS
NAME NUMBER DIRECTOR
- -----------------------------------------------------------------
<S> <C> <C>
Charles S. Beach ###-##-#### January 20, 1971
- -----------------------------------------------------------------
Adolf G. Carlson ###-##-#### January 19, 1972
- -----------------------------------------------------------------
Donald Davidson ###-##-#### November 18, 1968
- -----------------------------------------------------------------
Norman E.W. Erickson ###-##-#### January 20, 1965
- -----------------------------------------------------------------
Marie S. Gustin ###-##-#### June 24, 1996
- -----------------------------------------------------------------
Fred M. Hollfelder ###-##-#### January 28, 1981
- -----------------------------------------------------------------
Joseph T. Hughes ###-##-#### January 29, 1975
- -----------------------------------------------------------------
Mark E. Karp ###-##-#### July 24, 1995
- -----------------------------------------------------------------
Steven T. Martin ###-##-#### January 24, 1979
- -----------------------------------------------------------------
Harry N. Mazadoorian ###-##-#### July 26, 1993
- -----------------------------------------------------------------
Geddes Parsons ###-##-#### January 21, 1959
- -----------------------------------------------------------------
Stanley W. Shepard ###-##-#### January 25, 1978
- -----------------------------------------------------------------
Jeffrey T. Witherwax ###-##-#### June 24, 1996
- -----------------------------------------------------------------
</TABLE>
12
<PAGE>
EXHIBIT 10.7
American Savings Bank
Cash-Based Deferred Compensation Plan
Article 1
Effective Date and Purpose
1.1 Effective Date. The American Savings Bank Cash-Based Deferred
--------------
Compensation Plan (the "Plan") is effective as of ___________, 1999, the date
of adoption of the Plan by the Board of Directors (the "Board") of American
Savings Bank (the "Bank"), a Connecticut-chartered savings bank.
1.2 Purpose. The Plan is a deferred compensation plan the primary
-------
purpose of which is to provide directors and key employees of the Bank and its
affiliated companies with the opportunity to voluntarily defer a portion of
their compensation, including benefits previously accrued under the Bank's
terminated Performance Appreciation Unit Plan and other deferral programs
maintained by the Bank prior to the effective date of this Plan ("Prior
Benefits"), subject to the terms of the Plan. By adopting the Plan, the Bank
desires to enhance its ability to attract and retain directors and employees of
outstanding competence by providing such individuals with an opportunity to
accumulate additional sources of post-employment income on a tax-advantaged
basis.
Article 2
Administration
2.1 The Committee. The Plan shall be administered by the Human
-------------
Resources Committee of the Board or any other successor Committee appointed by
the Board (the "Committee").
2.2 Authority of the Committee. The Committee shall have authority to
--------------------------
select eligible employees of the Bank for participation in the Plan; determine
the terms and conditions of each employee's participation in the Plan; interpret
the Plan; establish, amend, or waive rules and regulations for the Plan's
administration; and, subject to Article 8 herein, amend the terms and conditions
of the Plan and any agreement entered into under the Plan. Further, the
Committee shall make all other determinations which may be necessary or
advisable for the administration of the Plan. As permitted by law, the Committee
may delegate any of its authority granted under the Plan to such other person or
entity it deems appropriate, including but not limited to, senior management of
the Bank.
2.3 Guidelines. Subject to the provisions herein, the Committee may
----------
adopt written guidelines for the implementation and administration of the Plan.
2.4 Decisions Binding. All determinations and decisions of the
-----------------
Committee arising under the Plan shall be final, binding, and conclusive upon
all parties.
<PAGE>
Article 3
Eligibility and Participation
3.1 Eligibility. Subject to Sections 3.2 and 3.3, persons eligible to
-----------
be selected to participate in the Plan in any calendar year (a "Year") shall
include full-time, salaried employees of the Bank, its subsidiaries, and
affiliates who are key employees, as determined by the Committee in its sole
discretion. In addition, all directors of the Bank and directors of the Holding
Company shall be eligible to participate in the Plan without further action by
the Committee.
3.2 Limitation on Eligibility. It is the intent of the Bank that the
-------------------------
Plan qualify for treatment as a "top hat" plan under the Employee Retirement
Income Security Act of 1974, as amended from time to time, or any successor Act
thereto ("ERISA"). Accordingly, to the extent required by ERISA to obtain such
"top hat" treatment, eligibility shall be extended only to those executives who
comprise a select group of management or highly compensated employees. Further,
the Committee may place such additional limitations on eligibility as it deems
necessary and appropriate under the circumstances.
3.3 Participation. Participation in the Plan shall be determined
-------------
annually by the Committee based upon the criteria set forth in Sections 3.1 and
3.2 herein. An employee who is chosen to participate in the Plan in any Year (a
"Participant") shall be so notified in writing. In the event a Participant
selected to participate in the Plan no longer meets the criteria for
participation, such Participant shall become an inactive Participant, retaining
all the rights described under the Plan, except the right to make any further
deferrals, until such time that the Participant again becomes an active
Participant. Notwithstanding anything in this Plan to the contrary, with respect
to the initial Year beginning on the effective date and ending December 31, 1999
and solely with respect to the deferral of Prior Benefits under this Plan, the
Plan Participants shall include those persons identified in Exhibit A to the
Plan.
3.4 Partial Year Eligibility. In the event that an individual first
------------------------
becomes eligible to participate in the Plan during a Year, such individual
shall, within thirty (30) calendar days of becoming eligible, be notified by the
Bank of his or her eligibility to participate, and the Bank shall provide each
such individual with an Election Form, which must be completed by the individual
as provided in Section 4.2 herein.
3.5 No Right to Participate. No employee shall have the right to be
-----------------------
selected as a Participant, or having been so selected for any given Year, to be
selected again as a Participant for any other Year.
Article 4
Deferral Opportunity
4.1 Amount Which May Be Deferred. A Participant may elect to defer, in
----------------------------
any Year, the eligible components of Compensation (as described below);
provided, however, that the Committee shall have sole discretion to designate
which components of Compensation are eligible for deferral elections under the
Plan in any given Year. In addition, the Committee may, in its sole discretion,
2
<PAGE>
designate the maximum or minimum amount or increments of any single eligible
component of Compensation which may be deferred in any Year or establish any
other limitations as it deems appropriate in any Year.
The components of "Compensation" shall include (i) "Salary" defined as
all regular, basic wages, before reduction for amounts deferred pursuant to the
Plan or any other plan of the Bank or the Holding Company, payable in cash to a
Participant for services to be rendered, exclusive of any Bonus, other special
fees, awards, or incentive compensation, allowances, or amounts designated by
the Bank as payment toward or reimbursement of expenses, (ii) "Bonus" defined as
any incentive award based on an assessment of performance, payable by the Bank
to a Participant with respect to the Participant's services during a Year and
(iii) with respect to a Participant who is a director, "Board Compensation"
defined as all amounts paid with respect to service as a member of the Board or
the board of directors of any affiliate of the Bank, including retainers, board
meeting fees and committee fees.
In addition to deferrals of Compensation, each Participant identified
in Exhibit A may elect to transfer previously accrued Prior Benefits for
deferral under this Plan. Upon the transfer of Prior Benefits to this Plan, the
Bank's obligations and the Participant's rights with respect to such benefits
shall be determined solely by reference to the provisions of this Plan.
4.2 Time of Deferral Election. An election to defer a component of
-------------------------
Compensation permitted by the Committee to be deferred by a Participant under
the Plan shall be given effect in accordance with the following timing rules:
(a) An election to defer Salary or Board Compensation shall apply only
to Salary or Board Compensation which is earned for payroll periods or, in the
case of a director, periods of service, beginning after a properly executed
Election Form has been filed with the Committee.
(b) An election to defer Bonus for any Year shall apply only if a
properly executed Election Form has been filed with the Committee before the end
of the Year to which the Bonus relates.
(c) An election to defer Prior Benefits under this Plan shall be made
not later than _____________, 1999.
4.3 Content of Deferral Election. All deferral elections shall be
----------------------------
irrevocable, and shall be made on a form or forms prescribed by the Committee
(an "Election Form"), as described herein. Participants shall make the following
irrevocable elections on each Election Form:
(a) The amount to be deferred with respect to each eligible component
of Compensation for the Year or Prior Benefits,
(b) The length of the deferral period with respect to each eligible
component of Compensation or Prior Benefits, subject to the terms of Section 4.4
herein; and
3
<PAGE>
(c) The form of distribution to be made to the Participant at the end
of the deferral period(s), subject to the terms of Section 4.5 herein.
Notwithstanding the amounts requested to be deferred pursuant to Subparagraph
(a) above, the limits on deferrals set forth in Section 4.1 herein shall apply
to the requested deferrals each Year.
A Participant may, from time to time, modify a deferral election with
respect to previously deferred amounts (including Prior Benefits), including a
modification as to the length of the deferral period or the form of distribution
at the end of such period; provided, however, that a modification of the terms
of a prior deferral election shall be only be effective one (1) year after the
date on which it is submitted in writing to the Bank.
4.4 Length of Deferral. The deferral periods elected by each
------------------
Participant with respect to deferrals of Compensation for any Year or Prior
Benefits shall be at least equal to one (1) year following the end of the Year
to which the deferral relates, and shall in no event be no greater than the date
of the Participant's termination of employment, or, in the case of a director,
service.
4.5 Distribution of Deferred Amounts. Participants shall be entitled to
--------------------------------
elect to receive distribution of deferred amounts, at the end of the deferral
period in a single lump sum distribution, by means of installments, or in such
other format approved by the Committee.
(a) Lump Sum Distribution. Such distribution shall be made in cash
---------------------
within thirty (30) calendar days of the date specified by the Participant as the
date for distribution of deferred compensation as described in Sections 4.3 and
4.4 hereof, or as soon thereafter as practicable.
(b) Installment Distribution. Participants may elect distribution in
------------------------
annual installments, with a minimum number of installments of two (2) and a
maximum of ten (10). The initial distribution shall be made in cash within
thirty (30) calendar days after the commencement date selected by the
Participant pursuant to Sections 4.3 and 4.4 hereof, or as soon thereafter as
practicable. The remaining distributions shall be made in cash each year
thereafter, until the Participant's entire deferred compensation account has
been distributed. The amount of each installment shall be equal to the balance
remaining in the Participant's account immediately prior to each such
distribution, multiplied by a fraction, the numerator of which is one (1), and
the denominator of which is the number of installments remaining.
(c) Alternative Schedule. A Participant may submit an alternate
--------------------
distribution schedule to the Committee for approval; provided, however, that no
such alternate schedule shall be permitted unless approved by the Committee.
(d) Death Benefits; Beneficiary Designation. If a Participant dies
---------------------------------------
before the end of a deferral period or prior to termination of employment, or
after distribution of the Participant's account has commenced but prior to the
distribution of all amounts to which the Participant is entitled under the Plan,
the Participant's account shall be distributable or shall continue to be
distributed in accordance with the Participant's election under this Section 4.5
to the person or persons designated pursuant to this subsection (d). A
Participant may from time to time designate
4
<PAGE>
in writing on a form prescribed by the Committee for such purpose a person or
persons (named contingently or successively) to receive benefits distributable
under this Plan upon or after the Participant's death. Such designation may be
changed from time to time by the Participant by filing a new designation. Each
designation shall revoke all prior designations by the Participant. In the
absence of a valid beneficiary designation, the Participant's benefits shall be
distributable to his or her surviving spouse, or, if the Participant is not
survived by a spouse, to his or her estate.
4.6 Financial Hardship. The Committee shall have the authority to alter
------------------
the timing or form of distribution of deferred amounts in the event that the
Participant establishes, to the satisfaction of the Committee, severe financial
hardship. In such event, the Committee may, in its sole discretion:
(a) Authorize the cessation of deferrals by such Participant under the
Plan, or
(b) Provide that all or a portion of the amount previously deferred by
the Participant shall immediately be paid in a lump sum distribution; or
(c) Provide that all or a portion of the installments payable over a
period of time shall immediately be paid in a lump sum distribution; or
(d) Provide for such other installment payment schedule as deemed
appropriate by the Committee under the circumstances.
For purposes of this Section 4.6, "severe financial hardship" shall be
determined by the Committee, in its sole discretion, in accordance with all
applicable laws. The Committee's decision with respect to the severity of
financial hardship and the manner in which, if at all, the Participant's future
deferral opportunities shall be ceased, and/or the manner in which, if at all,
the payment of deferred amounts of the Participant shall be altered or modified
shall be final, conclusive, and not subject to appeal.
4.7. Special Change in Control Election. In addition to the elections
----------------------------------
described in Section 4.3 of this Plan, each Participant may make an election
applicable solely in the event of a Change in Control of the Bank or the Holding
Company with respect to the length of the deferral period for all deferrals
under the Plan and the form of payment of such deferrals. Such election must be
made in writing at least three (3) months prior the consummation of any
transaction constituting a Change in Control. In the absence of an election
pursuant to this Section 4.7, a Participant's benefits under this Plan shall be
payable in accordance with the Participant's elections under Section 4.3. For
purposes of this Plan, a "Change in Control" means an event of a nature that:
(i) would be required to be reported in response to Item 1(a) of the current
report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
results in a Change in Control of the Bank or the Holding Company within the
meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
ss. 303.4(a), with respect to the Bank, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; or (iii)
5
<PAGE>
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of voting securities of
the Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company and any voting securities purchased by any employee benefit plan of the
Holding Company or its Subsidiaries, or (B) individuals who constitute the Board
on the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was approved by a
Nominating Committee solely composed of members which are Incumbent Board
members, shall be, for purposes of this clause (B), considered as though he were
a member of the Incumbent Board, or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Bank or the
Holding Company or similar transaction occurs or is effectuated in which the
Bank or Holding Company is not the resulting entity, or (D) a proxy statement
has been distributed soliciting proxies from stockholders of the Holding
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Bank with one or more corporations as a
result of which the outstanding shares of the class of securities then subject
to such plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company shall be
distributed, or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or Holding Company then outstanding.
Article 5
Deferred Compensation Accounts
5.1 Participant Accounts. The Bank shall establish and maintain an
--------------------
individual bookkeeping account for deferrals made by each Participant under
Article 4 herein. Each account shall be credited as of the date the amount
deferred otherwise would have become due and payable to the Participant.
5.2 Valuation of Deferred Amounts. Amounts credited to a Participant's
-----------------------------
deferred compensation account shall be credited with an earnings adjustment in
accordance with this Section 5.2. Amounts credited to a Participant's account
shall accrue interest at a rate selected by the Committee but in any event not
less than __________. Each Participant's account shall be credited with interest
on the last day of each calendar quarter, with interest computed on the average
balance in the account during such quarter. Interest credited to deferred
amounts shall be distributed to the Participant at the same time and in the same
manner as the underlying deferred amounts.
5.3 Charges Against Accounts. There shall be charged against each
------------------------
Participant's deferred compensation account any distributions made to the
Participant or to his or her beneficiary.
6
<PAGE>
Article 6
Rights of Participants
6.1 Contractual Obligation. The Plan shall create a contractual
----------------------
obligation on the part of the Bank to make payments from the Participant's
accounts when due.
6.2 Unsecured Interest. No Participant or party claiming an interest in
------------------
amounts deferred by a Participant shall have any interest whatsoever in any
specific asset of the Bank. To the extent that any party acquires a right to
receive payments under the Plan, such right shall be equivalent to that of an
unsecured general creditor of the Bank.
6.3 Authorization for Trust. The Bank may, but shall not be required
-----------------------
to, establish one or more trusts, with such trustee as the Committee may
approve, for the purpose of providing for the payment of deferred amounts. Such
trust or trusts may be irrevocable, but the assets thereof shall be subject to
the claims of the Bank's creditors. To the extent any amounts deferred under the
Plan are actually paid from any such trust, the Bank shall have no further
obligation with respect thereto, but to the extent not so paid, such deferred
amounts shall remain the obligation of, and shall be paid by, the Bank.
6.4 Employment. Nothing in the Plan shall interfere with nor limit, in
----------
any way, the right of the Bank or any affiliate of the Bank to terminate any
Participant's employment at any time, nor confer upon any Participant any right
to continue in the employ of the Bank or any affiliate of the Bank.
Article 7
Withholding of Taxes
The Bank shall have the right to require Participants to remit to the
Bank an amount sufficient to satisfy any withholding tax requirements or to
deduct from all payments made pursuant to the Plan amounts sufficient to satisfy
withholding tax requirements.
Article 8
Amendment and Termination
The Bank hereby reserves the right to amend, modify, or terminate the
Plan at any time by action of the Board, provided, however, that no such
amendment or termination shall in any material manner adversely affect any
Participant's rights to amounts previously deferred hereunder without the
consent of the Participant.
Article 9
Claims Procedure
(a) Claim. A person who believes that he is being denied a benefit to
-----
which he is entitled under this Plan (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the Bank, setting forth his
claim. The request must be addressed to the Secretary of the Board at the Bank's
then principal place of business.
7
<PAGE>
(b) Claim Decision. Upon receipt of a claim, the Committee shall advise
--------------
the Claimant that a reply will be forthcoming within ninety (90) days and shall,
in fact, deliver such reply within such period. The Committee may, however,
extend the reply period for an additional ninety (90) days for reasonable cause.
If the claim is denied in whole or in part, the Committee shall adopt a written
opinion, using language calculated to be understood by the Claimant, setting
forth:
(i) The specific reason or reasons for such denial;
(ii) The specific reference to pertinent provisions of
this Plan on which such denial is based;
(iii) A description of any additional material or
information necessary for the Claimant to perfect his
claim and an explanation why such material or such
information is necessary;
(iv) Appropriate information as to the steps to be taken
if the Claimant wishes to submit the claim for
review; and
(v) The time limits for requesting a review of the
decision and for review of the decision.
(c) Request for Review. With sixty (60) days after the receipt by the
------------------
Claimant of the written opinion described above, the Claimant may request in
writing that the Board review the determination of the Committee. Such request
must be addressed to the Secretary of the Board, at its then principal place of
business. The Claimant or his duly authorized representative may, but need not,
review the pertinent documents and submit issues and comments in writing for
consideration by the Committee. If the Claimant does not request a review of the
Committee's determination by the Board within such sixty (60) day period, he
shall be barred and stopped from challenging the Committee's determination.
(d) Review of Decision. Within sixty (60) days after receipt of a
------------------
request for review, the Board will review the Committee's determination. After
considering all materials presented by the Claimant, the Board will provide the
Claimant with a written opinion, written in a manner calculated to be understood
by the Claimant, setting forth the specific reasons for the decision and
containing specific references to the pertinent provisions of this Plan on which
the decision is based. If special circumstances require that the sixty (60) day
time period be extended, the Secretary of the Board will so notify the Claimant
and will render the decision as soon as possible, but no later than one hundred
twenty (120) days after receipt of the request for review.
8
<PAGE>
Article 10
Miscellaneous
10.1 Notice. Except as otherwise provided herein, any notice or filing
------
required or permitted to be given to the Bank under the Plan shall be sufficient
if in writing and hand delivered, or sent by registered or certified mail to the
_____________________of the Bank. Notice to the _____________________, if
mailed, shall be addressed to the principal executive offices of the Bank.
Notice mailed to a Participant shall be at such address as is given in the
records of the Bank. Notices shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
10.2 Nontransferability. Participant's rights to deferred amounts
------------------
credited hereunder the Plan may not be sold, transferred, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. In no event shall the Bank make any distribution under the Plan to
any assignee or creditor of a Participant.
10.3 Severability. In the event any provision of the Plan shall be held
------------
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
10.4. Costs of the Plan. All costs of implementing and administering
-----------------
the Plan shall be borne by the Bank.
10.5 Status under ERISA. The Plan is intended to be an unfunded plan
------------------
which is maintained primarily to provide deferred compensation benefits for a
select group of "management or highly compensated employees" within the meaning
of Sections 201, 301, and 401 of ERISA, and to therefore be exempt from the
provisions of Parts 2, 3, and 4 of Title 1 of ERISA.
10.6 Applicable Law. The Plan shall be governed by and construed in
--------------
accordance with the laws of the State of Connecticut.
10.7 Successors. All obligations of the Bank under the Plan shall be
----------
binding on any successor to the Bank, whether the existence of such successor is
the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of the
Bank.
9
<PAGE>
American Savings Bank
Stock-Based Deferred Compensation Plan
Article 1
Effective Date and Purpose
1.1 Effective Date. The American Savings Bank Stock-Based Deferred
--------------
Compensation Plan (the "Plan") is effective as of ___________, 1999, the date
of adoption of the Plan by the Board of Directors (the "Board") of American
Savings Bank (the "Bank"), a Connecticut-chartered savings bank.
1.2 Purpose. The Plan is a deferred compensation plan the primary purpose
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of which is to provide directors and key employees of the Bank and its
affiliated companies with the opportunity to voluntarily defer a portion of
their compensation, including benefits previously accrued under the Bank's
terminated Performance Appreciation Unit Plans and other deferral programs
maintained by the Bank prior to the effective date of this Plan ("Prior
Benefits"), subject to the terms of the Plan. By adopting the Plan, the Bank
desires to enhance its ability to attract and retain directors and employees of
outstanding competence by providing such individuals with an opportunity to
increase their equity interest in the Bank's parent holding company, American
Financial Holdings, Inc. (the "Holding Company") by investing deferrals in
shares of the Holding Company's Common Stock ("Common Stock") upon the
consummation of the Bank's mutual-to-stock conversion and thereafter
Article 2
Administration
2.1 The Committee. The Plan shall be administered by the Human Resources
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Committee of the Board or any other successor Committee appointed by the Board
(the "Committee").
2.2 Authority of the Committee. The Committee shall have authority to
--------------------------
select eligible employees of the Bank for participation in the Plan; determine
the terms and conditions of each employee's participation in the Plan; interpret
the Plan; establish, amend, or waive rules and regulations for the Plan's
administration; and, subject to Article 8 herein, amend the terms and conditions
of the Plan and any agreement entered into under the Plan. Further, the
Committee shall make all other determinations which may be necessary or
advisable for the administration of the Plan. As permitted by law, the Committee
may delegate any of its authority granted under the Plan to such other person or
entity it deems appropriate, including but not limited to, senior management of
the Bank.
2.3 Guidelines. Subject to the provisions herein, the Committee may adopt
----------
written guidelines for the implementation and administration of the Plan.
2.4 Decisions Binding. All determinations and decisions of the Committee
-----------------
arising under the Plan shall be final binding, and conclusive upon all parties.
<PAGE>
Article 3
Eligibility and Participation
3.1 Eligibility. Subject to Sections 3.2 and 3.3, persons eligible to be
-----------
selected to participate in the Plan in any calendar year (a "Year") shall
include full-time, salaried employees of the Bank, its subsidiaries, and
affiliates who are key employees, as determined by the Committee in its sole
discretion. In addition, all directors of the Bank and directors of the Holding
Company shall be eligible to participate in the Plan without further action by
the Committee.
3.2 Limitation on Eligibility. It is the intent of the Bank that the Plan
-------------------------
qualify for treatment as a "top hat" plan under the Employee Retirement Income
Security Act of 1974, as amended from time to time, or any successor Act thereto
("ERISA"). Accordingly, to the extent required by ERISA to obtain such "top hat"
treatment, eligibility shall be extended only to those executives who comprise a
select group of management or highly compensated employees. Further, the
Committee may place such additional limitations on eligibility as it deems
necessary and appropriate under the circumstances.
3.3 Participation. Participation in the Plan shall be determined annually
-------------
by the Committee based upon the criteria set forth in Sections 3.1 and 3.2
herein. An employee who is chosen to participate in the Plan in any Year (a
"Participant") shall be so notified in writing. In the event a Participant
selected to participate in the Plan no longer meets the criteria for
participation, such Participant shall become an inactive Participant, retaining
all the rights described under the Plan, except the right to make any further
deferrals, until such time that the Participant again becomes an active
Participant. Notwithstanding anything in this Plan to the contrary, with
respect to the initial Year beginning on the effective date and ending December
31, 1999 and solely with respect to the deferral of Prior Benefits under this
Plan, the Plan Participants shall include those persons identified in Exhibit A
to the Plan.
3.4 Partial Year Eligibility. In the event that an individual first
------------------------
becomes eligible to participate in the Plan during a Year, such individual
shall, within thirty (30) calendar days of becoming eligible, be notified by the
Bank of his or her eligibility to participate, and the Bank shall provide each
such individual with an Election Form, which must be completed by the individual
as provided in Section 4.2 herein.
3.5 No Right to Participate. No employee shall have the right to be
-----------------------
selected as a Participant, or having been so selected for any given Year, to be
selected again as a Participant for any other Year.
Article 4
Deferral Opportunity
4.1 Amount Which May Be Deferred. A Participant may elect to defer, in
----------------------------
any Year, the eligible components of Compensation (as described below);
provided, however, that the Committee shall have sole discretion to designate
which components of Compensation are eligible for deferral elections under the
Plan in any given Year. In addition, the Committee may, in its sole discretion,
designate the maximum or minimum amount or increments of any single eligible
component of
2
<PAGE>
Compensation which may be deferred in any Year or establish any other
limitations as it deems appropriate in any Year.
The components of "Compensation" shall include (i) "Salary" defined as all
regular, basic wages, before reduction for amounts deferred pursuant to the Plan
or any other plan of the Bank or the Holding Company, payable in cash to a
Participant for services to be rendered, exclusive of any Bonus, other special
fees, awards, or incentive compensation, allowances, or amounts designated by
the Bank as payment toward or reimbursement of expenses, (ii) "Bonus" defined as
any incentive award based on an assessment of performance, payable by the Bank
to a Participant with respect to the Participant's services during a Year and
(iii) with respect to a Participant who is a director, "Board Compensation"
defined as all amounts paid with respect to service as a member of the Board or
the board of directors of any affiliate of the Bank, including retainers, board
meeting fees and committee fees.
In addition to deferrals of Compensation, each Participant identified in
Exhibit A may elect to transfer previously accrued Prior Benefits for deferral
under this Plan. Upon the transfer of Prior Benefits to this Plan, the Bank's
obligations and the Participant's rights with respect to such benefits shall be
determined solely by reference to the provisions of this Plan.
4.2 Time of Deferral Election. An election to defer a component of
-------------------------
Compensation permitted by the Committee to be deferred by a Participant under
the Plan shall be given effect in accordance with the following timing rules:
(a) An election to defer Salary or Board Compensation shall apply only to
Salary or Board Compensation which is earned for payroll periods or, in the case
of a director, periods of service, beginning after a properly executed Election
Form has been filed with the Committee.
(b) An election to defer Bonus for any Year shall apply only if a properly
executed Election Form has been filed with the Committee before the end of the
Year to which the Bonus relates.
(c) An election to defer Prior Benefits under this Plan shall be made not
later than _____________, 1999.
4.3 Content of Deferral Election. All deferral elections shall be
----------------------------
irrevocable, and shall be made on a form or forms prescribed by the Committee
(an "Election Form"), as described herein. Participants shall make the following
irrevocable elections on each Election Form:
(a) The amount to be deferred with respect to each eligible component of
Compensation for the Year or Prior Benefits,
(b) The length of the deferral period with respect to each eligible
component of Compensation or Prior Benefits, subject to the terms of Section 4.4
herein; and
(c) The form of distribution to be made to the Participant at the end of
the deferral period(s), subject to the terms of Section 4.5 herein.
3
<PAGE>
Notwithstanding the amounts requested to be deferred pursuant to Subparagraph
(a) above, the limits on deferrals set forth in Section 4.1 herein shall apply
to the requested deferrals each Year.
A Participant may, from time to time, modify a deferral election with
respect to previously deferred amounts (including Prior Benefits), including a
modification as to the length of the deferral period or the form of distribution
at the end of such period; provided, however, that a modification of the terms
of a prior deferral election shall be only be effective one (1) year after the
date on which it is submitted in writing to the Bank.
4.4 Length of Deferral. The deferral periods elected by each Participant
------------------
with respect to deferrals of Compensation for any Year or Prior Benefits shall
be at least equal to one (1) year following the end of the Year to which the
deferral relates, and shall in no event be no greater than the date of the
Participant's termination of employment, or, in the case of a director, service.
4.5 Distribution of Deferred Amounts. Participants shall be entitled to
--------------------------------
elect to receive distribution of deferred amounts, at the end of the deferral
period in a single lump sum distribution, by means of installments, or in such
other format approved by the Committee.
(a) Lump Sum Distribution. Such distribution shall be made in the form of
---------------------
whole shares of Common Stock within thirty (30) calendar days of the date
specified by the Participant as the date for distribution of deferred amounts
as described in Sections 4.3 and 4.4 hereof, or as soon thereafter as
practicable.
(b) Installment Distribution. Participants may elect distribution in
------------------------
annual installments, with a minimum number of installments of two (2) and a
maximum of ten (10). The initial distribution shall be made in the form of
shares of Common Stock within thirty (30) calendar days after the commencement
date selected by the Participant pursuant to Sections 4.3 and 4.4 hereof, or as
soon thereafter as practicable. The remaining distributions shall be made in
shares of Common Stock each year thereafter, until the Participant's entire
deferred compensation account has been distributed. The number of shares
distributable with respect to each installment shall be equal to the balance of
the number of Common Stock Units remaining in the Participant's deferred
compensation account immediately prior to each such distribution, multiplied by
a fraction, the numerator of which is one (1), and the denominator of which is
the number of installments remaining.
(c) Alternative Schedule. A participant may submit an alternate
--------------------
distribution schedule to the Committee for approval; provided, however, that no
such alternate schedule shall be permitted unless approved by the Committee.
(d) Limitation on Form of Distribution. Distributions under this Plan
----------------------------------
shall be made solely in the form of whole shares of Common Stock and the Bank
shall be under no obligation to distribute any amount in cash.
(e) Death Benefits; Beneficiary Designation. If a Participant dies before
---------------------------------------
the end of a deferral period or prior to termination of employment, or after
distribution of the Participant's account has commenced but prior to the
distribution of all amounts to which the Participant is
4
<PAGE>
entitled under the Plan, the Participant's account shall be distributable or
shall continue to be distributed in accordance with the Participant's election
under this Section 4.5 to the person or persons designated pursuant to this
subsection (e). A Participant may from time to time designate in writing on a
form prescribed by the Committee for such purpose a person or persons (named
contingently or successively) to receive benefits distributable under this Plan
upon or after the Participant's death. Such designation may be changed from time
to time by the Participant by filing a new designation. Each designation shall
revoke all prior designations by the Participant. In the absence of a valid
beneficiary designation, the Participant's benefits shall be distributable to
his or her surviving spouse, or, if the Participant is not survived by a spouse,
to his or her estate.
4.6 Financial Hardship. The Committee shall have the authority to alter
------------------
the timing or form of distribution of deferred amounts in the event that the
Participant establishes, to the satisfaction of the Committee, severe financial
hardship. In such event, the Committee may, in its sole discretion:
(a) Authorize the cessation of deferrals by such Participant under the
Plan, or
(b) Provide that all or a portion of the amount previously deferred by the
Participant shall immediately be paid in a lump sum distribution in the form of
shares of Common Stock; or
(c) Provide that all or a portion of the installments payable over a period
of time shall immediately be paid in a lump sum distribution of shares of Common
Stock; or
(d) Provide for such other installment schedule as deemed appropriate by
the Committee under the circumstances.
For purposes of this Section 4.6, "severe financial hardship" shall be
determined by the Committee, in its sole discretion, in accordance with all
applicable laws. The Committee's decision with respect to the severity of
financial hardship and the manner in which, if at all, the Participant's future
deferral opportunities shall be ceased, and/or the manner in which if at all,
the distribution of deferred amounts of the Participant shall be altered or
modified shall be final, conclusive, and not subject to appeal.
4.7. Special Change in Control Election. In addition to the elections
----------------------------------
described in Section 4.3 of this Plan, each Participant may make an election
applicable solely in the event of a Change in Control of the Bank or the Holding
Company with respect to the length of the deferral period for all deferrals
under the Plan and the form of distribution of such deferrals. Such election
must be made in writing at least three (3) months prior the consummation of any
transaction constituting a Change in Control. In the absence of a election
pursuant to this Section 4.7, a Participant's benefits under this Plan shall be
payable in accordance with the Participant's elections under Section 4.3. For
purposes of this Plan, a "Change in Control" mean an event of a nature that:
(i) would be required to be reported in response to Item 1(a) of the current
report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
results in a Change in Control of the Bank or the Holding Company within the
meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal
5
<PAGE>
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a), with respect
to the Bank, and the Rules and Regulations promulgated by the Office of Thrift
Supervision ("OTS") (or its predecessor agency), with respect to the Holding
Company, as in effect on the date of this Agreement; or (iii) without limitation
such a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of voting securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Holding Company or its
Subsidiaries, or (B) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs or is effectuated in which the Bank or Holding Company is not
the resulting entity, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or Bank
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed, or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or Holding Company then outstanding.
Article 5
Deferred Compensation Accounts
5.1 Participant Accounts. The Bank shall establish and maintain an
--------------------
individual bookkeeping account for deferrals made by each Participant under
Article 4 herein. Each account shall be credited as of the date the amount
deferred otherwise would have become due and payable to the Participant.
5.2 Valuation of Deferred Amounts. Amounts credited to a Participant's
-----------------------------
deferred compensation account shall be credited solely in the form of "Common
Stock Units" with each unit equivalent to one (1) share of Common Stock.
The following additional rules shall apply to Common Stock Units:
(a) The number of Common Stock Units initially credited to a Participant's
account with respect to the deferral of Prior Benefits shall equal the number of
shares of Common Stock which are allocated to the Participant in connection with
the subscription order submitted on behalf of all Participants by the trustee of
a trust described in Section 6.3 of the Plan in connection with the
6
<PAGE>
Holding Company's subscription offering of Common Stock and the Bank's
mutual-to-stock conversion. Notwithstanding anything herein to the contrary, the
crediting of Common Stock Units to a Participant with respect to the deferral of
Prior Benefits in this Plan shall in all respects be subject to the individual
purchase limitations and purchase priorities set forth in the Bank's plan of
conversion and in no event shall the initial number of Common Stock Units
credited to a Participant's account exceed 50,000.
(b) The number of units credited to a Participant's account with respect to
Prior Benefits deferred under this Plan but not credited or creditable under (a)
above shall equal the dollar amount of such Prior Benefits divided by the
average of the high and low trading prices of the Common Stock on a trading date
determined by the Committee in its sole discretion, but in any event not later
than ninety (90) trading days after the effective date of the Bank's conversion.
(c) The number of Common Stock Units credited to a Participant's account
with respect to other deferrals shall equal the dollar amount of such deferrals
divided by the average of the high and low trading prices of the Common Stock on
the date that the Compensation would otherwise have been paid but for the
Participant's deferral.
(d) The Participant's Account shall also be credited with additional Common
Stock Units equal to the dollar amount of dividends or other distributions paid
from time to time during the deferral period on a number of shares of Common
Stock equal to the number of Common Stock Units then credited to the
Participant's Account divided by the average of the high and low trading prices
of the Common Stock on the payment date.
(e) In the event of any change in the outstanding shares of the Common
Stock by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares,
Change in Control or other similar corporate change, then an equitable
equivalent adjustment shall be made in the Common Stock Units credited to
Accounts under the Plan.
(f) When distribution of a Participant's Account occurs, such distribution
shall be made solely by transferring to the Participant or beneficiary a number
of shares of the Common Stock equal to the number of whole units then
distributable from the Participant's Account. On any distribution date,
fractional Common Stock Units shall be rounded up to the nearest whole unit.
5.3 Charges Against Accounts. There shall be charged against each
------------------------
Participant's deferred compensation account any distributions made to the
Participant or to his or her beneficiary.
7
<PAGE>
Article 6
Rights of Participants
6.1 Contractual Obligation. The Plan shall create a contractual
----------------------
obligation on the part of the Bank to make distributions from the Participant's
accounts when due.
6.2 Unsecured Interest. No Participant or party claiming an interest in
------------------
amounts deferred by a Participant shall have any interest whatsoever in any
specific asset of the Bank. To the extent that any party acquires a right to
receive distributions under the Plan, such right shall be equivalent to that of
an unsecured general creditor of the Bank.
6.3 Authorization for Trust. The Bank may, but shall not be required to,
-----------------------
establish one or more trusts, with such trustee as the Committee may approve,
for the purpose of providing for the distribution of deferred amounts. It is the
Bank's intention to establish such a trust and designate a trustee for purposes
related to the deferral of Prior Benefits. Such trust or trusts may be
irrevocable, but the assets thereof shall be subject to the claims of the Bank's
creditors. To the extent any amounts deferred under the Plan are actually paid
from any such trust, the Bank shall have no further obligation with respect
thereto, but to the extent not so paid, such deferred amounts shall remain the
obligation of, and shall be paid by, the Bank.
6.4 Employment. Nothing in the Plan shall interfere with nor limit, in
----------
any way, the right of the Bank or any affiliate of the Bank to terminate any
Participant's employment at any time, nor confer upon any Participant any right
to continue in the employ of the Bank or any affiliate of the Bank.
Article 7
Withholding of Taxes
The Bank shall have the right to require Participants to remit to the Bank
an amount sufficient to satisfy any withholding tax requirements or to deduct
from all distributions made pursuant to the Plan amounts sufficient to satisfy
withholding tax requirements.
Article 8
Amendment and Termination
The Bank hereby reserves the right to amend, modify, or terminate the Plan
at any time by action of the Board, provided, however, that no such amendment or
termination shall in any material manner adversely affect any Participant's
rights to amounts previously deferred hereunder without the consent of the
Participant.
8
<PAGE>
Article 9
Claims Procedure
(a) Claim. A person who believes that he is being denied a benefit to
-----
which he is entitled under this Plan (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the Bank, setting forth his
claim. The request must be addressed to the Secretary of the Board at the
Bank's then principal place of business.
(b) Claim Decision. Upon receipt of a claim, the Committee shall advise
--------------
the Claimant that a reply will be forthcoming within ninety (90) days and shall,
in fact, deliver such reply within such period. The Committee may, however,
extend the reply period for an additional ninety (90) days for reasonable cause.
If the claim is denied in whole or in part, the Committee shall adopt a written
opinion, using language calculated to be understood by the Claimant, setting
forth:
(i) The specific reason or reasons for such denial;
(ii) The specific reference to pertinent provisions of this Plan on
which such denial is based;
(iii) A description of any additional material or information
necessary for the Claimant to perfect his claim and an
explanation why such material or such information is necessary;
(iv) Appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(v) The time limits for requesting a review of the decision and for
review of the decision.
(c) Request for Review. With sixty (60) days after the receipt by the
------------------
Claimant of the written opinion described above, the Claimant may request in
writing that the Board review the determination of the Committee. Such request
must be addressed to the Secretary of the Board, at its then principal place of
business. The Claimant or his duly authorized representative may, but need not,
review the pertinent documents and submit issues and comments in writing for
consideration by the Committee. If the Claimant does not request a review of
the Committee's determination by the Board within such sixty (60) day period, he
shall be barred and stopped from challenging the Committee's determination.
(d) Review of Decision. Within sixty (60) days after receipt of a request
------------------
for review, the Board will review the Committee's determination. After
considering all materials presented by the Claimant, the Board will provide the
Claimant with a written opinion, written in a manner calculated to be understood
by the Claimant, setting forth the specific reasons for the decision and
containing specific references to the pertinent provisions of this Plan on which
the decision is based. If special circumstances require that the sixty (60) day
time period be extended, the Secretary of the Board will
9
<PAGE>
so notify the Claimant and will render the decision as soon as possible, but no
later than one hundred twenty (120) days after receipt of the request for
review.
Article 10
Miscellaneous
10.1 Notice. Except as otherwise provided herein, any notice or filing
------
required or permitted to be given to the Bank under the Plan shall be sufficient
if in writing and hand delivered, or sent by registered or certified mail to the
_____________________of the Bank. Notice to the _____________________, if
mailed, shall be addressed to the principal executive offices of the Bank.
Notice mailed to a Participant shall be at such address as is given in the
records of the Bank. Notices shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
10.2 Nontransferability. Participant's rights to deferred amounts credited
------------------
hereunder the Plan may not be sold, transferred, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution. In no event shall the Bank make any distribution under the Plan to
any assignee or creditor of a Participant.
10.3 Severability. In the event any provision of the Plan shall be held
------------
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
10.4. Costs of the Plan. All costs of implementing and administering the
-----------------
Plan shall be borne by the Bank.
10.5 Status under ERISA. The Plan is intended to be an unfunded plan
------------------
which is maintained primarily to provide deferred compensation benefits for a
select group of "management or highly compensated employees" within the meaning
of Sections 201, 301, and 401 of ERISA, and to therefore be exempt from the
provisions of Parts 2, 3, and 4 of Title 1 of ERISA.
10.6 Applicable Law. The Plan shall be governed by and construed in
--------------
accordance with the laws of the State of Connecticut.
10.7 Successors. All obligations of the Bank under the Plan shall be
----------
binding on any successor to the Bank, whether the existence of such successor is
the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of the
Bank.
10
<PAGE>
Exhibit 10.8
ADOPTION AGREEMENT
- --------------------------------------------------------------------------------
For American Savings Bank
Employees' Savings & Profit Sharing Plan and Trust
Client No. A16
<PAGE>
ADOPTION AGREEMENT
FOR
AMERICAN SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN AND TRUST
Name of Employer: American Savings Bank
------------------------------------------------------
Address: 102 West Main Street, New Britain, CT 06050
------------------------------------------------------
Telephone Number: (860) 612-2729
------------------------------------------------------
Contact Person: Mr. Dave Howell, Vice President
------------------------------------------------------
Name of Plan: American Savings Bank Employees' Savings & Profit
------------------------------------------------------
Sharing Plan and Trust
------------------------------------------------------
THIS ADOPTION AGREEMENT, upon execution by the Employer and the Trustee, and
subsequent approval by a duly authorized representative of Pentegra Services,
Inc. (the "Sponsor"), together with the Sponsor's Employees' Savings & Profit
Sharing Plan and Trust Agreement (the "Agreement"), shall constitute the
American Savings Bank Employees' Savings & Profit Sharing Plan and Trust (the
"Plan"). The terms and provisions of the Agreement are hereby incorporated
herein by this reference; provided, however, that if there is any conflict
between the Adoption Agreement and the Agreement, this Adoption Agreement shall
control.
The elections hereinafter made by the Employer in this Adoption Agreement may be
changed by the Employer from time to time by written instrument executed by a
duly authorized representative thereof; but if any other provision hereof or any
provision of the Agreement is changed by the Employer other than to satisfy the
requirements of Section 415 or 416 of the Internal Revenue Code of 1986, as
amended (the "Code"), because of the required aggregation of multiple plans, or
if as a result of any change by the Employer the Plan fails to obtain or retain
its tax-qualified status under Section 401(a) of the Code, the Employer shall be
deemed to have amended the Plan evidenced hereby and by the Agreement into an
individually designed plan, in which event the Sponsor shall thereafter have no
further responsibility for the tax-qualified status of the Plan. However, the
Sponsor may amend any term, provision or definition of this Adoption Agreement
or the Agreement in such manner as the Sponsor may deem necessary or advisable
from time to time and the Employer and the Trustee, by execution hereof,
acknowledge and consent thereto. Notwithstanding the foregoing, no amendment of
this Adoption Agreement or of the Agreement shall increase the duties or
responsibilities of the Trustee without the written consent thereof.
1
<PAGE>
I. Effect of Execution of Adoption Agreement
The Employer, upon execution of this Adoption Agreement by a duly
authorized representative thereof, (choose 1 or 2):
1. ___ Establishes as a new plan the American Savings Bank Employees'
Savings & Profit Sharing Plan and Trust, effective
_____________________________, 19 ____ (the "Effective Date").
2. X Amends its existing defined contribution plan and trust (Thrift
--- ------
& Profit Sharing Plan for the Employees of American Savings Bank)
----------------------------------------------------------------
dated December 1, 1985, in its entirety into the American Savings
Employees' Savings & Profit Sharing Plan and Trust,
effective September 1, 1999, except as otherwise provided herein
or in the Agreement (the "Effective Date").
II. Definitions
A. Employer
1. "Employer," for purposes of the Plan, shall mean:
American Savings Bank
-------------------------
2. The Employer is (choose whichever may apply):
(a) X A member of a controlled group of corporations under
----
Section 414(b) of the Code.
(b) ____ A member of a group of entities under common control
under Section 414(c) of the Code.
(c) ____ A member of an affiliated service group under Section
414(m) of the Code.
(d) ____ A corporation.
(e) ____ A sole proprietorship or partnership.
(f) ____ A Subchapter S corporation.
3. Employer's Taxable Year Ends on December 31.
-----------
4. Employer's Federal Taxpayer Identification Number is 06 - 0523890.
------------
5. Employer's Plan Number is (enter 3-digit number) 001.
-----
B. "Entry Date" means the first day of the (choose 1 or 2):
1. X Calendar month coinciding with or next following the date the
---
Employee satisfies the Eligibility requirements described in
Section III.
2. ___ Calendar quarter (January 1, April 1, July 1, October 1)
coinciding with or next following the date the Employee
satisfies the Eligibility requirements described in Section
III.
2
<PAGE>
C. "Member" means an Employee enrolled in the membership of the Plan.
D. "Normal Retirement Age" means (choose 1 or 2):
1. _____ Attainment of age _______ (select an age not less than 55
and not greater than 65).
2. X Later of: (i) attainment of age 65 or (ii) the fifth
-----
anniversary of the date the Member commenced participation
in the Plan.
E. "Normal Retirement Date" means the first day of the first calendar
month coincident with or next following the date upon which a Member
attains his or her Normal Retirement Age.
F. "Plan Year" means the twelve (12) consecutive month period ending on
December 31.
G. "Salary" for benefit purposes under the Plan means (choose 1, 2 or 3):
1. _____ Total taxable compensation as reported on Form W-2
(exclusive of any compensation deferred from a prior year).
2. _____ Basic Salary only.
3. X Basic Salary plus one or more of the following (if 3 is
-----
chosen, then choose (a), (b), (c) or (d), whichever shall
apply):
(a) X Commissions not in excess of $ N/A
----
(b) ____ Commissions to the extent that Basic Salary plus
Commissions do not exceed $ ______________________
(c) Overtime
(d) X Overtime and bonuses
----
Note: Member pre-tax contributions to a Section 401(k) plan are
always included in Plan Salary.
Member pre-tax contributions to a Section 125 cafeteria plan
are also to be included in Plan Salary, unless the Employer
elects to exclude such amounts by checking this line _____.
III. Eligibility Requirements
A. All Employees shall be eligible to participate in the Plan in
accordance with the provisions of Article II of the Plan, except the
following Employees shall be excluded (choose whichever shall apply):
1. _____ Employees who have not attained age 21.
2. X Employees who have not, during the 12 consecutive month
-----
period (1-11, 12 or 24) beginning with an Employee's Date
of Employment, Date of Reemployment or any anniversary
thereof, completed 1000 Hours of Service (determined by
multiplying the number of months above by 83 1/3).
3
<PAGE>
Note: Employers which permit Members to make pre-tax
elective deferrals to the Plan (see V.A.3.) may not
elect a 24 month eligibility period.
3. _____ Employees included in a unit of Employees covered by a
collective bargaining agreement, if retirement benefits
were the subject of good faith bargaining between the
Employer and Employee representatives.
4. _____ Employees who are nonresident aliens and who receive no
earned income from the Employer which constitutes income
from sources within the United States.
5. _____ Employees included in the following job classifications:
(a) _____ Hourly Employees
(b) _____ Salaried Employees
6. _____ Employees of the following employers which are aggregated
under Section 414(b), 414(c) or 414(m) of the Code:
___________________________________________________________
___________________________________________________________
Note: If no entries are made above, all Employees shall be eligible to
participate in the Plan on the later of: (i) the Effective Date or
(ii) the first day of the calendar month or calendar quarter (as
designated by the Employer in Section II.D.) coinciding with or
immediately following the Employee's Date of Employment or, as
applicable, Date of Reemployment.
B. Such Eligibility Computation Period established above shall be
applicable to (choose 1 or 2):
1. X Both present and future Employees.
-----
2. _____ Future Employees only.
C. Such Eligibility requirements established above shall be (choose 1 or
2):
1. X Applied to the designated Employee group on and after the
-----
Effective Date of the Plan.
2. _____ Waived for the _____ consecutive monthly period (may not
exceed 12) beginning on the Effective Date of the Plan.
IV. Hours of Employment and Prior Employment Credit
A. The number of Hours of Employment with which an Employee or Member is
credited shall be (choose 1 or 2):
1. X The actual number of Hours of Employment. (Hour of Service
-----
Method)
4
<PAGE>
2. _____ 190 Hours of Employment for every month of Employment.
(Equivalency Method)
Note: This election is relevant if you selected an eligibility
requirement under III.A.2. or a vesting schedule under
VIII.A. other than immediate vesting.
B. Prior Employment Credit:
_____ Employment with the following entity or entities shall be
included for eligibility and vesting purposes:
Note: If this Plan is a continuation of a Predecessor Plan, service
under the Predecessor Plan shall be counted as Employment under
this Plan.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
V. Contributions
Note: Annual Member pre-tax elective deferrals, Employer matching
contributions, Employer basic contributions, Employer supplemental
contributions, Employer profit sharing contributions and Employer
Qualified Non-Elective contributions, in the aggregate, may not
exceed 15% of all Members' Salary (excluding from Salary Member pre-
tax elective deferrals).
A. Employee Contributions (fill in 1 and/or 6 if applicable; choose 2 or
3; 4 or 5):
1. X The maximum amount of monthly contributions a Member may make
-----
to the Plan is 15 % (1-20) of the Member's monthly Salary.
2. X A Member may make pre-tax elective deferrals to the Plan,
-----
based on multiples of 1% of monthly Salary.
3. _____ A Member may not make pre-tax elective deferrals to the Plan.
4. _____ A Member may make after-tax contributions to the Plan, based
on multiples of 1% of monthly Salary.
5. X A Member may not make after-tax contributions to the Plan.
-----
6. X An Employee may allocate a rollover contribution to the Plan
-----
prior to satisfying the Eligibility requirements described
above.
B. A Member may change his or her contribution rate (choose 1, 2 or 3):
1. _____ 1 time per pay period.
2. _____ 1 time per calendar month.
3. X 1 time per calendar quarter.
-----
5
<PAGE>
C. Employer Matching Contributions (fill in 1 if applicable; and choose 2,
3, 4 or 5):
1. The Employer matching contributions under 2, 3 or 4 below shall be
based on the Member's contributions not in excess of 6% (1-20 but
not in excess of the percentage specified in A.1. above) of the
Member's Salary.
2. X The Employer shall allocate to each contributing Member's
-----
Account an amount equal to 50% (based on 1% increments not to
exceed 200%) of the Member's contributions for that month.
3. ____ The Employer shall allocate to each contributing Member's
Account an amount determined in accordance with the following
schedule:
Years of Employment Matching %
------------------- ----------
Less than 3 50%
At least 3, but less than 5 75%
5 or more 100%
4. ____ The Employer shall allocate to each contributing Member's
Account an amount determined in accordance with the following
schedule:
Years of Employment Matching %
------------------- ----------
Less than 3 100%
At least 3, but less than 5 150%
5 or more 200%
5. ____ No Employer matching contributions will be made to the Plan.
D. Employer Basic Contributions (choose 1 or 2):
1. _____ The Employer shall allocate an amount equal to _______% (based
on 1% increments not to exceed 15%) of Member's Salary for the
month to (choose (a) or (b)):
(a) _____ The Accounts of all Members
(b) _____ The Accounts of all Members who were employed
with the Employer on the last day of such month.
2. X No Employer basic contributions will be made to the Plan.
----
E. Employer Supplemental Contributions:
The Employer may make supplemental contributions for any Plan Year in
accordance with Section 3.7 of the Plan.
F. Employer Profit Sharing Contributions (Choose 1, 2, 3, 4, or 5):
1. X No Employer Profit Sharing Contributions will be made to the
----
Plan.
6
<PAGE>
Non-Integrated Formula
----------------------
2. _____ Profit sharing contributions shall be allocated to each Member
in the same ratio as each Member's Salary during such
Contribution Determination Period bears to the total of such
Salary of all Members.
3. _____ Profit sharing contributions shall be allocated to each Member
in the same ratio as each Member's Salary for the portion of the
Contribution Determination Period during which the Member
satisfied the Employer's eligibility requirement(s) bears to the
total of such Salary of all Members.
Integrated Formula
------------------
4. _____ Profit sharing contributions shall be allocated to each Member's
Account in a uniform percentage (specified by the Employer as
_____%) of each Member's Salary during the Contribution
Determination Period up to the Social Security Taxable Wage Base
as defined in Section _____ of the Plan ("Base Salary") for the
Plan Year that includes such Contribution Determination Period,
plus a uniform percentage(specified by the Employer as _______%)
of each Member's Salary for the Contribution Determination
Period in excess of the Social Security Taxable Wage Base
("Excess Salary") for the Plan Year that includes such
Contribution Determination Period, in accordance with Article
III of the Plan.
5. _____ Profit sharing contributions shall be allocated to each Member's
Account in a uniform percentage (specified by the Employer as
_____%) of each Member's Salary for the portion of the
Contribution Determination Period during which the Member
satisfied the Employer's eligibility requirement(s), if any, up
to the Base Salary for the Plan Year that includes such
Contribution Determination Period, plus a uniform percentage
(specified by the Employer as _______%) of each Member's Excess
Salary for the portion of the Contribution Determination Period
during which the Member satisfied the Employer's eligibility
requirement(s) in accordance with Article III of the Plan.
G. Allocation of Employer Profit Sharing Contributions: N/A
In accordance with Section V, G above, a Member shall be eligible to share
in Employer Profit Sharing Contributions, if any, as follows (choose 1 or
2):
1. _____ A Member shall be eligible for an allocation of Employer Profit
Sharing Contributions for a Contribution Determination Period in
all events.
2. _____ A Member shall be eligible for an allocation of Employer Profit
Sharing Contributions for a Contribution Determination Period
only if he or she (choose (a), (b) or (c) whichever shall
apply):
(a) _____ is employed on the last day of the Contribution
Determinati on Period or retired, died or became
totally and permanently disabled prior to the
last day of the Contribution Determination Period.
7
<PAGE>
(b) _____ completed 1,000 Hours of Employment if the
Contribution Determination Period is a period
of 12 months (250 Hours of Employment if the
Contribution Determination Period is a period
of 3 months) or retired, died or became totally
and permanently disabled prior to the last day
of the Contribution Determination Period.
(c) _____ is employed on the last day of the Contribution
Determination Period and, if such period is 12
months, completed 1,000 Hours of Employment
(250 Hours of Employment if the Contribution
Determinati on Period is a period of 3 months)
or retired, died or became totally and
permanently disabled prior to the last day of the
Contribution Determination Period.
H. "Contribution Determination Period" for purposes of determining and
allocating Employer profit sharing contributions means (choose 1,2, 3 or
4): N/A
1. _____ The Plan Year.
2. _____ The Employer's Fiscal Year (defined as the Plan's "limitation
year") being the twelve (12) consecutive month period commencing
_________ (month/day) and ending __________ (month/day).
3. _____ The three (3) consecutive monthly periods that comprise each of
the Plan Year quarters.
4. _____ The three (3) consecutive monthly periods that comprise each of
the Employer's Fiscal Year quarters. (Employer's Fiscal Year is
the twelve (12) consecutive month period commencing
___________________________________ (month/day) and ending
___________________________________ (month/day).)
I. Employer Qualified Nonelective Contributions:
The Employer may make qualified nonelective contributions for any Plan
Year in accordance with Section 3.9 of the Plan.
VI. Investment Funds
The Employer hereby appoints Barclays Global Investors, N.A. to serve as
Investment Manager under the Plan.
The Employer hereby selects the following Investment Funds to be made
available under the Plan (choose whichever shall apply) and consent to the
lending of securities by such funds to brokers and other borrowers. The
Employer agrees and acknowledges that the selection of Investment Funds made
in this Section VI is solely its responsibility, and no other person,
including the Sponsor or Investment Manager, has any discretionary authority
or control with respect to such selection process. The Employer hereby holds
Investment Manager harmless from, and indemnifies it against, any liability
Investment Manager may incur with respect to such Investment Funds so long
as Investment Manager is not negligent and has not breached its fiduciary
duties.
8
<PAGE>
1. X S&P 500 Stock Fund
---
2. X Stable Value Fund
---
3. X S&P MidCap Stock Fund
---
4. X Money Market Fund
---
5. X Government Bond Fund
---
6. X International Stock Fund
---
7. X Asset Allocation Funds (3)
---
. Income Plus
. Growth & Income
. Growth
8. X American Savings Bank Stock Fund (the "Employer Stock Fund")
---
(when available)
9. ___ American Savings Bank Certificate of Deposit Fund
VII. Employer Securities
A. If the Employer makes available an Employer Stock Fund pursuant to
Section VI of this Adoption Agreement, then voting and tender offer
rights with respect to Employer Stock shall be delegated and exercised
as follows (choose 1 or 2):
1. X Each Member shall be entitled to direct the Plan Administrator
---
as to the voting and tender offer rights involving Employer
Stock held in such Member's Account, and the Plan Administrator
shall follow or cause the Trustee to follow such directions. If
a Member fails to provide the Plan Administrator with directions
as to voting or tender offer rights, the Plan Administrator
shall exercise those rights as it determines in its discretion
and shall direct the Trustee accordingly.
2. ___ The Plan Administrator shall direct the Trustee as to the voting
of all Employer Stock and as to all rights in the event of a
tender offer involving such Employer Stock.
VIII. Investment Direction
A. Members shall be entitled to designate what percentage of employee
contributions and employer contributions made on their behalf will be
invested in the various Investment Funds offered by the Employer as
specified in Section VI of this Adoption Agreement; provided, however,
that the following portions of a Member's Account must be invested in
the Employer Stock Fund or, if applicable, the Employer Certificate of
Deposit Fund (choose whichever shall apply):
1. _____ Employer Profit Sharing Contributions
9
<PAGE>
2. _____ Employer Matching Contributions
3. _____ Employer Basic Contributions
4. _____ Employer Supplemental Contributions
5. _____ Employer Qualified Nonelective Contributions
B. _____ Amounts invested in the Employer Stock Fund or, if applicable,
the Employer Certificate of Deposit Fund may not be transferred
to any other Investment Fund.
1. _____ Notwithstanding this election in B, a Member may transfer such
amounts upon (choose whichever may apply):
(a) _____ the attainment of age _____ (insert 45 or greater)
(b) _____ the completion of ____ (insert 10 or greater) years
of employment
(c) _____ the attainment of age plus years of employment
equal to _______ (insert 55 or greater)
C. A Member may change his or her investment direction (choose 1,2, or 3):
1. X 1 time per business day.
----
2. ____ 1 time per calendar month.
3. ____ 1 time per calendar quarter.
D. If a Member fails to make an effective investment direction, the
Member's contributions and employer contributions made on the Member's
behalf shall be invested in Money Market Fund (insert one of the
-----------------
Investment Funds selected in Section VI of this Adoption Agreement).
IX. Vesting Schedules; Years of Employment for Vesting Purposes
A. (Choose 1, 2, 3, 4, 5, 6 or 7)
Schedule Years of Employment Vested %
-------- ------------------- --------
1. X Immediate Upon Enrollment 100%
---
2. ___ 2-6 Year Graded Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
3. ___ 5-Year Cliff Less than 5 0%
5 or more 100%
10
<PAGE>
4. X 3-Year Cliff Less than 3 0%
---
3 or more 100%
5. ___ 4-Year Graded Less than 1 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 or more 100%
6. ___ 3-7 Year Graded Less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
7. ___ Other Less than _____ 0%
_____ but less than _____ ___%
_____ but less than _____ ___%
_____ but less than _____ ___%
_____ but less than _____ ___%
_____ or more 100%
B. With respect to the schedules listed above, the Employer elects (choose 1,
2, 3 and 4; or 5):
1. Schedule A-4 solely with respect to Employer matching contributions.
----
2. Schedule ____ solely with respect to Employer basic contributions.
3. Schedule A-1 solely with respect to Employer supplemental
----
contributions.
4. Schedule ____ solely with respect to Employer profit sharing
contributions.
5. Schedule ____ with respect to all Employer contributions.
NOTE: Notwithstanding any election by the Employer to the contrary, each
Member shall acquire a 100% vested interest in his Account attributable to
all Employer contributions made to the Plan upon the earlier of (i)
attainment of Normal Retirement Age, (ii) approval for disability or (iii)
death. In addition, a Member shall at all times have a 100% vested
interest in the Employer Qualified Non-Elective Contributions, if any, and
in the pre-tax elective deferrals and nondeductible after-tax Member
Contributions.
11
<PAGE>
C. Years of Employment Excluded for Vesting Purposes
The following Years of Employment shall be disregarded for vesting
purposes (choose whichever shall apply):
1. ____ Years of Employment during any period in which neither the Plan
nor any predecessor plan was maintained by the Employer.
2. X Years of Employment of a Member prior to attaining age 18.
----
X. Withdrawal Provisions
A. The following portions of a Member's Account will be eligible for in-
service withdrawals, subject to the provisions of Article VII of the Plan
(choose whichever shall apply):
1. ___ Employee after-tax contributions and the earnings thereon.
In-service withdrawals permitted only in the event of (choose
whichever shall apply):
(a) ___ Hardship.
(b) ___ Attainment of age 59 1/2.
2. X Employee pre-tax elective deferrals and the earnings thereon.
---
Note: In-service withdrawals of all employee pre-tax elective
deferrals and earnings thereon as of December 31, 1988 are
permitted only in the event of hardship or attainment of
age 59 1/2.
3. X Employee rollover contributions and the earnings thereon.
---
In-service withdrawals permitted only in the event of (choose
whichever shall apply):
(a) ___ Hardship.
(b) ___ Attainment of age 59 1/2.
4. X Employer matching contributions and the earnings thereon.
---
In-service withdrawals permitted only in the event of (choose
whichever shall apply):
(a) X Hardship.
---
(b) ___ Attainment of age 59 1/2.
5. ___ Employer basic contributions and the earnings thereon.
In-service withdrawals permitted only in the event of (choose
whichever shall apply):
(a) _____ Hardship.
(b) _____ Attainment of age 59 1/2.
12
<PAGE>
6. X Employer supplemental contributions and the earnings thereon.
----
In-service withdrawals permitted only in the event of (choose
whichever shall apply):
(a) X Hardship.
----
(b) ____ Attainment of age 59 1/2.
7. ____ Employer profit sharing contributions and the earnings thereon.
In-service withdrawals permitted only in the event of (choose
whichever shall apply):
(a) ____ Hardship.
(b) ____ Attainment of age 59 1/2.
8. ____ Employer qualified nonelective contributions and earnings
thereon.
Note: In-service withdrawals of all employer qualified
nonelective contributions and earnings thereon are
permitted only in the event of attainment of age 59 1/2
9. ____ No in-service withdrawals shall be allowed.
B. Notwithstanding any elections made in Subsection A of this Section X
above, the following portions of a Member's Account shall be excluded from
eligibility for in-service withdrawals (choose whichever shall apply):
1. ____ Employer contributions, and the earnings thereon, credited to
the Employer Stock Fund or, if applicable, the Employer
Certificate of Deposit Fund.
2. ____ All contributions and/or deferrals, and the earnings thereon,
credited to the Employer Stock Fund or, if applicable, the
Employer Certificate of Deposit Fund.
3. ____ Other: ________________________________________________
XI. Distribution Option (choose whichever shall apply)
1. X Lump Sum and partial lump sum payments only.
----
2. ____ Lump Sum and partial lump sum payments plus one or more of the
following (choose (a) and /or (b)):
(a) _____ Installment payments.
(b) _____ Annuity payments.
3. ____ Distributions in kind of Employer Stock.
XII. Loan Program (choose 1, 2 or 3)
1. ____ No loans will be permitted from the Plan.
13
<PAGE>
2. X Loans will be permitted from the Member's Account.
----
(1 per Plan Year to maximum of 2 per participant outstanding)
3. ____ Loans will be permitted from the Member's Account, excluding
(choose whichever shall apply):
(a) _____ Employer Profit sharing contributions and the earnings
thereon.
(b) _____ Employer matching contributions and the earnings thereon.
(c) _____ Employer basic contributions and the earnings thereon.
(d) _____ Employer supplemental contributions and the earnings
thereon.
(e) _____ Employee after-tax contributions and the earnings
thereon.
(f) _____ Employee pre-tax elective deferrals and the earnings
thereon.
(g) _____ Employee rollover contributions and the earnings thereon.
(h) _____ Employer qualified nonelective contributions and the
earnings thereon.
(i) _____ Any amounts to the extent invested in the Employer stock
fund.
XIII. Additional Information
The following is hereby made a part of Section X- Withdrawal Provisions and
XII-Loan Program of the Adoption Agreement and is thus incorporated into and
made a part of the American Savings Bank Employees' Saving & Profit Sharing
Plan and Trust:
Section X. Withdrawal Provisions - Salary deferrals shall be suspended for 12
months following the receipt of a distribution as a result of hardship.
Section XII. Loan Program - A participant is permitted to take one loan per
Plan Year. However, a participant may only have two loans outstanding at any
time.
Signature of Employer's Authorized Representative __________________________
Signature of Trustee ________________________________________
XIV. Plan Administrator
The Named Plan Administrator under the Plan shall be the (choose 1, 2, 3 or
4):
Note: Pentegra Services, Inc. may not be appointed Plan Administrator.
1. X Employer
-----
2. _____ Employer's Board of Directors
3. _____ Plan's Administrative Committee
14
<PAGE>
4. _____ Other (if chosen, then provide the following information)
Name: _______________________________________________________
Address: _______________________________________________________
Tel No: _______________________________________________________
Contact: _______________________________________________________
Note: If no Named Plan Administrator is designated above, the Employer
shall be deemed the Named Plan Administrator.
XV. Trustee
The Employer hereby appoints The Bank of New York to serve as Trustee for all
Investment Funds under the Plan except the Employer Stock Fund.
The Employer hereby appoints the following person or entity to serve as
Trustee under the Plan for the Employer Stock Fund.*
Name: _______________________________________________________________________
Address:_____________________________________________________________________
Telephone No: _______________________________ Contact: _____________________
_____________________________________________________________
Signature of Trustee
(Required only if the Employer is serving as its own Trustee)
* Subject to approval by The Bank of New York, if The Bank of New York is
appointed as Trustee for the Employer Stock Fund.
The Employer hereby appoints The Bank of New York to serve as Custodian under
the Plan for the Employer Stock Fund in the event The Bank of New York does not
serve as Trustee for such Fund.
15
<PAGE>
EXECUTION OF ADOPTION AGREEMENT
By execution of this Adoption Agreement by a duly authorized representative of
the Employer, the Employer acknowledges that it has established or, as the case
may be, amended a tax-qualified retirement plan into the American Savings Bank
Employees' Savings & Profit Sharing Plan and Trust (the "Plan"). The Employer
hereby represents and agrees that it will assume full fiduciary responsibility
for the operation of the Plan and for complying with all duties and requirements
imposed under applicable law, including, but not limited to, the Employee
Retirement Income Security Act of 1974, as amended, and the Internal Revenue
Code of 1986, as amended. In addition, the Employer represents and agrees that
it will accept full responsibility of complying with any applicable requirements
of federal or state securities law as such laws may apply to the Plan and to any
investments thereunder. The Employer further acknowledges that any opinion
letter issued with respect to the Adoption Agreement and the Agreement by the
Internal Revenue Service ("IRS") to Pentegra Services, Inc., as sponsor of the
Employees' Savings & Profit Sharing Plan, does not constitute a ruling or a
determination with respect to the tax-qualified status of the Plan and that the
appropriate application must be submitted to the IRS in order to obtain such a
ruling or determination with respect to the Plan.
The failure to properly complete the Adoption Agreement may result in
disqualification of the Plan and Trust evidenced thereby.
The Sponsor will inform the Employer of any amendments to the Plan or Trust
Agreement or of the discontinuance or abandonment of the Plan or Trust.
Any inquiries regarding the adoption of the Plan should be directed to the
Sponsor as follows:
Pentegra Services, Inc.
108 Corporate Park Drive
White Plains, New York 10604
(914) 694-1300
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be
executed by its duly authorized officer this __________ day of
______________________________, 19_____.
American Savings Bank
By: __________________________________
Name: __________________________________
Title: __________________________________
16
<PAGE>
PENTEGRA SERVICES, INC.
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
BASIC PLAN DOCUMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I PURPOSE AND DEFINITIONS..................................... 1
ARTICLE II PARTICIPATION AND MEMBERSHIP................................ 9
ARTICLE III CONTRIBUTIONS............................................... 12
ARTICLE IV INVESTMENT OF CONTRIBUTIONS................................. 25
ARTICLE V MEMBERS' ACCOUNTS, UNITS AND VALUATION...................... 27
ARTICLE VI VESTING OF UNITS............................................ 28
ARTICLE VII WITHDRAWALS AND DISTRIBUTIONS............................... 32
ARTICLE VIII LOAN PROGRAM................................................ 41
ARTICLE IX ADMINISTRATION OF PLAN AND ALLOCATION OF RESPONSIBILITIES... 46
ARTICLE X MISCELLANEOUS PROVISIONS.................................... 55
ARTICLE XI AMENDMENT AND TERMINATION................................... 64
TRUSTS ESTABLISHED UNDER THE PLAN
</TABLE>
<PAGE>
ARTICLE I
PURPOSE AND DEFINITIONS
Section 1.1
This Plan and Trust, as evidenced hereby, and the applicable Adoption Agreement
and Trust Agreement(s), are designed and intended to qualify in form as a
qualified profit sharing plan and trust under the applicable provisions of the
Internal Revenue Code of 1986, as now in effect or hereafter amended, or any
other applicable provisions of law including, without limitation, the Employee
Retirement Income Security Act of 1974, as amended.
Section 1.2
The following words and phrases as used in this Plan shall have the following
meanings:
(A) "Account" means the Plan account established and maintained in respect
of each Member pursuant to Article V, including the Member's after-tax
amounts, 401(k) amounts, Employer matching, basic, supplemental and
qualified nonelective contribution amounts, rollover amounts and profit
sharing amounts, as elected by the Employer.
(B) "Adoption Agreement" means the separate document by which the Employer
has adopted the Plan and specified certain of the terms and provisions
hereof. If any term, provision or definition contained in the Adoption
Agreement is inconsistent with any term, provision or definition
contained herein, the one set forth in the Adoption Agreement shall
govern. The Adoption Agreement shall be incorporated into and form an
integral part of the Plan.
(C) "Beneficiary" means the person or persons designated to receive any
amount payable under the Plan upon the death of a Member. Such
designation may be made or changed only by the Member on a form provided
by, and filed with, the Third Party Adminstrator prior to his death. If
the Member is not survived by a Spouse and if no Beneficiary is
designated, or if the designated Beneficiary predeceases the Member,
then any such amount payable shall be paid to such Member's estate upon
his death.
(D) "Board" means the Board of Directors of the Employer adopting the Plan.
1
<PAGE>
(E) "Break in Service" means a Plan Year during which an individual has not
completed more than 500 Hours of Employment, as determined by the Plan
Administrator in accordance with the IRS Regulations. Solely for
purposes of determining whether a Break in Service has occurred, an
individual shall be credited with the Hours of Employment which such
individual would have completed but for a maternity or paternity
absence, as determined by the Plan Administrator in accordance with this
Paragraph, the Code and the applicable regulations issued by the DOL and
the IRS; provided, however, that the total Hours of Employment so
credited shall not exceed 501 and the individual timely provides the
Plan Administrator with such information as it may require. Hours of
Employment credited for a maternity or paternity absence shall be
credited entirely (i) in the Plan Year in which the absence began if
such Hours of Employment are necessary to prevent a Break in Service in
such year, or (ii) in the following Plan Year. For purposes of this
Paragraph, maternity or paternity absence shall mean an absence from
work by reason of the individual's pregnancy, the birth of the
individual's child or the placement of a child with the individual in
connection with the adoption of the child by such individual, or for
purposes of caring for a child for the period immediately following such
birth or placement.
(F) "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.
(G) "Commencement Date" means the date on which an Employer begins to
participate in the Plan.
(H) "Contribution Determination Period" means the Plan Year, fiscal year, or
calendar or fiscal quarter, as elected by an Employer, upon which
eligibility for and the maximum permissible amount of any Profit Sharing
contribution, as defined in Article III, is determined. Notwithstanding
the foregoing, for purposes of Article VI, Contribution Determination
Period means the Plan Year.
(I) "Disability" means a Member's disability as defined in Article VII,
Section 7.4.
(J) "DOL" means the United States Department of Labor.
(K) "Employee" means any person in the Employment of, and who receives
compensation from, the Employer, and any leased employee within the
meaning of Section 414(n)(2) of the Code. Notwithstanding the foregoing,
if such leased employees constitute less than twenty percent (20%) of
the Employer's nonhighly compensated work force
2
<PAGE>
within the meaning of Section 414(n)(5)(C)(ii) of the Code, such leased
employees are not Employees if they are covered by a plan meeting the
requirements of Section 414(n)(5)(B) of the Code.
(L) "Employer" means the proprietorship, partnership or corporation named in
the Adoption Agreement and any corporation which, together therewith,
constitutes an affiliated service group, any corporation which, together
therewith, constitutes a controlled group of corporations as defined in
Section 1563 of the Code, and any other trade or business (whether
incorporated or not) which, together therewith, are under common control
as defined in Section 414(c) of the Code, which have adopted the Plan.
(M) "Employment" means service with an Employer or with any domestic
subsidiary affiliated or associated with an Employer which is a member
of the same controlled group of corporations (within the meaning of
Section 1563(a) of the Code). In accordance with DOL Regulations
(Sections 2530.200-2(b) and (c)), service includes (a) periods of
vacation, (b) periods of layoff, (c) periods of absence authorized by an
Employer for sickness, temporary disability or personal reasons and (d)
if and to the extent required by the Military Selective Service Act as
amended, or any other federal law, service in the Armed Forces of the
United States.
(N) "Enrollment Date" means the date on which an Employee becomes a Member
as provided under Article II.
(O) "ERISA" means the Employee Retirement Income Security Act of 1974, as
now in effect or as hereafter amended.
(P) "Fiduciary" means any person who (i) exercises any discretionary
authority or control with respect to the management of the Plan or
control with respect to the management or disposition of the assets
thereof, (ii) renders any investment advice for a fee or other
compensation, direct or indirect, with respect to any moneys or other
property of the Plan, or has any discretionary authority or
responsibility to do so, or (iii) has any discretionary authority or
responsibility in the administration of the Plan, including any other
persons (other than trustees) designated by any Named Fiduciary to carry
out fiduciary responsibilities, except to the extent otherwise provided
by ERISA.
3
<PAGE>
(Q) "Highly Compensated Employee" or "Highly Compensated Member" means an
Employee or Member who is employed during the determination year and who
during the look-back year: (i) received compensation from the Employer
in excess of $75,000 (as adjusted pursuant to Section 415(d) of the
Code); (ii) received compensation from the Employer in excess of $50,000
(as adjusted pursuant to Section 415(d) of the Code) and was a member of
the top-paid group for such year as defined in Section 414(q) of the
Code; or (iii) was an officer of the Employer and received compensation
during such year that is greater than 50 percent of the dollar
limitation in effect under Section 415(b)(1)(A) of the Code. The term
Highly Compensated Employee also includes: (i) employees who are both
described in the preceding sentence if the term "determination year" is
substituted for the term "look-back year" and are among the 100
employees who received the most compensation from the Employer during
the determination year; and (ii) employees who are 5 percent owners at
any time during the look-back year or determination year.
If no officer has satisfied the compensation requirement of (iii) above
during either a determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding
the determination year.
If an Employee is, during a determination year or look-back year, a
family member of either a 5 percent owner who is an active or former
Employee or a Highly Compensated Employee who is one of the 10 most
highly compensated Employees ranked on the basis of compensation paid by
the Employer during such year, then the family member and the 5 percent
owner or top-ten Highly Compensated Employee shall be aggregated. In
such case, the family member and 5 percent owner or top-ten Highly
Compensated Employee shall be treated as a single Employee receiving
compensation and plan contributions or benefits equal to the sum of such
compensation and contributions or benefits of the family member and 5
percent owner or top-ten Highly Compensated Employee. For purposes of
this Paragraph, family member includes the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouses of such
lineal ascendants and descendants.
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<PAGE>
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid
group, the top 100 Employees, the number of Employees treated as
officers and the compensation that is considered, will be made in
accordance with Section 414(q) of the Code and the IRS Regulations
thereunder.
(R) "Hour of Employment" means each hour during which an Employee performs
service (or is treated as performing service as required by law) for the
Employer and, except in the case of military service, for which he is
directly or indirectly paid, or entitled to payment, by the Employer
(including any back pay irrespective of mitigation of damages), all as
determined in accordance with applicable DOL Regulations.
(S) "Investment Manager" means any Fiduciary other than a Trustee or Named
Fiduciary who (i) has the power to manage, acquire or dispose of any
asset of the Plan; (ii) is (a) registered as an investment advisor under
the Investment Advisors Act of 1940; (b) is a bank, as defined in such
Act, or (c) is an insurance company qualified to perform the services
described in clause (i) hereof under the laws of more than one state of
the United States; and (iii) has acknowledged in writing that he is a
Fiduciary with respect to the Plan.
(T) "IRS" means the United States Internal Revenue Service.
(U) "Leave of Absence" means an absence authorized by an Employee's Employer
and approved by the Plan Administrator, on a uniform basis, in
accordance with Article X.
(V) "Member" means an Employee enrolled in the membership of the Plan under
Article II.
(W) "Month" means any calendar month.
(X) "Named Fiduciary" means the Fiduciary or Fiduciaries named herein or in
the Adoption Agreement who jointly or severally have the authority to
control and manage the operation and administration of the Plan.
(Y) "Normal Retirement Age" means the Member's sixty-fifth (65th) birthday
unless otherwise specified in the Adoption Agreement.
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<PAGE>
(Z) "Plan" means the Employees' Savings & Profit Sharing Plan as evidenced
by this document, the applicable Adoption Agreement and all subsequent
amendments thereto.
(AA) "Plan Administrator" means the Named Fiduciary or, as designated by
such Named Fiduciary and approved by the Board in accordance with
Article IX, any officer or Employee of the Employer.
(BB) "Plan Year" means a consecutive 12-month period ending December 31
unless otherwise specified in the Adoption Agreement.
(CC) "Regulations" means the applicable regulations issued under the Code,
ERISA or other applicable law, by the IRS, the DOL or any other
governmental authority and any proposed or temporary regulations or
rules promulgated by such authorities pending the issuance of such
regulations.
(DD) "Salary" means regular basic monthly salary or wages, exclusive of
special payments such as overtime, bonuses, fees, deferred compensation
(other than pre-tax elective deferrals pursuant to a Member's election
under Article III), severance payments, and contributions by the
Employer under this or any other plan (other than before-tax
contributions made on behalf of a Member under a Code Section 125
cafeteria plan, unless the Employer specifically elects to exclude such
contributions). Commissions shall be included at the Employer's option
within such limits, if any, as may be set by the Employer in the
Adoption Agreement and applied uniformly to all its commissioned
Employees. In addition, Salary may also include, at the Employer's
option, special payments such as (i) overtime or (ii) overtime plus
bonuses. As an alternative to the foregoing definition, at the
Employer's option, Salary may be defined to include total taxable
compensation reported on the Member's IRS Form W-2, plus deferrals, if
any, pursuant to Section 401(k) of the Code and pursuant to Section 125
of the Code (unless the Employer specifically elects to exclude such
Section 125 deferrals), but excluding compensation deferred from
previous years. In no event may a Member's Salary for any Plan Year
exceed for purposes of the Plan $150,000 (adjusted for cost of living
to the extent permitted by the Code and the IRS Regulations).
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<PAGE>
(EE) "Social Security Taxable Wage Base" means the contribution and benefit
base attributable to the OASDI portion of Social Security employment
taxes under Section 230 of the Social Security Act (42 U.S.C. 430) in
effect on the first day of each Plan Year.
(FF) "Spouse" or "Surviving Spouse" means the individual to whom a Member or
former Member was married on the date such Member withdraws his
Account, or if such Member has not withdrawn his Account, the
individual to whom the Member or former Member was married on the date
of his death.
(GG) "Third Party Administrator" or "TPA" means Pentegra Services, Inc., a
non-fiduciary provider of administrative services appointed and
directed by the Plan Administrator or the Named Fiduciary either
jointly or severally.
(HH) "Trust" means the Trust or Trusts established and maintained pursuant
to the terms and provisions of this document and any separately
maintained Trust Agreement or Agreements.
(II) "Trustee" generally means the person, persons or other entities
designated by the Employer or its Board as the Trustee or Trustees
hereof and specified as such in the Adoption Agreement and any
separately maintained Trust Agreement or Agreements.
(JJ) "Trust Agreement" means the separate document by which the Employer or
its Board has appointed a Trustee of the Plan, specified the terms and
conditions of such appointment and any fees associated therewith.
(KK) "Trust Fund" means the Trust Fund or Funds established by the Trust
Agreement or Agreements.
(LL) "Unit" means the unit of measure described in Article V of a Member's
proportionate interest in the available Investment Funds (as defined in
Article IV).
(MM) "Valuation Date" means any business day of any month for the Trustee,
except that in the event the underlying portfolio(s) of any Investment
Fund cannot be valued on such date, the Valuation Date for such
Investment Fund shall be the next subsequent date on which the
underlying portfolio(s) can be valued. Valuations shall be made as of
the close of business on such Valuation Date(s).
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<PAGE>
(NN) "Year of Employment" means a 12-month period of Employment.
(OO) "Year of Service" means any Plan Year during which an individual
completed at least 1,000 Hours of Employment, or satisfied any
alternative requirement, as determined by the Plan Administrator in
accordance with any applicable Regulations issued by the DOL and the
IRS.
Section 1.3
The masculine pronoun wherever used shall include the feminine pronoun.
8
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ARTICLE II
PARTICIPATION AND MEMBERSHIP
Section 2.1 Eligibility Requirements
------------------------
The Employer may establish as a requirement for eligibility in the Plan (i) the
completion of any number of months not to exceed 12 consecutive months, or (ii)
the completion of one or two 12-consecutive-month periods, and/or (iii) if the
Employer so elects, it may adopt a minimum age requirement of age 21. Such
election shall be made and reflected on the Adoption Agreement. Notwithstanding
the foregoing, in the case of an Employer that adopts the 401(k) feature under
Section 3.9, the eligibility requirements under such feature shall not exceed
the period described in clause (i) above, and, at the election of the Employer,
attainment of age 21 as described in clause (iii) above.
Where an Employer designates a one or two 12-consecutive-month eligibility
waiting period, an Employee must complete at least 1,000 Hours of Employment
during each 12-consecutive-month period (measured from his date of Employment
and each anniversary thereafter). Where an Employer designates an eligibility
waiting period of less than 12 months, an Employee must, for purposes of
eligibility, complete a required number of hours (measured from his date of
Employment and each anniversary thereafter) which is arrived at by multiplying
the number of months of the eligibility waiting period requirement by 83 1/3.
Section 2.2 Exclusion of Certain Employees
------------------------------
To the extent provided in the Adoption Agreement, the following Employees may be
excluded from participation in the Plan:
(i) Employees not meeting the age and service requirements;
(ii) Employees who are included in a unit of Employees covered by a
collective bargaining agreement between the Employee representatives and
one or more Employers if there is evidence that retirement benefits were
the subject of good faith bargaining between such Employee
representatives and such Employer(s). For this purpose, the term
"Employee representative" does not include any organization where more
than one-half of the membership is comprised of owners, officers and
executives of the Employer;
(iii) Employees who are nonresident aliens and who receive no earned income
from the Employer which constitutes income from sources within the
United States; and
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<PAGE>
(iv) Employees described in Section 2.4 or included in any other ineligible
job classifications set forth in the Adoption Agreement.
Section 2.3 Waiver of Eligibility Requirements
----------------------------------
The Employer, at its election, may waive the eligibility requirement(s) for
participation specified above for (i) all Employees, or (ii) all those employed
on or up to 12 months after its Commencement Date under the Plan. Subject to
the requirements of the Code, the eligibility waiting period shall be deemed to
have been satisfied for an Employee who was previously a Member of the Plan.
All Employees whose Employment commences after the expiration date of the
Employer's waiver of the eligibility requirement(s), if any, shall be enrolled
in the Plan in accordance with the eligibility requirement(s) specified in the
Adoption Agreement.
Section 2.4 Exclusion of Non-salaried Employees
-----------------------------------
The Employer, at its election, may exclude non-salaried (hourly paid) Employees
from participation in the Plan, regardless of the number of Hours of Employment
such Employees complete in any Plan Year. Notwithstanding the foregoing, for
purposes of this Section and all purposes under the Plan, a non-salaried
Employee that is hired following the adoption date of the Plan by the Employer,
but prior to the adoption of this exclusion by the Employer, shall continue to
be deemed to be an Employee and will continue to receive benefits on the same
basis as a salaried Member, despite classification as a non-salaried Employee.
Section 2.5 Commencement of Participation
-----------------------------
Every eligible Employee (other than non-salaried or such other Employees who, at
the election of the Employer, are excluded from participation) shall commence
participation in the Plan on the later of:
(1) The Employer's Commencement Date, or
(2) The first day of the month or calendar quarter (as designated by the
Employer in the Adoption Agreement) coinciding with or next
following his satisfaction of the eligibility requirements as
specified in the Adoption Agreement.
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The date that participation commences shall be hereinafter referred to as his
Enrollment Date. Notwithstanding the above, no Employee shall under any
circumstances become a Member unless and until his enrollment application is
filed with, and accepted by, the Plan Administrator. The Plan Administrator
shall notify each Employee of his eligibility for membership in the Plan and
shall furnish him with an enrollment application in order that he may elect to
make or receive contributions on his behalf under Article III at the earliest
possible date consonant with this Article.
If an Employee fails to complete the enrollment form furnished to him, the Plan
Administrator shall do so on his behalf. In the event the Plan Administrator
processes the enrollment form on behalf of the Employee, the Employee shall be
deemed to have elected not to make any contributions and/or elective deferrals
under the Plan, if applicable.
Section 2.6 Termination of Participation
----------------------------
Membership under all features and provisions of the Plan shall terminate upon
the earlier of (a) a Member's termination of Employment and payment to him of
his entire vested interest, or (b) his death.
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ARTICLE III
CONTRIBUTIONS
Section 3.1 Contributions by Members
------------------------
If the Adoption Agreement so provides, each Member may elect to make non-
deductible, after-tax contributions under the Plan, based on increments of 1% of
his Salary, provided the amount thereof, when aggregated with the amount of any
pre-tax effective deferrals, does not exceed the limit established by the
Employer in the Adoption Agreement. All such after-tax contributions shall be
separately accounted for, nonforfeitable and distributed with and in addition to
any other benefit to which the Member is entitled hereunder. A Member may
change his contribution rate as designated in the Adoption Agreement, but
reduced or suspended contributions may not subsequently be made up.
Section 3.2 Elective Deferrals by Members
-----------------------------
If the Adoption Agreement so provides, each Member may elect to make pre-tax
elective deferrals (401(k) deferrals) under the Plan, based on increments of 1%
of his Salary, provided the amount thereof, when aggregated with the amount of
any after-tax contributions, does not exceed the limit established by the
Employer in the Adoption Agreement. All such 401(k) deferrals shall be
separately accounted for, nonforfeitable and distributed under the terms and
conditions described under Article VII with and in addition to any other benefit
to which the Member is entitled hereunder. A Member may change his 401(k)
deferral rate or suspend his 401(k) deferrals as designated in the Adoption
Agreement, but reduced or suspended deferrals may not subsequently be made up.
Notwithstanding any other provision of the Plan, no Member may make 401(k)
deferrals during any Plan Year in excess of $7,000 multiplied by the adjustment
factor as provided by the Secretary of the Treasury. The adjustment factor
shall mean the cost of living adjustment factor prescribed by the Secretary of
the Treasury under Section 402(g)(5) of the Code for years beginning after
December 31, 1987, as applied to such items and in such manner as the Secretary
shall provide. In the event that the aggregate amount of such 401(k) deferrals
for a Member exceeds the limitation in the previous sentence, the amount of such
excess, increased by any income and decreased by any losses attributable
thereto, shall be refunded to such Member no later than the April 15 of the Plan
Year following the Plan Year for which the 401(k) deferrals were made. If
Member also participates, in any Plan Year, in any other plans subject to the
limitations set forth in Section 402(g) of the Code and has made excess 401(k)
deferrals under this Plan when combined with the other plans subject to such
limits, to
12
<PAGE>
the extent the Member, in writing submitted to the TPA no later than the March 1
of the Plan Year following the Plan Year for which the 401(k) deferrals were
made, designates any 401(k) deferrals under this Plan as excess deferrals, the
amount of such designated excess, increased by any income and decreased by any
losses attributable thereto, shall be refunded to the Member no later than the
April 15 of the Plan Year following the Plan Year for which the 401(k) deferrals
were made.
Section 3.3 Transfer of Funds and Rollover Contributions by Members
-------------------------------------------------------
Each Member may elect to make, directly or indirectly, a rollover contribution
to the Plan of amounts held on his behalf in (i) an employee benefit plan
qualified under Section 401(a) of the Code, or (ii) an individual retirement
account or annuity as described in Section 408(d)(3) of the Code. All such
amounts shall be certified in form and substance satisfactory to the Plan
Administrator by the Member as being all or part of an "eligible rollover
distribution" or a "rollover contribution" within the meaning of Section
402(c)(4) or Section 408(d)(3), respectively, of the Code. Such rollover
amounts, along with the earnings related thereto, will be accounted for
separately from any other amounts in the Member's Account. A Member shall have a
nonforfeitable vested interest in all such rollover amounts.
The Employer may, at its option, permit Employees who have not satisfied the
eligibility requirements designated in the Adoption Agreement to make a rollover
contribution to the Plan.
The Trustee of the Plan may also accept a direct transfer of funds, which meets
the requirements of Section 1.411(d)-4 of the IRS Regulations, from a plan which
the Trustee reasonably believes to be qualified under Section 401(a) of the Code
in which an Employee was, is, or will become, as the case may be, a participant.
If the funds so directly transferred are transferred from a retirement plan
subject to Code Section 401(a)(11), then such funds shall be accounted for
separately and any subsequent distribution of those funds, and earnings thereon,
shall be subject to the provisions of Section 7.3 which are applicable when an
Employer elects to provide an annuity option under the Plan.
Section 3.4 Employer Contributions - General
--------------------------------
The Employer may elect to make regular or discretionary contributions under the
Plan. Such Employer contributions may be in the form of (i) matching
contributions, (ii) basic contributions, and/or (iii) profit sharing
contributions as designated by the Employer in the Adoption Agreement and/or (i)
supplemental contributions and/or (ii) qualified nonelective contributions as
permitted under the Plan. Each such contribution type shall be separately
accounted for by the TPA.
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Section 3.5 Employer Matching Contributions
-------------------------------
The Employer may elect to make regular matching contributions under the Plan.
Such matching contributions on behalf of any Member shall be conditioned upon
the Member making after-tax contributions under Section 3.1 and/or 401(k)
deferrals under Sections 3.2 and 3.9.
If so adopted, the Employer shall contribute under the Plan on behalf of each of
its Members an amount equal to a percentage (as specified by the Employer in the
Adoption Agreement) of the Member's after-tax contributions and/or 401(k)
deferrals not in excess of a maximum percentage as specified by the Employer in
the Adoption Agreement (in increments of 1%) of his Salary. The percentage
elected by the Employer shall be based on 1% increments not to exceed 200% or in
accordance with one of the schedules of matching contribution formulas listed
below, and must be uniformly applicable to all Members.
Years of Employment Matching %
------------------- ----------
Formula Step 1 Less than 3 50%
At least 3 but less than 5 75%
5 or more 100%
Formula Step 2 Less than 3 100%
At least 3 but less than 5 150%
5 or more 200%
Section 3.6 Employer Basic Contributions
----------------------------
The Employer may elect to make regular basic contributions under the Plan. Such
basic contributions on behalf of any Member shall not be conditioned upon the
Member making after-tax contributions and/or (401(k) deferrals under this
Article III. If so adopted, the Employer shall contribute monthly under the
Plan on behalf of each Member (as specified by the Employer in the Adoption
Agreement) an amount equal to a percentage not to exceed 15% (as specified by
the Employer in the Adoption Agreement) in increments of 1% of the Member's
Salary for such month. The percentage elected by the Employer shall be
uniformly applicable to all Members. The Employer may elect to restrict the
allocation of such basic contribution to those Members who were employed with
the Employer on the last day of the month for which the basic contribution is
made.
Section 3.7 Supplemental Contributions by Employer
--------------------------------------
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<PAGE>
An Employer may, at its option, make a supplemental contribution under Formula
(1) or (2) below:
Formula (1) A uniform percentage (as specified by the Employer) of each
Member's contributions which were received by the Plan during the
Plan Year with respect to which the supplemental contribution
relates. If the Employer elects to make such a supplemental
contribution, it shall be made on or before the last day of the
second month in the Plan Year following the Plan Year described
in the preceding sentence on behalf of all those Members who were
employed with the Employer on the last working day of the Plan
Year with respect to which the supplemental contribution relates.
Formula (2) A uniform dollar amount per Member or a uniform percentage of
each Member's Salary for the Plan Year (or, at the election of
the Employer, the Employer's fiscal year) to which the
supplemental contribution relates. If the Employer elects to make
such a supplemental contribution, it shall be made on or before
the last day of the second month in the Plan Year (or the fiscal
year) following the Plan Year (or the fiscal year) described in
the preceding sentence on behalf of all those Members who were
employed with the Employer on the last working day of the Plan
Year (or the fiscal year) to which the supplemental contribution
relates. The percentage contributed under this Formula (2) shall
be limited in accordance with the Employer's matching formula and
basic contribution rate, if any, under this Article such that the
sum of the Employer's Formula (2) supplemental contribution plus
all other Employer contributions under this Article shall not
exceed 15% of Salary for such year.
Section 3.8 The Profit Sharing Feature
--------------------------
An Employer may, at its option, adopt the Profit Sharing Feature as described
herein, subject to any other provisions of the Plan, where applicable. This
Feature may be adopted either in lieu of, or in addition to, any other Plan
Feature contained in this Article III. The Profit Sharing Feature is designed
to provide the Employer a means by which to provide discretionary contributions
on behalf of Employees eligible under the Plan.
If this Profit Sharing Feature is adopted, the Employer may contribute on behalf
of each of its eligible Members, on an annual (or at the election of the
Employer, quarterly) basis for any Plan Year or fiscal year of the Employer (as
the Employer shall elect), a discretionary amount not to exceed the maximum
amount allowable as a deduction to the Employer under the provisions of Section
404 of the Code, and further subject to the provisions of Article X.
15
<PAGE>
Any such profit sharing contribution must be received by the Trustee on or
before the last business day of the second month following the close of the
Contribution Determination Period on behalf of all those Members who are
entitled to an allocation of such profit sharing contribution as set forth in
the Adoption Agreement. For purposes of making the allocations described in
this paragraph, a Member who is on a Type 1 non-military Leave of Absence (as
defined in Sections 1.2(U) and 10.8(B)(1)) or a Type 4 military Leave of Absence
(as defined in Sections 1.2(U) and 10.8(B)(4)) shall be treated as if he were a
Member who was an Employee in Employment on the last day of such Contribution
Determination Period.
Profit sharing contributions shall be allocated to each Member's Account for the
Contribution Determination Period at the election of the Employer, in accordance
with one of the following options:
Profit Sharing Formula 1 - In the same ratio as each Member's Salary during
such Contribution Determination Period bears to the
total of such Salary of all Members.
Profit Sharing Formula 2 - In the same ratio as each Member's Salary for the
portion of the Contribution Determination Period
during which the Member satisfied the Employer's
eligibility requirement(s) bears to the total of
such Salary of all Members.
The Employer may integrate the Profit Sharing Feature with Social Security in
accordance with the following provision. The annual (or quarterly, if
applicable) profit sharing contributions for any Contribution Determination
Period (which period shall include, for the purposes of the following maximum
integration levels provided hereunder where the Employer has elected quarterly
allocations of contributions, the four quarters of a Plan Year or fiscal year)
shall be allocated to each Member's Account at the election of the Employer, in
accordance with one of the following options:
16
<PAGE>
Profit Sharing Formula 3 - In a uniform percentage (as specified by the
Employer in the Adoption Agreement) of each Member's
Salary during the Contribution Determination Period
up to the Social Security Taxable Wage Base for such
Contribution Determination Period (the "Base
Contribution Percentage"), plus a uniform percentage
(as specified by the Employer in the Adoption
Agreement) of each Member's Salary for the
Contribution Determination Period in excess of the
Social Security Taxable Wage Base for such
Contribution Determination Period (the "Excess
Contribution Percentage").
Profit Sharing Formula 4 - In a uniform percentage (as specified by the
Employer in the Adoption Agreement) of each Member's
Salary for the portion of the Contribution
Determination Period during which the Member
satisfied the Employer's eligibility requirement(s),
if any, up to the Base Contribution Percentage for
such Contribution Determination Period, plus a
uniform percentage (as specified by the Employer in
the Adoption Agreement) of each Member's Salary for
the portion of the Contribution Determination Period
during which the Member satisfied the Employer's
eligibility requirement(s), equal to the Excess
Contribution Percentage.
The Excess Contribution Percentage described in Profit Sharing Formulas 3 and 4
above may not exceed the lesser of (i) the Base Contribution Percentage, or (ii)
the greater of (1) 5.7% or (2) the percentage equal to the portion of the Code
Section 3111(a) tax imposed on employers under the Federal Insurance
Contributions Act (as in effect as of the beginning of the Plan Year) which is
attributable to old-age insurance. For purposes of this Subparagraph,
"compensation" as defined in Section 414(s) of the Code shall be substituted for
"Salary" in determining the Excess Contribution Percentage and the Base
Contribution Percentage.
Notwithstanding the foregoing, the Employer may not adopt the Social Security
integration options provided above if any other integrated defined contribution
or defined benefit plan is maintained by the Employer during any Contribution
Determination Period.
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<PAGE>
Section 3.9 The 401(k) Feature
------------------
The Employer may, at its option, adopt the 401(k) Feature described hereunder
and in Section 3.2 above for the exclusive purpose of permitting its Members to
make 401(k) deferrals to the Plan.
The Employer may make, apart from any matching contributions it may elect to
make, Employer qualified nonelective contributions as defined in Section
1.401(k)-1(g)(13) of the Regulations. The amount of such contributions shall
not exceed 15% of the Salary of all Members eligible to share in the allocation
when combined with all Employer contributions (including 401(k) elective
deferrals) to the Plan for such Plan Year. Allocation of such contributions
shall be made, at the election of the Employer, to the accounts of (i) all
Members, or (ii) only Members who are not Highly Compensated Employees.
Allocation of such contributions shall be made, at the election of the Employer,
in the ratio (i) which each eligible Member's Salary for the Plan Year bears to
the total Salary of all eligible Members for such Plan Year, or (ii) which each
eligible Member's Salary not in excess of a fixed dollar amount specified by the
Employer for the Plan Year bears to the total Salary of all eligible Members
taking into account Salary for each such Member not in excess of the specified
dollar amount. Notwithstanding any provision of the Plan to the contrary, such
contributions shall be subject to the same vesting requirements and distribution
restrictions as Members' 401(k) deferrals and shall not be conditioned on any
election or contribution of the Member under the 401(k) feature. Any such
contributions must be made on or before the last day of the second month after
the Plan Year to which the contribution relates. Further, for purposes of the
actual deferral percentage or actual contribution percentage tests described
below, the Employer may apply (in accordance with applicable Regulations) all or
any portion of the Employer qualified nonelective contributions for the Plan
Year toward the satisfaction of the actual deferral percentage test. Any
remaining Employer qualified nonelective contributions not utilized to satisfy
the actual deferral percentage test may be applied (in accordance with
applicable Regulations) to satisfy the actual contribution percentage test.
Notwithstanding any other provision of this 401(k) Feature, the actual deferral
percentages for the Plan Year for Highly Compensated Employees shall not exceed
the greater of the following actual deferral percentages: (a) the actual
deferral percentage for such Plan Year of those Employees who are not Highly
Compensated Employees multiplied by 1.25; or (b) the actual deferral percentage
for the Plan Year of those Employees who are not Highly Compensated Employees
multiplied by 2.0, provided that the actual deferral percentage for the Highly
Compensated Employees does not exceed the actual deferral percentage for such
other Employees by more than 2 percentage points. This determination shall be
made in accordance
18
<PAGE>
with the procedure described in Section 3.10 below.
Section 3.10 Determining the Actual Deferral Percentages
-------------------------------------------
For purposes of this 401(k) Feature, the "actual deferral percentage" for a Plan
Year means, for each specified group of Employees, the average of the ratios
(calculated separately for each Employee in such group) of (a) the amount of
401(k) deferrals (including, as provided in Section 3.9, any Employer qualified
nonelective contributions) made to the Member's account for the Plan Year, to
(b) the amount of the Member's compensation (as defined in Section 414(s) of the
Code) for the Plan Year or, alternatively, where specifically elected by the
Employer, for only that part of the Plan Year during which the Member was
eligible to participate in the Plan. An Employee's actual deferral percentage
shall be zero if no 401(k) deferral (or, as provided in Section 3.9, Employer
qualified nonelective contribution) is made on his behalf for such Plan Year.
If the Plan and one or more other plans which include cash or deferred
arrangements are considered as one plan for purposes of Sections 401(a)(4) and
410(b) of the Code, the cash or deferred arrangements included in such plans
shall be treated as one arrangement for purposes of this 401(k) Feature.
For purposes of determining the actual deferral percentage of a Member who is a
Highly Compensated Employee subject to the family aggregation rules of Section
414(q)(6) of the Code because such Employee is either a five-percent owner or
one of the ten most Highly Compensated Employees as described in Section
414(q)(6) of the Code, the 401(k) deferrals, contributions and compensation (as
defined in Section 414(s) of the Code) of such Member shall include 401(k)
deferrals, contributions and compensation (as defined in Section 414(s) of the
Code) of "family members", within the meaning of Section 414(q)(6) of the Code,
and such "family members" shall not be considered as separate Employees in
determining actual deferral percentages.
The TPA shall determine as of the end of the Plan Year whether one of the actual
deferral percentage tests specified in Section 3.9 above is satisfied for such
Plan Year. This determination shall be made after first determining the
treatment of excess deferrals within the meaning of Section 402(g) of the Code
under Section 3.2 above. In the event that neither of such actual deferral
percentage tests is satisfied, the TPA shall, to the extent permissible under
the Code and the IRS Regulations, refund the excess contributions for the Plan
Year in the following order of priority: by (i) refunding such amounts deferred
by the Member which were not matched by his Employer (and any earnings and
losses allocable thereto), and (ii) refunding amounts deferred for such Plan
Year by the Member (and any earnings and losses allocable thereto), and, solely
to the extent permitted under the Code and applicable IRS
19
<PAGE>
Regulations, distributing to the Member amounts contributed for such Plan Year
by the Employer with respect to the Member's 401(k) deferrals that are returned
pursuant to this Paragraph (and any earnings and losses allocable thereto).
The distribution of such excess contributions shall be made to Highly
Compensated Members to the extent practicable before the 15th day of the third
month immediately following the Plan Year for which such excess contributions
were made, but in no event later than the end of the Plan Year following such
Plan Year or, in the case of the termination of the Plan in accordance with
Article XI, no later than the end of the twelve-month period immediately
following the date of such termination.
For purposes of this 401(k) Feature, "excess contributions" means, with respect
to any Plan Year, the excess of the aggregate amount of 401(k) deferrals (and
any earnings and losses allocable thereto) made to the accounts of Highly
Compensated Members for such Plan Year, over the maximum amount of such
deferrals that could be made by such Members without violating the requirements
described above, determined by reducing 401(k) deferrals made by or on behalf of
Highly Compensated Members in order of the actual deferral percentages beginning
with the highest of such percentages.
Section 3.11 Determining the Actual Contribution Percentages
-----------------------------------------------
Notwithstanding any other provision of this Section 3.11, the actual
contribution percentage for the Plan Year for Highly Compensated Employees shall
not exceed the greater of the following actual contribution percentages: (a)
the actual contribution percentage for such Plan Year of those Employees who are
not Highly Compensated Employees multiplied by 1.25, or (b) the actual
contribution percentage for the Plan Year of those Employees who are not Highly
Compensated Employees multiplied by 2.0, provided that the actual contribution
percentage for the Highly Compensated Employees does not exceed the actual
contribution percentage for such other Employees by more than 2 percentage
points. For purposes of this Article III, the "actual contribution percentage"
for a Plan Year means, for each specified group of Employees, the average of the
ratios (calculated separately for each Employee in such group) of (A) the sum of
(i) Member after-tax contributions credited to his Account for the Plan Year,
(ii) Employer matching contributions and/or supplemental contributions under
Formula 1 credited to his Account as described in this Article for the Plan
Year, and (iii) in accordance with and to the extent permitted by the IRS
Regulations, 401(k) deferrals (and, as provided in Section 3.9, any Employer
qualified nonelective contributions) credited to his Account, to (B) the amount
of the Member's compensation (as defined in Section 414(s) of the Code) for the
Plan Year or, alternatively, where specifically elected by the Employer, for
only that part of the Plan
20
<PAGE>
Year during which the Member was eligible to participate in the Plan. An
Employee's actual contribution percentage shall be zero if no such contributions
are made on his behalf for such Plan Year.
The actual contribution percentage taken into account for any Highly Compensated
Employee who is eligible to make Member contributions or receive Employer
matching contributions under two or more plans described in Section 401(a) of
the Code or arrangements described in Section 401(k) of the Code that are
maintained by the Employer shall be determined as if all such contributions were
made under a single plan. For purposes of determining the actual contribution
percentage of a Member who is a Highly Compensated Employee subject to the
family aggregation rules of Section 414(q)(6) of the Code because such Member is
either a five-percent owner or one of the ten most Highly Compensated Employees
as described in Section 414(q)(6) of the Code, the Employer matching
contributions and Member contributions and compensation (as defined in Section
414(s) of the Code) of such Member shall include the Employer matching and
Member contributions and compensation (as defined in Section 414(s) of the Code)
of "family members," within the meaning of Section 414(q)(6) of the Code, and
such "family members" shall not be considered as separate Employees in
determining actual contribution percentages.
The TPA shall determine as of the end of the Plan Year whether one of the actual
contribution percentage tests specified above is satisfied for such Plan Year.
This determination shall be made after first determining the treatment of excess
deferrals within the meaning of Section 402(g) of the Code under Section 3.2
above and then determining the treatment of excess contributions under Section
3.10 above. In the event that neither of the actual contribution percentage
tests is satisfied, the TPA shall refund the excess aggregate contributions in
the manner described below.
For purposes of this Article III, "excess aggregate contributions" means, with
respect to any Plan Year and with respect to any Member, the excess of the
aggregate amount of contributions (and any earnings and losses allocable
thereto) made as (i) Member after-tax contributions credited to his Account for
the Plan Year, (ii) Employer matching contributions and/or supplemental
contributions under Formula 1 credited to his Account as described in this
Article for the Plan Year, and (iii) in accordance with and to the extent
permitted by the IRS Regulations, 401(k) deferrals (and, as provided in Section
3.9, any Employer qualified nonelective contributions) credited to his Account
(if the Plan Administrator elects to take into account such deferrals and
contributions when calculating the actual contribution percentage) of Highly
Compensated Members for such Plan Year, over the maximum amount of such
contributions that could be made as Employer contributions, Member contributions
and 401(k)
21
<PAGE>
deferrals of such Members without violating the requirements of any Subparagraph
of this Section 3.11.
If the TPA is required to refund excess aggregate contributions for any Highly
Compensated Member for a Plan Year in order to satisfy the requirements of any
Subparagraph above, then the refund of such excess aggregate contributions shall
be made with respect to such Highly Compensated Members to the extent
practicable before the 15th day of the third month immediately following the
Plan Year for which such excess aggregate contributions were made, but in no
event later than the end of the Plan Year following such Plan Year or, in the
case of the termination of the Plan in accordance with Article XI, no later than
the end of the twelve-month period immediately following the date of such
termination.
For each such Member, the amounts so refunded shall be made in the following
order of priority: (i) to the extent that the amounts contributed by the Member
on an after-tax basis for such Plan Year exceed the highest rate of such
contributions with respect to which amounts were contributed by the Employer, by
refunding such amounts contributed by the Member which were not matched by his
Employer (and any earnings and losses allocable thereto) and (ii) by refunding
amounts contributed for such Plan Year by the Member which were matched by his
Employer (and any earnings and losses allocable thereto) and, solely to the
extent permitted under the Code and applicable IRS Regulations, distributing to
the Member amounts contributed for such Plan Year by the Employer with respect
to the amounts so returned (and any earnings and losses allocable thereto). All
such distributions shall be made to, or shall be with respect to, Highly
Compensated Members on the basis of the respective portions of such amounts
attributable to each such Highly Compensated Member.
Section 3.12 The Aggregate Limit Test
------------------------
Notwithstanding any other provision of the Plan, the sum of the actual deferral
percentage and the actual contribution percentage determined in accordance with
the procedures described above of those Employees who are Highly Compensated
Employees may not exceed the aggregate limit as determined below.
22
<PAGE>
For purposes of this Article III, the "aggregate limit" for a Plan Year is the
greater of:
(1) The sum of:
(a) 1.25 times the greater of the relevant actual deferral percentage
or the relevant actual contribution percentage, and
(b) Two percentage points plus the lesser of the relevant actual
deferral percentage or the relevant actual contribution
percentage. In no event, however, shall this amount exceed twice
the lesser of the relevant actual deferral percentage or the
relevant actual contribution percentage; or
(2) The sum of:
(a) 1.25 times the lesser of the relevant actual deferral percentage
or the relevant actual contribution percentage, and
(b) Two percentage points plus the greater of the relevant actual
deferral percentage or the relevant actual contribution
percentage. In no event, however, shall this amount exceed twice
the greater of the relevant actual deferral percentage or the
relevant actual contribution percentage; provided, however, that
if a less restrictive limitation is prescribed by the IRS, such
limitation shall be used in lieu of the foregoing. The relevant
actual deferral percentage and relevant actual contribution
percentage are defined in accordance with the Code and the IRS
Regulations.
The TPA shall determine as of the end of the Plan Year whether the aggregate
limit has been exceeded. This determination shall be made after first
determining the treatment of excess deferrals within the meaning of Section
402(g) of the Code under Section 3.2 above, then determining the treatment of
excess contributions under Section 3.10 above, and then determining the
treatment of excess aggregate contributions under this Article III. In the
event that the aggregate limit is exceeded, the actual contribution percentage
of those Employees who are Highly Compensated Employees shall be reduced in the
same manner as described in Section 3.11 of this Article until the aggregate
limit is no longer exceeded, unless the TPA designates, in lieu of the reduction
of the actual contribution percentage a reduction in the actual deferral
percentage of those Employees who are Highly Compensated Employees, which
reduction shall occur in the same manner as described in Section 3.10 of this
Article until the aggregate limit is no longer exceeded. Notwithstanding the
provisions of Sections 3.2 and 3.10 above, the amount of excess contributions to
be distributed, with respect to a Member for a Plan Year, shall be reduced by
any excess deferrals distributed to such Member for such
23
<PAGE>
Plan Year.
Section 3.13 Remittance of Contributions
---------------------------
The contributions of both the Employer and the Plan Members shall be recorded by
the Employer and remitted to the TPA for transmittal to the Trustee or custodian
or directly to the Trustee or custodian so that the Trustee or custodian shall
be in receipt thereof by the 15th day of the month next following the month in
respect of which such contributions are payable. Such amounts shall be used to
provide additional Units pursuant to Article V.
24
<PAGE>
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
Section 4.1 Investment by Trustee or Custodian
----------------------------------
All contributions to the Plan shall, upon receipt by the TPA, be delivered to
the Trustee or custodian to be held in the Trust Fund and invested and
distributed by the Trustee or custodian in accordance with the provisions of the
Plan and Trust Agreement. The Trust Fund shall consist of one or more of the
Investment Funds designated by the Employer in the Adoption Agreement.
With the exception of the Employer Stock Fund or, if applicable, the Employer
Certificate of Deposit Fund, the Trustee may in its discretion invest any
amounts held by it in any Investment Fund in any commingled or group trust fund
described in Section 401(a) of the Code and exempt under Section 501(a) of the
Code or in any common trust fund exempt under Section 584 of the Code, provided
that such trust fund satisfies any requirements of the Plan applicable to such
Investment Funds. To the extent that the Investment Funds are at any time
invested in any commingled, group or common trust fund, the declaration of trust
or other instrument pertaining to such fund and any amendments thereto are
hereby adopted as part of the Plan.
The Employer will designate in the Adoption Agreement which of the Investment
Funds described therein will be made available to Members and the terms and
conditions under which such Funds will operate with respect to employee
direction of allocations to and among such designated Funds and the types of
contributions and/or deferrals eligible for investment therein.
Section 4.2 Member Directed Investments
---------------------------
To the extent permitted by the Employer as set forth in the Adoption Agreement,
each Member shall direct in writing that his contributions and deferrals, if
any, and the contributions made by the Employer on his behalf shall be invested
(a) entirely in any one of the Investment Funds made available by the Employer,
or (b) among the available Investment Funds in any combination of multiples of
1%. If a Member has made any Rollover contributions in accordance with Article
III, Section 3.3, such Member may elect to apply separate investment directions
to such rollover amounts. Any such investment direction shall be followed by
the TPA until changed. Subject to the provisions of the following paragraphs of
this Section, as
25
<PAGE>
designated in the Adoption Agreement, a Member may change his investment
direction as to future contributions and also as to the value of his accumulated
Units in each of the available Investment Funds by filing written notice with
the TPA. Such directed change(s) will become effective upon the Valuation Date
coinciding with or next following the date which his notice was received by the
TPA or as soon as administratively practicable thereafter. If the Adoption
Agreement provides for Member directed investments, and if a Member does not
make a written designation of an Investment Fund or Funds, the Employer or its
designee shall direct the Trustee to invest all amounts held or received on
account of the such Member in the Investment Fund which in the opinion of the
Employer best protects principal.
Except as otherwise provided below, a Member may not direct a transfer from the
Stable Value Fund to the Government Money Market Fund. A Member may direct a
transfer from the 500 Stock Index Fund, the Midcap 400 Stock Index Fund, and/or
the Employer Stock Fund to the Government Money Market Fund provided that
amounts previously transferred from the Stable Value Fund to the 500 Stock Index
Fund, the Midcap 400 Stock Index Fund or the Employer Stock Fund remain in such
Funds for a period of three months prior to being transferred to the Government
Money Market Fund.
Section 4.3 Employer Securities
-------------------
If the Employer so elects in the Adoption Agreement, the Employer and/or Members
may direct that contributions will be invested in Qualifying Employer Securities
(within the meaning of Section 407(d)(5) of ERISA) through the Employer Stock
Fund.
26
<PAGE>
ARTICLE V
MEMBERS' ACCOUNTS, UNITS AND VALUATION
The TPA shall establish and maintain an Account for each Member showing his
interests in the available Investment Funds, as designated by the Employer in
the Adoption Agreement. The interest in each Investment Fund shall be
represented by Units.
As of each Valuation Date, the value of a Unit in each Investment Fund shall be
determined by dividing (a) the sum of the net assets at market value determined
by the Trustee by (b) the total number of outstanding Units.
The number of additional Units to be credited to a Member's interest in each
available Investment Fund, as of any Valuation Date, shall be determined by
dividing (a) that portion of the aggregate contributions and/or deferrals by and
on behalf of the Member which was directed to be invested in such Investment
Fund and received by the Trustee by (b) the Unit value of such Investment Fund.
The value of a Member's Account may be determined as of any Valuation Date by
multiplying the number of Units to his credit in each available Investment Fund
by that Investment Fund's Unit Value on such date and aggregating the results.
27
<PAGE>
ARTICLE VI
VESTING OF UNITS
Section 6.1 Vesting of Member Contributions and/or Deferrals
------------------------------------------------
All Units credited to a Member's Account based on after-tax contributions and/or
401(k) deferrals made by the Member and any earnings related thereto (including
any rollover contributions allocated to a Member's Account under the Plan and
any earnings thereon) and, as provided in Section 3.9, Employer qualified
nonelective contributions made on behalf of such Member shall be immediately and
fully vested in him at all times.
Section 6.2 Vesting of Employer Contributions
---------------------------------
The Employer may, at its option, elect one of the available vesting schedules
described herein for each of the employer contribution types applicable to the
Plan as designated in the Adoption Agreement.
Schedule 1: All applicable Units shall immediately and fully vest. If the
eligibility requirement(s) selected by the Employer under Article
II require(s) that an Employee complete a period of Employment
which is longer than 12 consecutive months, this vesting Schedule 1
shall be automatically applicable.
Schedule 2: All applicable Units shall become nonforfeitable and fully vested
in accordance with the schedule set forth below:
Completed Vested
Years of Employment Percentage
------------------- ----------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
Schedule 3: All applicable Units shall become nonforfeitable and fully vested
in accordance with the schedule set forth below:
28
<PAGE>
Completed Vested
Years of Employment Percentage
------------------- ----------
Less than 5 0%
5 or more 100%
Schedule 4: All applicable Units shall become nonforfeitable and fully vested
in accordance with the schedule set forth below:
Completed Vested
Years of Employment Percentage
------------------- ----------
Less than 3 0%
3 or more 100%
Schedule 5: All applicable Units shall become nonforfeitable and fully vested
in accordance with the schedule set forth below:
Completed Vested
Years of Employment Percentage
------------------- ----------
Less than 1 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 or more 100%
Schedule 6: All applicable Units shall become nonforfeitable and fully vested
in accordance with the schedule set forth below:
Completed Vested
Years of Employment Percentage
------------------- ----------
Less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
Schedule 7: All applicable Units shall become nonforfeitable and fully vested
in accordance with the schedule set forth in the Adoption Agreement
created by the Employer in accordance with applicable law.
Notwithstanding the vesting schedules above, a Member's interest in his Account
shall become
29
<PAGE>
100% vested in the event that (i) the Member dies while in active Employment and
the TPA has received notification of death, (ii) the Member has been approved
for Disability, pursuant to the provisions of Article VII, and the TPA has
received notification of Disability, or (iii) the Member has attained Normal
Retirement Age.
Except as otherwise provided hereunder, in the event that the Employer adopts
the Plan as a successor plan to another defined contribution plan qualified
under Sections 401(a) and 501(a) of the Code, or in the event that the Employer
changes or amends a vesting schedule adopted under this Article, any Member who
was covered under such predecessor plan or, in the case of a change or amendment
to the vesting schedule, any Member who has completed at least 3 Years of
Employment with the Employer may elect to have the nonforfeitable percentage of
the portion of his Account which is subject to such vesting schedule computed
under such predecessor plan's vesting provisions, or computed without regard to
such change or amendment (a "Vesting Election"). Any Vesting Election made
under this Subparagraph shall be made by notifying the TPA in writing within the
election period hereinafter described. The election period shall begin on the
date such amendment is adopted or the date such change is effective, or the date
the Plan which serves as a successor plan is adopted or effective, as the case
may be, and shall end no earlier than the latest of the following dates: (i)
the date which is 60 days after the day such amendment is adopted; (ii) the date
which is 60 days after the day such amendment or change becomes effective; (iii)
the date which is 60 days after the day the Member is given written notice of
such amendment or change by the TPA; (iv) the date which is 60 days after the
day the Plan is adopted by the Employer or becomes effective; or (v) the date
which is 60 days after the day the Member is given written notice that the Plan
has been designated as a successor plan. Any election made pursuant to this
Subparagraph shall be irrevocable.
To the extent permitted under the Code and Regulations, the Employer may, at its
option, elect to treat all Members who are eligible to make a Vesting Election
as having made such Vesting Election. Furthermore, subject to the requirements
of the applicable Regulations, the Employer may elect to treat all Members, who
were employed by the Employer on or before the effective date of the change or
amendment, as subject to the prior vesting schedule, provided such prior
schedule is more favorable.
Section 6.3 Forfeitures
-----------
If a Member who was partially vested in his Account on the date of his
termination of
30
<PAGE>
Employment returns to Employment, his Years of Employment prior to the Break(s)
in Service shall be included in determining future vesting and, if he returns
before incurring 5 consecutive one year Breaks in Service, any Units forfeited
from his Account shall be restored to his Account, including all interest
accrued during the intervening period; provided, however, that if such a Member
has received a distribution pursuant to Article VII, his Account Units shall not
be restored unless he repays the full amount distributed to him to the Plan
before the earlier of (i) 5 years after the first date on which the Member is
subsequently reemployed by the Employer, or (ii) the close of the first period
of 5 consecutive one-year Breaks in Service commencing after the withdrawal.
The Units restored to the Member's Account will be valued on the Valuation Date
coinciding with or next following the later of (i) the date the Employee is
rehired, or (ii) the date a new enrollment application is received by the TPA.
If a Member terminates Employment without any vested interest in his Account, he
shall (i) immediately be deemed to have received a total distribution of his
Account and (ii) thereupon forfeit his entire Account; provided that if such
Member returns to Employment before the number of consecutive one-year Breaks in
Service equals or exceeds the greater of (i) 5, or (ii) the aggregate number of
the Member's Years of Service prior to such Break in Service, his Account shall
be restored in the same manner as if such Member had been partially vested at
the time of his termination of Employment, and his Years of Employment prior to
incurring the first Break in Service shall be included in any subsequent
determination of his vesting service.
Forfeited amounts, as defined in the preceding paragraph, shall be made
available to the Employer, through transfer from the Member's Account to the
Employer Credit Account, upon: (1) if the Member had a vested interest in his
Account at his termination of Employment, the earlier of (i) the date as of
which the Member receives a distribution of his entire vested interest in his
Account or (ii) the date upon which the Member incurs 5 consecutive one-year
Breaks in Service, or (2) the date of the Member's termination of Employment, if
the Member then has no vested interest in his Account. Once so transferred,
such amounts shall be used at the option of the Employer to (i) reduce
administrative expenses for that Contribution Determination Period, (ii) offset
any contributions to be made by the Employer for that Contribution Determination
Period or (iii) be allocated to all eligible Members deemed to be employed as of
the last day of the Contribution Determination Period. The Employer Credit
Account, referenced in this Subparagraph, shall be maintained to receive, in
addition to the forfeitures described above, (i) contributions in excess of the
limitations contained in Section 415 of the Code and (ii) Employer contributions
made in advance of the date allocable to Members, if any.
31
<PAGE>
ARTICLE VII
WITHDRAWALS AND DISTRIBUTIONS
Section 7.1 General Provisions
------------------
The Employer will define in the Adoption Agreement the terms and conditions
under which withdrawals and distributions will be permitted under the Plan. All
payments in respect of a Member's Account shall be made in cash from the Trust
Fund and in accordance with the provisions of this Article or Article XI. The
amount of payment will be determined in accordance with the Unit values on the
Valuation Date coinciding with or next following the date proper notice is filed
with the TPA, unless following such Valuation Date a decrease in the Unit values
of the Member's investment in any of the available Investment Funds occurs prior
to the date such Units of the Member are redeemed in which case that part of the
payment which must be provided through the sale of existing Units shall equal
the value of such Units determined on the date of redemption which date shall
occur as soon as administratively practicable on or following the Valuation Date
such proper notice is filed with the TPA. The redemption date Unit value with
respect to a Member's investment in any of the available Investment Funds shall
equal the value of a Unit in such Investment Fund, as determined in accordance
with the valuation method applicable to Unit investments in such Investment Fund
on the date the Member's investment is redeemed.
Except where otherwise specified, payments provided under this Article will be
made in a lump sum as soon as practicable after such Valuation Date or date of
redemption, as may be applicable, subject to any applicable restriction on
redemption imposed on amounts invested in any of the available Investment Funds.
Any partial withdrawal shall be deemed to come:
. First from the Member's after-tax contributions made prior to January 1,
1987.
. Next from the Member's after-tax contributions made after December 31, 1986
plus earnings on all of the Member's after-tax contributions.
. Next from the Member's rollover contributions plus earnings thereon.
. Next from the Employer matching contributions plus earnings thereon.
. Next from the Employer supplemental contributions plus earnings thereon.
. Next from the Employer basic contributions plus earnings thereon.
32
<PAGE>
. Next from the Member's 401(k) deferrals plus earnings thereon.
. Next from the Employer qualified nonelective contributions plus earnings
thereon.
. Next from the Employer profit sharing contributions plus earnings thereon.
Section 7.2 Withdrawals While Employed
--------------------------
The Employer may, at its option, permit Members to make withdrawals from one or
more of the portions of their Accounts while employed by the Employer, as
designated in the Adoption Agreement, under the terms and provisions described
herein.
Voluntary Withdrawals - To the extent permitted by the Employer as specified in
the Adoption Agreement, a Member may voluntarily withdraw some or all of his
Account (other than his 401(k) deferrals and Employer qualified nonelective
contributions treated as 401(k) deferrals except as hereinafter permitted) while
in Employment by filing a notice of withdrawal with the TPA; provided, however,
that in the event his Employer has elected to provide annuity options under
Section 7.3, no withdrawals may be made from a married Member's Account without
the written consent of such Member's Spouse (which consent shall be subject to
the procedures set forth in Section 7.3). Only one in-service withdrawal may be
made in any Plan Year from each of the rollover amount of the Member's Account
and the remainder of the Member's Account. This restriction shall not, however,
apply to a withdrawal under this Section in conjunction with a hardship
withdrawal.
Notwithstanding the foregoing paragraph, a Member may not withdraw any matching,
basic, supplemental, profit sharing or qualified nonelective contributions made
by the Employer under Article III unless (i) the Member has completed 60 months
of participation in the Plan; (ii) the withdrawal occurs at least 24 months
after such contributions were made by the Employer; (iii) the Employer
terminates the Plan without establishing a qualified successor plan; or (iv) the
Member dies, is disabled, retires, attains age 59 1/2 or terminates Employment.
For purposes of the preceding requirements, if the Member's Account includes
amounts which have been transferred from a defined contribution plan established
prior to the adoption of the Plan by the Employer, the period of time during
which amounts were held on behalf of such Member and the periods of
participation of such Member under such defined contribution plan shall be taken
into account.
33
<PAGE>
Hardship Withdrawals - If designated by the Employer in the Adoption Agreement,
a Member may make a withdrawal of his 401(k) deferrals, Employer qualified
nonelective contributions which are treated as elective deferrals, and any
earnings credited thereto prior to January 1, 1989, prior to attaining age 592,
provided that the withdrawal is solely on account of an immediate and heavy
financial need and is necessary to satisfy such financial need. For the
purposes of this Article, the term "immediate and heavy financial need" shall be
limited to the need of funds for (i) the payment of medical expenses (described
in Section 213(d) of the Code) incurred by the Member, the Member's Spouse, or
any of the Member's dependents (as defined in Section 152 of the Code), (ii) the
payment of tuition and room and board for the next 12 months of post-secondary
education of the Member, the Member's Spouse, the Member's children, or any of
the Member's dependents (as defined in Section 152 of the Code), (iii) the
purchase (excluding mortgage payments) of a principal residence for the Member,
or (iv) the prevention of eviction of the Member from his principal residence or
the prevention of foreclosure on the mortgage of the Member's principal
residence. For purposes of this Article, a distribution generally may be
treated as "necessary to satisfy a financial need" if the Plan Administrator
reasonably relies upon the Member's written representation that the need cannot
be relieved (i) through reimbursement or compensation by insurance or otherwise,
(ii) by reasonable liquidation of the Member's available assets, to the extent
such liquidation would not itself cause an immediate and heavy financial need,
(iii) by cessation of Member contributions and/or deferrals pursuant to Article
III of the Plan, to the extent such contributions and/or deferrals are permitted
by the Employer, or (iv) by other distributions or nontaxable (at the time of
the loan) loans from plans maintained by the Employer or by any other employer,
or by borrowing from commercial sources on reasonable commercial terms. The
amount of any withdrawal pursuant to this Article shall not exceed the amount
required to meet the demonstrated financial hardship, including any amounts
necessary to pay any federal income taxes and penalties reasonably anticipated
to result from the distribution as certified to the Plan Administrator by the
Member.
Notwithstanding the foregoing, no amounts may be withdrawn on account of
hardship pursuant to this Article prior to a Member's withdrawal of his other
available Plan assets without regard to any other withdrawal restrictions
adopted by the Employer.
Section 7.3 Distributions Upon Termination of Employment
--------------------------------------------
In accordance with the provisions for distributions designated by the Employer
in the Adoption Agreement, a Member who terminates Employment with the Employer
may request a distribution of his Account at any time thereafter up to
attainment of age 70 1/2. Except as otherwise provided, only one distribution
under this Section 7.3 may be made in any Plan Year
34
<PAGE>
and any amounts paid under this Article may not be returned to the Plan.
Any distribution made under this Section 7.3 requires that a Request for
Distribution be filed with the TPA. If a Member does not file such a Request,
the value of his Account will be paid to him as soon as practicable after his
attainment of age 70 1/2, but in no event shall payment commence later than
April 1 of the calendar year following the calendar year in which the Member
attains age 70 1/2 unless otherwise provided by law.
Lump Sum Payments - A Member may request a distribution of all or a part of his
Account no more frequently than once per calendar year by filing the proper
Request for Distribution with the TPA. In the event the Employer has elected to
provide an annuity option under the Plan, no distributions may be made from a
married Member's Account without the written consent of such married Member's
spouse (which consent shall be subject to the procedures set forth below).
Installment Payments - To the extent designated by the Employer in the Adoption
Agreement and in lieu of any lump sum payment of his total Account, a Member who
has terminated his Employment may elect in his Request for Distribution to be
paid in up to 20 annual installments, provided that a Member shall not be
permitted to elect an installment period in excess of his remaining life
expectancy and if a Member attempts such an election, the TPA shall deem him to
have elected the installment period with the next lowest multiple within the
Member's remaining life expectancy. The amount of each installment will be
equal to the value of the total Units in the Member's Account, multiplied by a
fraction, the numerator of which is one and the denominator of which is the
number of remaining annual installments including the one then being paid, so
that at the end of the installment period so elected, the total Account will be
liquidated. The value of the Units will be determined in accordance with the
Unit values on the Valuation Date on or next following the TPA's receipt of his
Request for Distribution and on each anniversary thereafter subject to
applicable Regulations under Code Section 401(a)(9). Payment will be made as
soon as practicable after each such Valuation Date, but in no event shall
payment commence later than April 1 of the calendar year following the calendar
year in which the Member attains age 70 1/2 subject to the procedure for making
such distributions described below. The election of installments hereunder may
not be subsequently changed by the Member, except that upon written notice to
the TPA, the Member may withdraw the balance of the Units in his Account in a
lump sum at any time, notwithstanding the fact that the Member previously
received a distribution in the same calendar year.
Annuity Payments - The Employer may, at its option, elect to provide an annuity
option under the Plan. To the extent so designated by the Employer in the
Adoption Agreement and in lieu of any lump sum payment of his total Account, a
Member who has terminated his Employment
35
<PAGE>
may elect in his Request for Distribution to have the value of his total Account
be paid as an annuity secured for the Member by the Plan Administrator through a
Group Annuity Contract adopted by the Plan. In the event the Employer elects to
provide the annuity option, the following provisions shall apply:
Unmarried Members - Any unmarried Member who has terminated his Employment may
elect, in lieu of any other available payment option, to receive a benefit
payable by purchase of a single premium contract providing for (i) a single life
annuity for the life of the Member or (ii) an annuity for the life of the Member
and, if the Member dies leaving a designated Beneficiary, a 50% survivor annuity
for the life of such designated Beneficiary.
Married Members - Except as otherwise provided below, (i) any married Member who
has terminated his Employment shall receive a benefit payable by purchase of a
single premium contract providing for a Qualified Joint and Survivor Annuity, as
defined below, and (ii) the Surviving Spouse of any married Member who dies
prior to the date payment of his benefit commences shall be entitled to a
Preretirement Survivor Annuity, as defined below. Notwithstanding the
foregoing, any such married Member may elect to receive his benefit in any other
available form, and may waive the Preretirement Survivor Annuity, in accordance
with the spousal consent requirements described herein.
For purposes of this Section 7.3, the term "Qualified Joint and Survivor
Annuity" means a benefit providing an annuity for the life of the Member, ending
with the payment due on the last day of the month coinciding with or preceding
the date of his death, and, if the Member dies leaving a Surviving Spouse, a
survivor annuity for the life of such Surviving Spouse equal to one-half of the
annuity payable for the life of the Member under his Qualified Joint and
Survivor Annuity, commencing on the last day of the month following the date of
the Member's death and ending with the payment due on the first day of the month
coinciding with or preceding the date of such Surviving Spouse's death.
For purposes of this Section 7.3, the term "Preretirement Survivor Annuity"
means a benefit providing for payment of 50% of the Member's Account balance as
of the Valuation Date coinciding with or preceding the date of his death.
Payment of a Preretirement Survivor Annuity shall commence in the month
following the month in which the Member dies or as soon as practicable
thereafter; provided, however, that to the extent required by law, if the value
of the amount used to purchase a Preretirement Survivor Annuity exceeds $3,500,
then payment of the Preretirement Survivor Annuity shall not commence prior to
the date the Member reached (or would have reached, had he lived) Normal
Retirement Age without the written consent of the Member's Surviving Spouse.
Absence of any required consent will
36
<PAGE>
result in a deferral of payment of the Preretirement Survivor Annuity to the
month following the month in which occurs the earlier of (i) the date the
required consent is received by the TPA or (ii) the date the Member would have
reached Normal Retirement Age had he lived.
The TPA shall furnish or cause to be furnished, to each married Member with an
Account subject to this Section 7.3, explanations of the Qualified Joint and
Survivor Annuity and Preretirement Survivor Annuity. A Member may, with the
written consent of his Spouse (unless the TPA makes a written determination in
accordance with the Code and the Regulations that no such consent is required),
elect in writing (i) to receive his benefit in a single lump sum payment within
the 90-day period ending on the date payment of his benefit commences; and (ii)
to waive the Preretirement Survivor Annuity within the period beginning on the
first day of the Plan Year in which the Member attains age 35 and ending on the
date of his death. Any election made pursuant to this Subparagraph may be
revoked by a Member, without spousal consent, at any time within which such
election could have been made. Such an election or revocation must be made in
accordance with procedures developed by the TPA and shall be notarized.
Notwithstanding the preceding provisions of this Section 7.3, any benefit of
$3,500, subject to the limits of Article X, or less, shall be paid in cash in a
lump sum in full settlement of the Plan's liability therefor; provided, however,
that in the case of a married Member, no such lump sum payment shall be made
after benefits have commenced without the consent of the Member and his Spouse
or, if the Member has died, the Member's Surviving Spouse. Furthermore, if the
value of the benefit payable to a Member or his Surviving Spouse is greater than
$3,500 and the Member has or had not reached his Normal Retirement Age, then to
the extent required by law, unless the Member (and, if the Member is married and
his benefit is to be paid in a form other than a Qualified Joint and Survivor
Annuity, his Spouse, or, if the Member was married, his Surviving Spouse)
consents in writing to an immediate distribution of such benefit, his benefit
shall continue to be held in the Trust until a date following the earlier of (i)
the date of the TPA's receipt of all required consents or (ii) the date the
Member reaches his earliest possible Normal Retirement Age under the Plan (or
would have reached such date had he lived), and thereafter shall be paid in
accordance with this Section 7.3.
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<PAGE>
Solely to the extent required under applicable law and regulations, and
notwithstanding any provisions of the Plan to the contrary that would otherwise
limit a Distributee's election under this Subparagraph, a Distributee may elect,
at the time and in the manner prescribed by the TPA, to have any portion of an
Eligible Rollover Distribution paid directly to an Eligible Retirement Plan
specified by the Distributee in a Direct Rollover. For purposes of this
Subparagraph, the following terms shall have the following meanings:
Eligible Rollover Distribution - Any distribution of all or any portion of the
balance to the credit of the Distributee, except that an Eligible Rollover
Distribution does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the Distributee or the joint lives (or
joint life expectancies) of the Distributee and the Distributee's designated
beneficiary, or for a specified period of ten years or more; any distribution
to the extent such distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not includable in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
Eligible Retirement Plan - An individual retirement account described in
Section 408(a) of the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in Section 403(a) of the
Code, or a qualified trust described in Section 401(a) of the Code, that
accepts the Distributee's Eligible Rollover Distribution. However, in the
case of an Eligible Rollover Distribution to a Surviving Spouse, an Eligible
Retirement Plan is an individual retirement account or an individual
retirement annuity.
Distributee - A Distributee may be (i) an Employee, (ii) a former Employee,
(iii) an Employee's Surviving Spouse, (iv) a former Employee's Surviving
Spouse, (v) an Employee's Spouse or former Spouse who is an alternate payee
under a qualified domestic relations order, as defined in Section 414(p) of
the Code, or (vi) a former Employee's Spouse or former Spouse who is an
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, with respect to the interest of the Spouse or
former Spouse.
Direct Rollover - A payment by the Plan to the Eligible Retirement Plan
specified by the Distributee.
Section 7.4 Distributions Due to Disability
-------------------------------
A Member who is separated from Employment by reason of a disability which is
expected to last in excess of 12 consecutive months and who is either (i)
eligible for, or is receiving, disability insurance benefits under the Federal
Social Security Act or (ii) approved for disability
38
<PAGE>
under the provisions of any other benefit program or policy maintained by the
Employer, which policy or program is applied on a uniform and nondiscriminatory
basis to all Employees of the Employer, shall be deemed to be disabled for all
purposes under the Plan.
The Plan Administrator shall determine whether a Member is disabled in
accordance with the terms of the immediately preceding paragraph; provided,
however, approval of Disability is conditioned upon notice to the Plan
Administrator of such Member's Disability within 13 months of the Member's
separation from Employment. The notice of Disability shall include a
certification that the Member meets one or more of the criteria listed above.
Upon determination of Disability, a Member may withdraw his total Account
balance under the Plan and have such amounts paid to him in accordance with the
applicable provisions of this Article VII, as designated by the Employer. If a
disabled Member becomes reemployed subsequent to withdrawal of some or all of
his Account balance, such Member may not repay to the Plan any such withdrawn
amounts.
Section 7.5 Distributions Due to Death
--------------------------
Subject to the provisions of Section 7.3 above, if a married Member dies, his
Spouse, as Beneficiary, will receive a death benefit equal to the value of the
Member's Account determined on the Valuation Date on or next following the TPA's
receipt of notice that such Member died; provided, however, that if such
Member's Spouse had consented in writing to the designation of a different
Beneficiary, the Member's Account will be paid to such designated Beneficiary.
Such nonspousal designation may be revoked by the Member without spousal consent
at any time prior to the Member's death. If a Member is not married at the time
of his death, his Account will be paid to his designated Beneficiary.
A Member may elect that upon his death, his Beneficiary, pursuant to this
Section 7.5, may receive, in lieu of any lump sum payment, payment in 5 annual
installments (10 if the Spouse is the Beneficiary, provided that the Spouse's
remaining life expectancy is at least 10 years) whereby the value of 1/5th of
such Member's Units (or 1/10th in the case of a spousal Beneficiary, provided
that the Spouse's remaining life expectancy is at least 10 years) in each
available Investment Fund will be determined in accordance with the Unit values
on the Valuation Date on or next following the TPA's receipt of notice of the
Member's death and on each anniversary of such Valuation Date. Payment will be
made as soon as practicable after each Valuation Date until the Member's Account
is exhausted. Such election may be filed at any time with the Plan
Administrator prior to the Member's death and may not be changed or revoked
after such Member's death. If such an election is not in effect at the time of
the Member's death, his Beneficiary (including any spousal Beneficiary) may
elect to receive
39
<PAGE>
distributions in accordance with this Article, except that any balance remaining
in the deceased Member's Account must be distributed on or before the December
31 of the calendar year which contains the 5th anniversary (the 10th anniversary
in the case of a spousal Beneficiary, provided that the Spouse's remaining life
expectancy is at least 10 years) of the Member's death. Notwithstanding the
foregoing, payment of a Member's Account shall commence not later than the
December 31 of the calendar year immediately following the calendar year in
which the Member died or, in the event such Beneficiary is the Member's
Surviving Spouse, on or before the December 31 of the calendar year in which
such Member would have attained age 70 1/2, if later (or, in either case, on any
later date prescribed by the IRS Regulations). If, upon the Spouse's or
Beneficiary's death, there is still a balance in the Account, the value of the
remaining Units will be paid in a lump sum to such Spouse's or Beneficiary's
estate.
Section 7.6 Minimum Required Distributions
------------------------------
In no event may payment of a Member's Account begin later than April 1 of the
year following the calendar year in which a Member attains age 70 1/2; provided,
however, if a Member attained age 70 1/2 prior to January 1, 1988, except as
otherwise provided below, any benefit payable to such Member shall commence no
later than the April 1 of the calendar year following the later of (i) the
calendar year in which the Member attains age 70 1/2 or (ii) the calendar year
in which the Member retires. Such benefit shall be paid, in accordance with the
Regulations, over a period not extending beyond the life expectancy of such
Member. Life expectancy for purposes of this Section shall not be recalculated
annualy in accordance with the Regulations.
If a Member who is a 5% owner attained age 70 1/2 before January 1, 1988, any
benefit payable to such Member shall commence no later than the April 1 of the
calendar year following the later of (i) the calendar year in which the Member
attains age 70 1/2 or (ii) the earlier of (a) the calendar year within which the
Member becomes a 5% owner or (b) the calendar year in which the Member retires.
For purposes of the preceding sentence, 5% owner shall mean a 5% owner of such
Member's Employer as defined in Section 416(i) of the Code at any time during
the Plan Year in which such owner attains age 66 1/2 or any subsequent Plan
Year. Distributions must continue to such Member even if such Member ceases to
own more than 5% of the Employer in a subsequent year.
ARTICLE VIII
LOAN PROGRAM
Section 8.1 General Provisions
------------------
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<PAGE>
An Employer may, at its option, make available the loan program described herein
for any Member (and, if applicable under Section 8.8 of this Article, any
Beneficiary), subject to applicable law. The Employer shall so designate its
adoption of the loan program and the terms and provisions of its operation in
the Adoption Agreement. In the event that the Employer has elected to provide
an annuity option under Article VII or amounts are transferred to the Plan from
a retirement plan subject to Section 401(a)(11) of the Code, no loans may be
made from a married Member's Account without the written consent of such
Member's Spouse (in accordance with the spousal consent rules set forth under
Section 7.3). In the event the Employer elects to permit loans to be made from
rollover contributions and earnings thereon, as designated in the Adoption
Agreement, loans shall be available from the Accounts of any Employees of the
Employer who have not yet become Members. Only one loan may be made to a Member
in the Plan Year.
Section 8.2 Loan Application
----------------
Subject to the restrictions described in the paragraph immediately following, a
Member in Employment may borrow from his Account in each of the available
Investment Funds by filing a loan application with the TPA. Such application
(hereinafter referred to as a "completed application") shall (i) specify the
terms pursuant to which the loan is requested to be made and (ii) provide such
information and documentation as the TPA shall require, including a note, duly
executed by the Member, granting a security interest of an amount not greater
than 50% of his vested Account, to secure the loan. With respect to such
Member, the completed application shall authorize the repayment of the loan
through payroll deductions. Such loan will become effective upon the Valuation
Date coinciding with or next following the date on which his completed
application and other required documents were submitted, subject to the same
conditions with respect to the amount to be transferred under this Section which
are specified in the Plan procedures for determining the amount of payments made
under Article VII of the Plan.
The Employer shall establish standards in accordance with the Code and ERISA
which shall be uniformly applicable to all Members eligible to borrow from their
interests in the Trust Fund similarly situated and shall govern the TPA's
approval or disapproval of completed applications. The terms for each loan
shall be set solely in accordance with such standards.
The TPA shall, in accordance with the established standards, review and approve
or disapprove a completed application as soon as practicable after its receipt
thereof, and shall promptly notify the applying Member of such approval or
disapproval. Notwithstanding the foregoing, the TPA may defer its review of a
completed application, or defer payment of the proceeds of
41
<PAGE>
an approved loan, if the proceeds of the loan would otherwise be paid during the
period commencing on December 1 and ending on the following January 31.
Subject to the preceding paragraph and Section 8.6, upon approval of a completed
application, the TPA shall cause payment of the loan to be made from the
available Investment Fund(s) in the same proportion that the designated portion
of the Member's Account is invested at the time of the loan, and the relevant
portion of the Member's interest in such Investment Fund(s) shall be cancelled
and shall be transferred in cash to the Member. The TPA shall maintain
sufficient records regarding such amounts to permit an accurate crediting of
repayments of the loan.
Section 8.3 Permitted Loan Amount
---------------------
The amount of each loan may not be less than $1,000 nor more than the maximum
amount as described below. The maximum amount available for loan under the Plan
(when added to the outstanding balance of all other loans from the Plan to the
borrowing Member) shall not exceed the lesser of: (a) $50,000 reduced by the
excess (if any) of (i) the highest outstanding loan balance attributable to the
Account of the Member requesting the loan from the Plan during the one-year
period ending on the day preceding the date of the loan, over (ii) the
outstanding balance of all other loans from the Plan to the Member on the date
of the loan, or (b) 50% of the value of the Member's vested portion of his
Account available for borrowing as of the Valuation Date on or next following
the date on which the TPA receives the completed application for the loan and
all other required documents. The maximum amount available for a loan for
purposes of item (b) of the preceding sentence shall be determined by valuing
the Member's interest in that portion of his Account from which the loan will be
deducted as of the applicable Valuation Date. In determining the maximum amount
that a Member may borrow, all vested assets of his Account, regardless of
whether any particular portion of his Account is actually available for the
loan, will be taken into consideration, provided that, where the Employer has
not elected to make a Member's entire Account available for loans, in no event
shall the amount of the loan exceed the value of such portion of the Member's
Account from which loans are permissible.
Section 8.4 Source of Funds for Loan
------------------------
The amount of the loan will be deducted from the Member's Account in the
available Investment Funds in accordance with Section 8.2 of this Article and
the Plan procedures for determining the amount of payments made under Article
VII. Loans shall be deemed to come (to the extent the Employer permits Members
to take loans from one or more of the portions of their Accounts, as designated
in the Adoption Agreement):
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<PAGE>
. First from the Employer profit sharing contributions plus earnings thereon.
. Next from the Employer qualified nonelective contributions plus earnings
thereon.
. Next from the Member's 401(k) deferrals plus earnings thereon.
. Next from the Employer basic contributions plus earnings thereon.
. Next from the Employer supplemental contributions plus earnings thereon.
. Next from the Employer matching contributions plus earnings thereon.
. Next from the Member's rollover contributions plus earnings thereon.
. Next from the Member's after-tax contributions made after December 31,1986
plus earnings on all of the Member's after-tax contributions.
. Next from the Member's after-tax contributions made prior to January 1,1987.
Section 8.5 Conditions of Loan
------------------
Each loan to a Member under the Plan shall be repaid in level monthly amounts
through regular payroll deductions after the effective date of the loan, and
continuing thereafter with each payroll. Except as otherwise required by the
Code and the IRS Regulations, each loan shall have a repayment period of not
less than 12 months and not in excess of 60 months, unless the purpose of the
loan is for the purchase of a primary residence, in which case the loan may be
for not more than 180 months.
The rate of interest for the term of the loan will be established as of the loan
date, and will be the Barron's Prime Rate (base rate) plus 1% as published on
the last Saturday of the preceding month, or such other rate as may be required
by applicable law and determined by reference to the prevailing interest rate
charged by commercial lenders under similar circumstances. The applicable rate
would then be in effect through the last business day of the month.
Repayment of all loans under the Plan shall be secured by 50% of the Member's
vested interest in his Account, determined as of the origination of such loan.
Section 8.6 Crediting of Repayment
----------------------
Upon lending any amount to a Member, the TPA shall establish and maintain a loan
receivable
43
<PAGE>
account with respect to, and for the term of, the loan. The allocations
described in this Section shall be made from the loan receivable account. Upon
receipt of each monthly installment payment and the crediting thereof to the
Member's loan receivable account, there shall be allocated to the Member's
Account in the available Investment Funds, in accordance with his most recent
investment instructions, the principal portion of the installment payment plus
that portion of the interest equal to the rate determined in Section 8.5 of this
Article, less 2%. The unpaid balance owed by a Member on a loan under the Plan
shall not reduce the amount credited to his Account. However, from the time of
payment of the proceeds of the loan to the Member, such Account shall be deemed
invested, to the extent of such unpaid balance, in such loan until the complete
repayment thereof or distribution from such Account. Any loan repayment shall
first be deemed allocable to the portions of the Member's Account on the basis
of a reverse ordering of the manner in which the loan was originally distributed
to the Member.
Section 8.7 Cessation of Payments on Loan
-----------------------------
If a Member, while employed, fails to make a monthly installment payment when
due, as specified in the completed application, subject to applicable law, he
will be deemed to have received a distribution of the outstanding balance of the
loan. If such default occurs after the first 12 monthly payments of the loan
have been satisfied, the Member may pay the outstanding balance, including
accrued interest from the due date, by the last day of the calendar quarter
following the calendar quarter which contains the due date of the last monthly
installment payment, in which case no such distribution will be deemed to have
occurred. Subject to applicable law, notwithstanding the foregoing, a Member
that borrows any of his 401(k) deferrals and any of the earnings attributable
thereto may not cease to make monthly installment payments while employed and
receiving a Salary from the Employer.
Except as provided below, upon a Member's termination of Employment, death or
Disability, or the Employer's termination of the Plan, no further monthly
installment payments may be made. Unless the outstanding balance, including
accrued interest from the due date, is paid by the last day of the calendar
quarter following the calendar quarter which contains the date of such
occurrence, the Member will be deemed to have received a distribution of the
outstanding balance of the loan including accrued interest from the due date.
Section 8.8 Loans to Former Members
-----------------------
Notwithstanding any other provisions of this Article VIII, a member who
terminates Employment for any reason shall be permitted to continue making
scheduled repayments with respect to any loan balance outstanding at the time he
becomes a terminated Member. In addition, a terminated Member may elect to
initiate a new loan from his Account, subject to the conditions
44
<PAGE>
otherwise described in this Article VIII. If any terminated Member who continues
to make repayments or who borrows from his Account pursuant to this Section 8.8
fails to make a scheduled monthly installment payment by the last day of the
calendar quarter following the calendar quarter which contains the scheduled
payment date, he will be deemed to have received a distribution of the
outstanding balance of the loan.
45
<PAGE>
ARTICLE IX
ADMINISTRATION OF PLAN AND ALLOCATION OF RESPONSIBILITIES
Section 9.1 Fiduciaries
-----------
The following persons are Fiduciaries under the Plan.
a) The Trustee,
b) The Employer,
c) The Plan Administrator or committee, appointed by the Employer pursuant to
this Article IX of the Plan and designated as the "Named Fiduciary" of the
Plan and the Plan Administrator, and
d) Any Investment Manager appointed by the Employer as provided in Section
9.4.
Each of said Fiduciaries shall be bonded to the extent required by ERISA.
The TPA is not intended to have the authority or responsibilities which would
cause it to be considered a Fiduciary with respect to the Plan unless the TPA
otherwise agrees to accept such authority or responsibilities in a service
agreement or otherwise in writing.
Section 9.2 Allocation of Responsibilities Among the Fiduciaries
----------------------------------------------------
a) The Trustee
-----------
The Employer shall enter into one or more Trust Agreements with a Trustee
or Trustees selected by the Employer. The Trust established under any such
agreement shall be a part of the Plan and shall provide that all funds
received by the Trustee as contributions under the Plan and the income
therefrom (other than such part as is necessary to pay the expenses and
charges referred to in Paragraph (b) of this Section) shall be held in the
Trust Fund for the exclusive benefit of the Members or their Beneficiaries,
and managed, invested and reinvested and distributed by the Trustee in
accordance with the Plan. Sums received for investment may be invested (i)
wholly or partly through the medium of any common, collective or commingled
trust fund maintained by a bank or other financial institution and which is
qualified under Sections 401(a) and 501(a) of the Code and constitutes a
part of the Plan; (ii) wholly or partly through the medium of a group
annuity or other type of contract issued by an insurance company and
constituting a part of the Plan, and utilizing, under any such contract,
general, commingled or individual investment accounts; or (iii)
46
<PAGE>
wholly or partly in securities issued by an investment company registered
under the Investment Company Act of 1940. Subject to the provisions of
Article XI, the Employer may from time to time and without the consent of
any Member or Beneficiary (a) amend the Trust Agreement or any such
insurance contract in such manner as the Employer may deem necessary or
desirable to carry out the Plan, (b) remove the Trustee and designate a
successor Trustee upon such removal or upon the resignation of the Trustee,
and (c) provide for an alternate funding agency under the Plan. The Trustee
shall make payments under the Plan only to the extent, in the amounts, in
the manner, at the time, and to the persons as shall from time to time be
set forth and designated in written authorizations from the Plan
Administrator or TPA.
The Trustee shall from time to time charge against and pay out of the Trust
Fund taxes of any and all kinds whatsoever which are levied or assessed
upon or become payable in respect of such Fund, the income or any property
forming a part thereof, or any security transaction pertaining thereto. To
the extent not paid by the Employer, the Trustee shall also charge against
and pay out of the Trust Fund other expenses incurred by the Trustee in the
performance of its duties under the Trust, the expenses incurred by the TPA
in the performance of its duties under the Plan (including reasonable
compensation for agents and cost of services rendered in respect of the
Plan), such compensation of the Trustee as may be agreed upon from time to
time between the Employer and the Trustee, and all other proper charges and
disbursements of the Trustee or the Employer.
b) The Employer
------------
The Employer shall be responsible for all functions assigned or reserved to
it under the Plan and any related Trust Agreement. Any authority so
assigned or reserved to the Employer, other than responsibilities assigned
to the Plan Administrator, shall be exercised by resolution of the
Employer's Board of Directors and shall become effective with respect to
the Trustee upon written notice to the Trustee signed by the duly
authorized officer of the Board advising the Trustee of such exercise. By
way of illustration and not by limitation, the Employer shall have
authority and responsibility:
(1) to amend the Plan;
(2) to merge and consolidate the Plan with all or part of the assets or
liabilities of any other plan;
(3) to appoint, remove and replace the Trustee and the Plan Administrator
and to monitor their performances;
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(4) to appoint, remove and replace one or more Investment Managers, or to
refrain from such appointments, and to monitor their performances;
(5) to communicate such information to the Plan Administrator, TPA,
Trustee and Investment Managers as they may need for the proper
performance of their duties; and
(6) to perform such additional duties as are imposed by law.
Whenever, under the terms of this Plan, the Employer is permitted or
required to do or perform any act, it shall be done and performed by an
officer thereunto duly authorized by its Board of Directors.
c) The Plan Administrator
----------------------
The Plan Administrator shall have responsibility and discretionary
authority to control the operation and administration of the Plan in
accordance with the provisions of Article IX of the Plan, including,
without limiting, the generality of the foregoing:
(1) the determination of eligibility for benefits and the amount and
certification thereof to the Trustee;
(2) the hiring of persons to provide necessary services to the Plan;
(3) the issuance of directions to the Trustee to pay any fees, taxes,
charges or other costs incidental to the operation and management of
the Plan;
(4) the preparation and filing of all reports required to be filed with
respect to the Plan with any governmental agency; and
(5) the compliance with all disclosure requirements imposed by state or
federal law.
d) The Investment Manager
----------------------
Any Investment Manager appointed pursuant to Section 9.4 shall have sole
responsibility for the investment of the portion of the assets of the Trust
Fund to be managed and controlled by such Investment Manager. An Investment
Manager may place orders for the purchase and sale of securities directly
with brokers and dealers.
Section 9.3 No Joint Fiduciary Responsibilities
-----------------------------------
48
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This Article IX is intended to allocate to each Fiduciary the individual
responsibility for the prudent execution of the functions assigned to him, and
none of such responsibilities or any other responsibilities shall be shared by
two or more of such Fiduciaries unless such sharing is provided by a specific
provision of the Plan or any related Trust Agreement. Whenever one Fiduciary is
required to follow the directions of another Fiduciary, the two Fiduciaries
shall not be deemed to have been assigned a shared responsibility, but the
responsibility of the Fiduciary giving the directions shall be deemed his sole
responsibility, and the responsibility of the Fiduciary receiving those
directions shall be to follow them insofar as such instructions are on their
face proper under applicable law. To the extent that fiduciary responsibilities
are allocated to an Investment Manager, such responsibilities are so allocated
solely to such Investment Manager alone, to be exercised by such Investment
Manager alone and not in conjunction with any other Fiduciary, and the Trustee
shall be under no obligation to manage any asset of the Trust Fund which is
subject to the management of such Investment Manager.
Section 9.4 Investment Manager
------------------
The Employer may appoint a qualified Investment Manager or Managers to manage
any portion or all of the assets of the Trust Fund. For the purpose of this
Plan and the related Trust, a "qualified Investment Manager" means an
individual, firm or corporation who has been so appointed by the Employer to
serve as Investment Manager hereunder, and who is and has acknowledged in
writing that he is (a) a Fiduciary with respect to the Plan, (b) bonded as
required by ERISA, and (c) either (i) registered as an investment advisor under
the Investment Advisors Act of 1940, (ii) a bank as defined in said Act, or
(iii) an insurance company qualified to perform investment management services
under the laws of more than one state of the United States.
Any such appointment shall be by a vote of the Board of Directors of the
Employer naming the Investment Manager so appointed and designating the portion
of the assets of the Trust Fund to be managed and controlled by such Investment
Manager. Said vote shall be evidenced by a certificate in writing signed by the
duly authorized officer of the Board and shall become effective on the date
specified in such certificate but not before delivery to the Trustee of a copy
of such certificate, together with a written acknowledgment by such Investment
Manager of the facts specified in the second sentence of this Section.
Section 9.5 Advisor to Fiduciary
--------------------
A Fiduciary may employ one or more persons to render advice concerning any
responsibility such Fiduciary has under the Plan and related Trust Agreement.
49
<PAGE>
Section 9.6 Service in Multiple Capacities
------------------------------
Any person or group of persons may serve in more than one fiduciary capacity
with respect to the Plan, specifically including service both as Plan
Administrator and as a Trustee of the Trust; provided, however, that no person
may serve in a fiduciary capacity who is precluded from so serving pursuant to
Section 411 of ERISA.
Section 9.7 Appointment of Plan Administrator
---------------------------------
The Employer shall designate the Plan Administrator in the Adoption Agreement.
The Plan Administrator may be an individual, a committee of two or more
individuals, whether or not, in either such case, the individual or any of such
individuals are Employees of the Employer, a consulting firm or other
independent agent, the Trustee (with its consent), the Board of the Employer, or
the Employer itself. Except as the Employer shall otherwise expressly
determine, the Plan Administrator shall be charged with the full power and
responsibility for administering the Plan in all its details. If no Plan
Administrator has been appointed by the Employer, or if the person designated as
Plan Administrator is not serving as such for any reason, the Employer shall be
deemed to be the Plan Administrator. The Plan Administrator may be removed by
the Employer or may resign by giving written notice to the Employer, and, in the
event of the removal, resignation, death or other termination of service of the
Plan Administrator, the Employer shall, as soon as is practicable, appoint a
successor Plan Administrator, such successor thereafter to have all of the
rights, privileges, duties and obligations of the predecessor Plan
Administrator.
Section 9.8 Powers of the Plan Administrator
--------------------------------
The Plan Administrator is hereby vested with all powers and authority necessary
in order to carry out its duties and responsibilities in connection with the
administration of the Plan as herein provided, and is authorized to make such
rules and regulations as it may deem necessary to carry out the provisions of
the Plan and the Trust Agreement. The Plan Administrator may from time to time
appoint agents to perform such functions involved in the administration of the
Plan as it may deem advisable. The Plan Administrator shall have the
discretionary authority to determine any questions arising in the
administration, interpretation
50
<PAGE>
and application of the Plan, including any questions submitted by the Trustee on
a matter necessary for it to properly discharge its duties; and the decision of
the Plan Administrator shall be conclusive and binding on all persons.
Section 9.9 Duties of the Plan Administrator
--------------------------------
The Plan Administrator shall keep on file a copy of the Plan and the Trust
Agreement(s), including any subsequent amendments, and all annual reports of the
Trustee(s), and such annual reports or registration statements as may be
required by the laws of the United States, or other jurisdiction, for
examination by Members in the Plan during reasonable business hours. Upon
request by any Member, the Plan Administrator shall furnish him with a statement
of his interest in the Plan as determined by the Plan Administrator as of the
close of the preceding Plan Year.
Section 9.10 Action by the Plan Administrator
--------------------------------
In the event that there shall at any time be two or more persons who constitute
the Plan Administrator, such persons shall act by concurrence of a majority
thereof.
Section 9.11 Discretionary Action
--------------------
Wherever, under the provisions of this Plan, the Plan Administrator is given any
discretionary power or powers, such power or powers shall not be exercised in
such manner as to cause any discrimination prohibited by the Code in favor of or
against any Member, Employee or class of Employees. Any discretionary action
taken by the Plan Administrator hereunder shall be consistent with any prior
discretionary action taken by it under similar circumstances and to this end the
Plan Administrator shall keep a record of all discretionary action taken by it
under any provision hereof.
Section 9.12 Compensation and Expenses of Plan Administrator
-----------------------------------------------
Employees of the Employer shall serve without compensation for services as Plan
Administrator, but all expenses of the Plan Administrator shall be paid by the
Employer. Such expenses shall include any expenses incidental to the
functioning of the Plan, including, but not limited to, attorney's fees,
accounting and clerical charges, and other costs of administering the Plan.
Non-Employee Plan Administrators shall receive such compensation as the Employer
shall determine.
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<PAGE>
Section 9.13 Reliance on Others
------------------
The Plan Administrator and the Employer shall be entitled to rely upon all
valuations, certificates and reports furnished by the Trustee(s), upon all
certificates and reports made by an accountant or actuary selected by the Plan
Administrator and approved by the Employer and upon all opinions given by any
legal counsel selected by the Plan Administrator and approved by the Employer,
and the Plan Administrator and the Employer shall be fully protected in respect
of any action taken or suffered by them in good faith in reliance upon such
Trustee(s), accountant, actuary or counsel and all action so taken or suffered
shall be conclusive upon each of them and upon all Members, retired Members, and
Former Members and their Beneficiaries, and all other persons.
Section 9.14 Self Interest
-------------
No person who is the Plan Administrator shall have any right to decide upon any
matter relating solely to himself or to any of his rights or benefits under the
Plan. Any such decision shall be made by another Plan Administrator or the
Employer.
Section 9.15 Personal Liability - Indemnification
------------------------------------
The Plan Administrator shall not be personally liable by virtue of any
instrument executed by him or on his behalf. Neither the Plan Administrator,
the Employer, nor any of its officers or directors shall be personally liable
for any action or inaction with respect to any duty or responsibility imposed
upon such person by the terms of the Plan unless such action or inaction is
judicially determined to be a breach of that person's fiduciary responsibility
with respect to the Plan under any applicable law. The limitation contained in
the preceding sentence shall not, however, prevent or preclude a compromise
settlement of any controversy involving the Plan, the Plan Administrator, the
Employer, or any of its officers and directors. The Employer may advance money
in connection with questions of liability prior to any final determination of a
question of liability. Any settlement made under this Article IX shall not be
determinative of any breach of fiduciary duty hereunder.
The Employer will indemnify every person who is or was a Plan Administrator,
officer or member of the Board or a person who provides services without
compensation to the Plan for any liability (including reasonable costs of
defense and settlement) arising by reason of any act or omission affecting the
Plan or affecting the Member or Beneficiaries thereof, including, without
limitation, any damages, civil penalty or excise tax imposed pursuant to ERISA;
provided (1) that the act or omission shall have occurred in the course of the
person's service as Plan Administrator, officer of the Employer or member of the
Board or was within the scope
52
<PAGE>
of the Employment of any Employee of the Employer or in connection with a
service provided without compensation to the Plan, (2) that the act or omission
be in good faith as determined by the Employer, whose determination, made in
good faith and not arbitrarily or capriciously, shall be conclusive, and (3)
that the Employer's obligation hereunder shall be offset to the extent of any
otherwise applicable insurance coverage, under a policy maintained by the
Employer, or any other person, or other source of indemnification.
Section 9.16 Insurance
---------
The Plan Administrator shall have the right to purchase such insurance as it
deems necessary to protect the Plan and the Trustee from loss due to any breach
of fiduciary responsibility by any person. Any premiums due on such insurance
may be paid from Plan assets provided that, if such premiums are so paid, such
policy of insurance must permit recourse by the insurer against the person who
breaches his fiduciary responsibility. Nothing in this Article IX shall prevent
the Plan Administrator or the Employer, at its, or his, own expense, from
providing insurance to any person to cover potential liability of that person as
a result of a breach of fiduciary responsibility, nor shall any provisions of
the Plan preclude the Employer from purchasing from any insurance company the
right of recourse under any policy by such insurance company.
Section 9.17 Claims Procedures
-----------------
Claims for benefits under the Plan shall be filed with the Plan Administrator on
forms supplied by the Employer. Written notice of the disposition of a claim
shall be furnished to the claimant within 90 days after the application thereof
is filed unless special circumstances require an extension of time for
processing the claim. If such an extension of time is required, written notice
of the extension shall be furnished to the claimant prior to the termination of
said 90-day period, and such notice shall indicate the special circumstances
which make the postponement appropriate.
Section 9.18 Claims Review Procedures
------------------------
In the event a claim is denied, the reasons for the denial shall be specifically
set forth in the notice described in this Section 9.18 in language calculated to
be understood by the claimant. Pertinent provisions of the Plan shall be cited,
and, where appropriate, an explanation as to how the claimant can request
further consideration and review of the claim will be provided. In addition,
the claimant shall be furnished with an explanation of the Plan's claims review
procedures. Any Employee, former Employee, or Beneficiary of either, who has
been denied a benefit by a decision of the Plan Administrator pursuant to
Section 9.17 shall be entitled to
53
<PAGE>
request the Plan Administrator to give further consideration to his claim by
filing with the Plan Administrator (on a form which may be obtained from the
Plan Administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Plan Administrator no later than 60 days after
receipt of the written notification provided for in Section 9.17. The Plan
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days' written notice to the Plan Administrator),
the claimant or his representative shall have an opportunity to review all
documents in the possession of the Plan Administrator which are pertinent to the
claim at issue and its disallowance. A final disposition of the claim shall be
made by the Plan Administrator within 60 days of receipt of the appeal unless
there has been an extension of 60 days and shall be communicated in writing to
the claimant. Such communication shall be written in a manner calculated to be
understood by the claimant and shall include specific reasons for the
disposition and specific references to the pertinent Plan provisions on which
the disposition is based. For all purposes under the Plan, such decision on
claims (where no review is requested) and decision on review (where review is
requested) shall be final, binding and conclusive on all interested persons as
to participation and benefits eligibility, the amount of benefits and as to any
other matter of fact or interpretation relating to the Plan.
54
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 General Limitations
-------------------
(A) In order that the Plan be maintained as a qualified plan and trust under the
Code, contributions in respect of a Member shall be subject to the
limitations set forth in this Section, notwithstanding any other provision
of the Plan. The contributions in respect of a Member to which this Section
is applicable are his own contributions and/or deferrals and the Employer's
contributions.
For purposes of this Section 10.1, a Member's contributions shall be
determined without regard to any rollover contributions as provided in
Section 402(a)(5) of the Code.
(B) Annual additions to a Member's Account in respect of any Plan Year may not
exceed the limitations set forth in Section 415 of the Code, which are
incorporated herein by reference. For these purposes, "annual additions"
shall have the meaning set forth in Section 415(c)(2) of the Code, as
modified elsewhere in the Code and the Regulations, and the limitation year
shall mean the Plan Year unless any other twelve-consecutive-month period is
designated pursuant to a resolution adopted by the Employer and designated
in the Adoption Agreement. If a Member in the Plan also participates in any
defined benefit plan (as defined in Sections 414(j) and 415(k) of the Code)
maintained by the Employer or any of its Affiliates, in the event that in
any Plan Year the sum of the Member's "defined benefit fraction" (as defined
in Section 415(e)(2) of the Code) and the Member's "defined contribution
fraction" (as defined in Section 415(e)(3) of the Code) exceeds 1.0, the
benefit under such defined benefit plan or plans shall be reduced in
accordance with the provisions of that plan or those plans, so that the sum
of such fractions in respect of the Member will not exceed 1.0. If this
reduction does not ensure that the limitation set forth in this Paragraph
(B) is not exceeded, then the annual addition to any defined contribution
plan, other than the Plan, shall be reduced in accordance with the
provisions of that plan but only to the extent necessary to ensure that such
limitation is not exceeded.
(C) In the event that, due to forfeitures, reasonable error in estimating a
Member's compensation, or other limited facts and circumstances, total
contributions and/or deferrals to a Member's Account are found to exceed the
limitations of this Section, the TPA, at the direction of the Plan
Administrator, shall cause contributions made under Article III in excess of
such limitations to be refunded to the affected Member, with
55
<PAGE>
earnings thereon, and shall take appropriate steps to reduce, if necessary,
the Employer contributions made with respect to those returned
contributions. Such refunds shall not be deemed to be withdrawals, loans, or
distributions from the Plan. If a Member's annual contributions exceed the
limitations contained in Paragraph (B) of this Section after the Member's
Article III contributions, with earnings thereon, if any, have been refunded
to such Member, any Employer supplemental and/or profit sharing contribution
to be allocated to such Member in respect of any Contribution Determination
Period (including allocations as provided in this Paragraph) shall instead
be allocated to or for the benefit of all other Members who are Employees in
Employment as of the last day of the Contribution Determination Period as
determined under the Adoption Agreement and allocated in the same proportion
that each such Member's Salary for such Contribution Determination Period
bears to the total Salary for such Contribution Determination Period of all
such Members or, the TPA may, at the election of the Employer, utilize such
excess to reduce the contributions which would otherwise be made for the
succeeding Contribution Determination Period by the Employer. If, with
respect to any Contribution Determination Period, there is an excess profit
sharing contribution, and such excess cannot be fully allocated in
accordance with the preceding sentence because of the limitations prescribed
in Paragraph (B) of this Section, the amount of such excess which cannot be
so allocated shall be allocated to the Employer Credit Account and made
available to the Employer pursuant to the terms of Article VI. The TPA, at
the direction of the Plan Administrator, in accordance with Paragraph (D) of
this Section, shall take whatever additional action may be necessary to
assure that contributions to Members' Accounts meet the requirements of this
Section.
(D) In addition to the steps set forth in Paragraph (C) of this Section, the
Employer may from time to time adjust or modify the maximum limitations
applicable to contributions made in respect of a Member under this Section
10.1 as may be required or permitted by the Code or ERISA prior to or
following the date that allocation of any such contributions commences and
shall take appropriate action to reallocate the annual contributions which
would otherwise have been made but for the application of this Section.
(E) Membership in the Plan shall not give any Employee the right to be retained
in the Employment of the Employer and shall not affect the right of the
Employer to discharge any Employee.
56
<PAGE>
(F) Each Member, Spouse and Beneficiary assumes all risk in connection with any
decrease in the market value of the assets of the Trust Fund. Neither the
Employer nor the Trustee guarantees that upon withdrawal, the value of a
Member's Account will be equal to or greater than the amount of the Member's
own deferrals or contributions, or those credited on his behalf in which the
Member has a vested interest, under the Plan.
(G) The establishment, maintenance or crediting of a Member's Account pursuant
to the Plan shall not vest in such Member any right, title or interest in
the Trust Fund except at the times and upon the terms and conditions and to
the extent expressly set forth in the Plan and the Trust Agreement.
(H) The Trust Fund shall be the sole source of payments under the Plan and the
Employer, Plan Administrator and TPA assume no liability or responsibility
for such payments, and each Member, Spouse or Beneficiary who shall claim
the right to any payment under the Plan shall be entitled to look only to
the Trust Fund for such payment.
Section 10.2 Top Heavy Provisions
--------------------
The Plan will be considered a Top Heavy Plan for any Plan Year if it is
determined to be a Top Heavy Plan as of the last day of the preceding Plan Year.
The provisions of this Section 10.2 shall apply and supersede all other
provisions in the Plan during each Plan Year with respect to which the Plan is
determined to be a Top Heavy Plan.
(A) For purposes of this Section 10.2, the following terms shall have the
meanings set forth below:
(1) "Affiliate" shall mean any entity affiliated with the Employer within
the meaning of Section 414(b), 414(c) or 414(m) of the Code, or
pursuant to the IRS Regulations under Section 414(o) of the Code,
except that for purposes of applying the provisions hereof with respect
to the limitation on contributions, Section 415(h) of the Code shall
apply.
(2) "Aggregation Group" shall mean the group composed of each qualified
retirement plan of the Employer or an Affiliate in which a Key Employee
is a member and each other qualified retirement plan of the Employer or
an Affiliate which enables a plan of the Employer or an Affiliate in
which a Key Employee is a member to satisfy Sections 401(a)(4) or 410
of the Code. In addition, the TPA, at the direction of the Plan
Administrator, may choose to treat any other qualified retirement plan
as a member of the Aggregation Group if such Aggregation Group will
continue to
57
<PAGE>
satisfy Sections 401(a)(4) and 410 of the Code with such plan being
taken into account.
(3) "Key Employee" shall mean a "Key Employee" as defined in Sections
416(i)(1) and (5) of the Code and the IRS Regulations thereunder. For
purposes of Section 416 of the Code and for purposes of determining who
is a Key Employee, an Employer which is not a corporation may have
"officers" only for Plan Years beginning after December 31, 1985. For
purposes of determining who is a Key Employee pursuant to this
Subparagraph (3), compensation shall have the meaning prescribed in
Section 414(s) of the Code, or to the extent required by the Code or
the IRS Regulations, Section 1.415-2(d) of the IRS Regulations.
(4) "Non-Key Employee" shall mean a "Non-Key Employee" as defined in
Section 416(i)(2) of the Code and the IRS Regulations thereunder.
(5) "Top Heavy Plan" shall mean a "Top Heavy Plan" as defined in Section
416(g) of the Code and the IRS Regulations thereunder.
(B) Subject to the provisions of Paragraph (D) below, for each Plan Year that
the Plan is a Top Heavy Plan, the Employer's contribution (including
contributions attributable to salary reduction or similar arrangements)
allocable to each Employee (other than a Key Employee) who has satisfied the
eligibility requirement(s) of Article II, Section 2, and who is in service
at the end of the Plan Year, shall not be less than the lesser of (i) 3% of
such eligible Employee's compensation (as defined in Section 414(s) of the
Code or to the extent required by the Code or the IRS Regulations, Section
1.415-2(d) of the Regulations), or (ii) the percentage at which Employer
contributions for such Plan Year are made and allocated on behalf of the Key
Employee for whom such percentage is the highest. For the purpose of
determining the appropriate percentage under clause (ii), all defined
contribution plans required to be included in an Aggregation Group shall be
treated as one plan. Clause (ii) shall not apply if the Plan is required to
be included in an Aggregation Group which enables a defined benefit plan
also required to be included in said Aggregation Group to satisfy Sections
401(a)(4) or 410 of the Code.
(C) If the Plan is a Top Heavy Plan for any Plan Year, and the Employer has
elected vesting Schedule 3 or 6 under Article VI, the vested interest of
each Member, who is credited with at least one Hour of Employment on or
after the Plan becomes a Top Heavy Plan,
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<PAGE>
in the Units allocated to his Account shall not be less than the percentage
determined in accordance with the following schedule:
Completed Years of Vested
Employment Percentage
-------------------- ----------
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 or more 100%
(D) (1) For each Plan Year that the Plan is a Top Heavy Plan, 1.0 shall be
substituted for 1.25 as the multiplicand of the dollar limitation in
determining the denominator of the defined benefit plan fraction and of
the defined contribution plan fraction for purposes of Section 415(e)
of the Code.
(2) If, after substituting "90%" for "60%" wherever the latter appears in
Section 416(g) of the Code, the Plan is not determined to be a Top
Heavy Plan, the provisions of Subparagraph (1) of this Paragraph (D)
shall not be applicable if the minimum Employer contribution allocable
to any Member who is a Non-Key Employee as specified in Paragraph (B)
of this Section is determined by substituting "4%" for 3%.
(E) The TPA shall, to the maximum extent permitted by the Code and in accordance
with the IRS Regulations, apply the provisions of this Section 10.2 by
taking into account the benefits payable and the contributions made under
any other qualified plan maintained by the Employer, to prevent
inappropriate omissions or required duplication of minimum contributions.
Section 10.3 Information and Communications
------------------------------
Each Employer, Member, Spouse and Beneficiary shall be required to furnish the
TPA with such information and data as may be considered necessary by the TPA.
All notices, instructions and other communications with respect to the Plan
shall be in such form as is prescribed from time to time by the TPA, shall be
mailed by first class mail or delivered personally, and shall be deemed to have
been duly given and delivered only upon actual receipt thereof by the TPA. All
information and data submitted by an Employer or a Member, including a Member's
birth date, marital status, salary and circumstances of his Employment and
termination thereof, may be accepted and relied upon by the TPA. All
communications from the Employer or the Trustee
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<PAGE>
to a Member, Spouse or Beneficiary shall be deemed to have been duly given if
mailed by first class mail to the address of such person as last shown on the
records of the Plan.
Section 10.4 Small Account Balances
----------------------
Notwithstanding the foregoing provisions of the Plan, if the value of all
portions of a Member's Account under the Plan, when aggregated, is equal to or
exceeds $3,500, then the Account will not be distributed without the consent of
the Member prior to age 65 (at the earliest), but if the aggregate value of all
portions of his Account is less than $3,500, then his Account will be
distributed as soon as practicable following the termination of Employment by
the Member.
Section 10.5 Amounts Payable to Incompetents, Minors or Estates
--------------------------------------------------
If the Plan Administrator shall find that any person to whom any amount is
payable under the Plan is unable to care for his affairs because of illness or
accident, or is a minor, or has died, then any payment due him or his estate
(unless a prior claim therefor has been made by a duly appointed legal
representative) may be paid to his Spouse, relative or any other person deemed
by the Plan Administrator to be a proper recipient on behalf of such person
otherwise entitled to payment. Any such payment shall be a complete discharge
of the liability of the Trust Fund therefor.
Section 10.6 Non-alienation of Amounts Payable
---------------------------------
Except insofar as may otherwise be required by applicable law, or Article VIII,
or pursuant to the terms of a Qualified Domestic Relations Order, no amount
payable under the Plan shall be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge
or encumbrance of any kind, and any attempt to so alienate shall be void; nor
shall the Trust Fund in any manner be liable for or subject to the debts or
liabilities of any person entitled to any such amount payable; and further, if
for any reason any amount payable under the Plan would not devolve upon such
person entitled thereto, then the Employer, in its discretion, may terminate his
interest and hold or apply such amount for the benefit of such person or his
dependents as it may deem proper. For the purposes of the Plan, a "Qualified
Domestic Relations Order" means any judgment, decree or order (including
approval of a property settlement agreement) which has been determined by the
Plan Administrator, in accordance with procedures established under the Plan, to
constitute a Qualified Domestic Relations Order within the meaning of Section
414(p)(1) of the Code. No amounts may be withdrawn under Article VII, and no
loans granted under Article VIII, if the TPA has received a document which may
be determined following its receipt to be a Qualified Domestic Relations Order
prior to completion of review of such order by the Plan Administrator within the
time
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period prescribed for such review by the IRS Regulations.
Section 10.7 Unclaimed Amounts Payable
-------------------------
If the TPA cannot ascertain the whereabouts of any person to whom an amount is
payable under the Plan, and if, after 5 years from the date such payment is due,
a notice of such payment due is mailed to the address of such person, as last
shown on the records of the Plan, and within 3 months after such mailing such
person has not filed with the TPA or Plan Administrator written claim therefor,
the Plan Administrator may direct in accordance with ERISA that the payment
(including the amount allocable to the Member's contributions) be cancelled, and
used in abatement of the Plan's administrative expenses, provided that
appropriate provision is made for recrediting the payment if such person
subsequently makes a claim therefor.
Section 10.8 Leaves of Absence
-----------------
(A) If the Employer's personnel policies allow leaves of absence for all
similarly situated Employees on a uniformly available basis under the
circumstances described in Paragraphs (B)(1)-(4) below, then contribution
allocations and vesting service will continue to the extent provided in
Paragraphs (B)(1)-(4).
(B) For purposes of the Plan, there are only four types of approved Leaves of
Absence:
(1) Non-military leave granted to a Member for a period not in excess of
one year during which service is recognized for vesting purposes and
the Member is entitled to share in any supplemental contributions under
Article III or forfeitures under Article VI, if any, on a pro-rata
basis, determined by the Salary earned during the Plan Year or
Contribution Determination Period; or
(2) Non-military leave or layoff granted to a Member for a period not in
excess of one year during which service is recognized for vesting
purposes, but the Member is not entitled to share in any contributions
or forfeitures as defined under (1) above, if any, during the period of
the leave; or
61
<PAGE>
(3) To the extent not otherwise required by applicable law, military or
other governmental service leave granted to a Member from which he
returns directly to the service of the Employer. Under this leave, a
Member may not share in any contributions or forfeitures as defined
under (1) above, if any, during the period of the leave, but vesting
service will continue to accrue; or
(4) To the extent not otherwise required by applicable law, a military
leave granted at the option of the Employer to a Member who is subject
to military service pursuant to an involuntary call-up in the Reserves
of the U.S. Armed Services from which he returns to the service of the
Employer within 90 days of his discharge from such military service.
Under this leave, a Member is entitled to share in any contributions or
forfeitures as defined under (1) above, if any, and vesting service
will continue to accrue. Notwithstanding any provision of the Plan to
the contrary, if a Member has one or more loans outstanding at the time
of this leave, repayments on such loan(s) may be suspended, if the
Member so elects, until such time as the Member returns to the service
of the Employer or the end of the leave, if earlier.
Section 10.9 Return of Contributions to Employer
-----------------------------------
(A) In the case of a contribution that is made by an Employer by reason of a
mistake of fact, the Employer may request the return to it of such
contribution within one year after the payment of the contribution, provided
such refund is made within one year after the payment of the contribution.
(B) In the case of a contribution made by an Employer or a contribution
otherwise deemed to be an Employer contribution under the Code, such
contribution shall be conditioned upon the deductibility of the contribution
by the Employer under Section 404 of the Code. To the extent the deduction
for such contribution is disallowed, in accordance with IRS Regulations, the
Employer may request the return to it of such contribution within one year
after the disallowance of the deduction.
(C) In the event that the IRS determines that the Plan is not initially
qualified under the Code, any contribution made incident to that initial
qualification by the Employer must be returned to the Employer within one
year after the date the initial qualification is denied, but only if the
application for the qualification is made by the time prescribed by law for
filing the Employer's return for the taxable year in which the Plan is
adopted, or such later date as the Secretary of the Treasury may prescribe.
62
<PAGE>
The contributions returned under (A), (B) or (C) above may not include any gains
on such excess contributions, but must be reduced by any losses.
Section 10.10 Controlling Law
---------------
The Plan and all rights thereunder shall be governed by and construed in
accordance with ERISA and the laws of the State of New York.
63
<PAGE>
ARTICLE XI
AMENDMENT & TERMINATION
Section 11.1 General
-------
While the Plan is intended to be permanent, the Plan may be amended or
terminated completely by the Employer at any time at the discretion of its Board
of Directors. Except where necessary to qualify the Plan or to maintain
qualification of the Plan, no amendment shall reduce any interest of a Member
existing prior to such amendment. Subject to the terms of the Adoption
Agreement, written notice of such amendment or termination as resolved by the
Board shall be given to the Trustee, the Plan Administrator and the TPA. Such
notice shall set forth the effective date of the amendment or termination or
cessation of contributions.
Section 11.2 Termination of Plan and Trust
-----------------------------
This Plan and any related Trust Agreement shall in any event terminate whenever
all property held by the Trustee shall have been distributed in accordance with
the terms hereof.
Section 11.3 Liquidation of Trust Assets in the Event of Termination
-------------------------------------------------------
In the event that the Employer's Board of Directors shall decide to terminate
the Plan, or, in the event of complete cessation of Employer contributions, the
rights of Members to the amounts standing to their credit in their Accounts
shall be deemed fully vested and the Plan Administrator shall direct the Trustee
to either continue the Trust in full force and effect and continue so much of
the Plan in full force and effect as is necessary to carry out the orderly
distribution of benefits to Members and their Beneficiaries upon retirement,
Disability, death or termination of Employment; or (a) reduce to cash such part
or all of the Plan assets as the Plan Administrator may deem appropriate; (b)
pay the liabilities, if any, of the Plan; (c) value the remaining assets of the
Plan as of the date of notification of termination and proportionately adjust
Members' Account balances; (d) distribute such assets in cash to the credit of
their respective Accounts as of the notification of the termination date; and
(e) distribute all balances which have been segregated into a separate fund to
the persons entitled thereto; provided that no person in the event of
termination shall be required to accept distribution in any form other than
cash.
64
<PAGE>
Section 11.4 Partial Termination
-------------------
The Employer may terminate the Plan in part without causing a complete
termination of the Plan. In the event a partial termination occurs, the Plan
Administrator shall determine the portion of the Plan assets attributable to the
Members affected by such partial termination and the provisions of Section 11.3
shall apply with respect to such portion as if it were a separate fund.
Section 11.5 Power to Amend
--------------
(A) Subject to Section 11.6, the Employer, through its Board of Directors, shall
have the power to amend the Plan in any manner which it deems desirable,
including, but not by way of limitation, the right to change or modify the
method of allocation of such contributions, to change any provision relating
to the distribution of payment, or both, of any of the assets of the Trust
Fund. Further, the Employer may (i) change the choice of options in the
Adoption Agreement; (ii) add overriding language in the Adoption Agreement
when such language is necessary to satisfy Section 415 or Section 416 of the
Code because of the required aggregation of multiple plans; and (iii) add
certain model amendments published by the IRS which specifically provide
that their adoption will not cause the Plan to be treated as individually
designed. An Employer that amends the Plan for any other reason, including
a waiver of the minimum funding requirement under Section 412(d) of the
Code, will be considered to have an individually designed plan.
Any amendment shall become effective upon the vote of the Board of Directors
of the Employer, unless such vote of the Board of Directors of the Employer
specifies the effective date of the amendment.
Such effective date of the amendment may be made retroactive to the vote of
the Board of Directors, to the extent permitted by law.
(B) The Employer expressly recognizes the authority of the Sponsor, Pentegra
Services, Inc., to amend the Plan from time to time, except with respect to
elections of the Employer in the Adoption Agreement, and the Employer shall
be deemed to have consented to any such amendment. The Employer shall
receive a written instrument indicating the amendment of the Plan and such
amendment shall become effective as of the date of such instrument. No such
amendment shall in any way impair, reduce or affect any Member's vested and
nonforfeitable rights in the Plan and Trust.
Section 11.6 Solely for Benefit of Members, Terminated Members and their
-----------------------------------------------------------
Beneficiaries
- -------------
65
<PAGE>
No changes may be made in the Plan which shall vest in the Employer, directly or
indirectly, any interest, ownership or control in any of the present or
subsequent assets of the Trust Fund.
No part of the funds of the Trust other than such part as may be required to pay
taxes, administration expenses and fees, shall be reduced by any amendment or be
otherwise used for or diverted to purposes other than the exclusive benefit of
Members, retired Members, Former Members, and their Beneficiaries, except as
otherwise provided in Section 10.9 and under applicable law.
No amendment shall become effective which reduces the nonforfeitable percentage
of benefit that would be payable to any Member if his Employment were to
terminate and no amendment which modifies the method of determining that
percentage shall be made effective with respect to any Member with at least
three Years of Service unless such member is permitted to elect, within a
reasonable period after the adoption of such amendment, to have that percentage
determined without regard to such amendment.
Section 11.7 Successor to Business of the Employer
-------------------------------------
Unless this Plan and the related Trust Agreement be sooner terminated, a
successor to the business of the Employer by whatever form or manner resulting
may continue the Plan and the related Trust Agreement by executing appropriate
supplementary agreements and such successor shall thereupon succeed to all the
rights, powers and duties of the Employer hereunder. The Employment of any
Employee who has continued in the employ of such successor shall not be deemed
to have terminated or severed for any purpose hereunder if such supplemental
agreement so provides.
Section 11.8 Merger, Consolidation and Transfer
----------------------------------
The Plan shall not be merged or consolidated, in whole or in part, with any
other plan, nor shall any assets or liabilities of the Plan be transferred to
any other plan unless the benefit that would be payable to any affected Member
under such plan if it terminated immediately after the merger, consolidation or
transfer, is equal to or greater than the benefit that would be payable to the
affected Member under this Plan if it terminated immediately before the merger,
consolidation or transfer.
66
<PAGE>
Section 11.9 Revocability
------------
This Plan is based upon the condition precedent that it shall be approved by the
Internal Revenue Service as qualified under Section 401(a) of the Code and
exempt from taxation under Section 501(a) of the Code. Accordingly,
notwithstanding anything herein to the contrary, if a final ruling shall be
received in writing from the IRS that the Plan does not initially qualify under
the terms of Sections 401(a) and 501(a) of the Code, there shall be no vesting
in any Member of assets contributed by the Employer and held by the Trustee
under the Plan. Upon receipt of notification from the IRS that the Plan fails
to qualify as aforesaid, the Employer reserves the right, at its option, to
either amend the Plan in such manner as may be necessary or advisable so that
the Plan may so qualify, or to withdraw and terminate the Plan.
Upon the event of withdrawal and termination, the Employer shall notify the
Trustee and provide the Trustee with a copy of such ruling and the Trustee shall
transfer and pay over to the Employer all of the net assets contributed by the
Employer pursuant to the Plan which remain after deducting the proper expense of
termination and the Trust Agreement shall thereupon terminate. For purposes of
this Article XI, "final ruling" shall mean either (1) the initial letter ruling
from the District Director in response to the Employer's original application
for such a ruling, or (2) if such letter ruling is unfavorable and a written
appeal is taken or protest filed within 60 days of the date of such letter
ruling, it shall mean the ruling received in response to such appeal or protest.
If the Plan is terminated, the Plan Administrator shall promptly notify the IRS
and such other appropriate governmental authority as applicable law may require.
Neither the Employer nor its Employees shall make any further contributions
under the Plan after the termination date, except that the Employer shall remit
to the TPA a reasonable administrative fee to be determined by the TPA for each
Member with a balance in his Account to defray the cost of implementing its
termination. Where the Employer has terminated the Plan pursuant to this
Article, the Employer may elect to transfer assets from the Plan to a successor
plan qualified under Section 401(a) of the Code in which event the Employer
shall remit to the TPA an additional administrative fee to be determined by the
TPA to defray the cost of such transfer transaction.
67
<PAGE>
TRUSTS ESTABLISHED UNDER THE PLAN
Assets of the Plan are held in trust under separate Trust Agreements with the
Trustee or Trustees. Any Eligible Employee or Member may obtain a copy of these
Trust Agreements from the Plan Administrator.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the Plan by
the Employer, the Employer has caused these presents to be executed on its
behalf and its corporate seal to be hereunder affixed as of the _________ day of
_______________________, 19____.
ATTEST:
_________________________ By _____________________________
Clerk
68
<PAGE>
[LOGO OF PENTEGRA APPEARS HERE]
69
<PAGE>
P E N T E G R A I N V E S T M E N T P E R F O R M A N C E S U M M A R Y
- -----------------------------------------------------------------------------
F U N D R E T U R N S T H R O U G H J U N E 3 0, 1 9 9 9/1/
<TABLE>
<CAPTION>
5 Calendar 10 Calendar
ASSET ALLOCATION FUNDS/2/,/5/ Unit Monthly Year-to- Last 12 Years Years
Value Return Date Months Annualized Annualized
<S> <C> <C> <C> <C> <C> <C>
INCOME PLUS 11.7217 1.4% 3.5% 7.4% 8.4% See Note 5
GROWTH & INCOME 12.7882 3.2% 6.8% 12.1% 12.5% See Note 5
GROWTH 14.2227 5.3% 10.3% 18.2% 18.3% See Note 5
- ----------------------------------------------------------------------------------------------------------------------------
STOCK FUNDS
INTERNATIONAL STOCK FUND/2/ 11.4107 3.9% 3.8% 7.2% 10.4% 9.1%
Benchmark: MSCI EAFE Index
(Limited to 25% Japan) - 3.9% 4.0% 7.6% 10.8% 9.5%
S&P MIDCAP STOCK FUND/3/ 26.4785 5.3% 6.7% 16.8% 18.2% 18.7%
Benchmark: S&P MidCap 400 Index - 5.4% 6.9% 17.2% 18.8% 19.3%
S&P 500 STOCK FUND/3/ 40.1807 5.5% 12.1% 22.1% 23.4% 18.6%
Benchmark: S&P 500 Index - 5.6% 12.4% 22.8% 24.1% 19.2%
- ----------------------------------------------------------------------------------------------------------------------------
BOND/FIXED INCOME FUNDS
GOVERNMENT BOND FUND/3/ 7.4132 -1.3% -7.9% -1.5% 9.1% 11.2%
Benchmark: Lehman Brothers
20+ Year Treasury Bond Index - -1.2% -7.4% -0.9% 9.7% 11.8%
STABLE VALUE FUND/4/ 8.4322 0.5% 2.7% 5.7% 6.5% 7.5%
MONEY MARKET FUND/3/ 6.2693 0.4% 2.3% 5.0% 5.4% 5.9%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Barclays Global Investors (BGI) is the Investment Manager for all Funds. Unit
values are determined as of the last business day of each month. Returns are
shown net of fees. Dividends and interest are automatically reinvested. See
following notes.
2 The Asset Allocation Funds and the International Stock Fund inception date
was July 2, 1997. Returns prior to inception are simulated using the returns
of market indices for, or actual funds of, the Fund's investment components,
and are net of fees.
3 BGI became the manager of the S&P MidCap, S&P 500, Government Bond and Money
Market Funds as of June 17, 1997. Results prior to June 17, 1997 are
hypothetical and are based on investment in the current underlying funds
managed by BGI, and are net of fees. Accordingly, actual past performance of
Pentegra's Funds will be different.
4 The Stable Value Fund is a separately managed account; historical return data
represents actual performance of this Fund.
5 The Asset Allocation Funds are designed investment vehicles utilizing various
asset classes represented by index funds managed by BGI. They are
specifically for Pentegra and its clients. Hypothetical results only exist
from January 1992 to July 2, 1997 (the inception date of the Funds).
Past performance is no guarantee of future performance.
<PAGE>
PENTEGRA INCOME PLUS ASSET ALLOCATION FUND
<TABLE>
<S> <C>
Annual Return
The Pentegra Income Plus Asset
Allocation Fund diversifies among a [BAR CHART APPEARS HERE]
broad range of stable value securities
to reduce short-term risk, and among a
broad range of large U.S. and
international companies to capture
growth potential. The Fund is
structured to take advantage of market
opportunities with a small flexible
component. Its objective is to
preserve the value of your investment
over short periods of time and to offer
some potential for growth over time.
Current annual fees of 0.85% are 5-Year Annualized Rate of Return: 8.4%.
deducted before unit values are Fund inception July 2, 1997. Returns prior to inception are simulated
calculated and the rate of return is using the returns of market indices for, or actual funds of, the Fund's
published. investment components, and are net of fees.
PENTEGRA GROWTH & INCOME ASSET ALLOCATION FUND
<CAPTION>
<S> <C>
The Pentegra Growth & Income Asset Annual Return
Allocation Fund diversifies among U.S.
and international stocks, U.S. bonds, [BAR CHART APPEARS HERE]
and stable value investments to pursue
long-term appreciation and short-term
stability and takes advantage of market
opportunities with a small flexible
component. Its objective is to provide
a balance between the pursuit of growth
and protection from risk over time.
Current annual fees of 0.85% are 5-Year Annualized Rate of Return: 12.5%
deducted before unit values are Fund inception July 2, 1997. Returns prior to inception are simulated
calculated and the rate of return is using the returns of market indices for, or actual funds of, the Fund's
published. investment components, and are net of fees.
PENTEGRA GROWTH ASSET ALLOCATION FUND
<CAPTION>
<S> <C>
The Pentegra Growth Asset Allocation Fund Annual Return
diversifies among a broad range of
domestic and international stocks and [BAR CHART APPEARS HERE]
takes advantage of market opportunities
with a large flexible component. Its
objective is to pursue high growth of
your investment over time. Current 5-Year Annualized Rate of Return: 18.3%
annual fees of 0.85% are deducted before Fund inception July 2, 1997. Returns prior to inception are simulated
unit values are calculated and the rate using the returns of market indices for, or actual funds of, the Fund's
of return is published. investment components, and are net of fees.
</TABLE>
PENTEGRA INTERNATIONAL STOCK FUND
<PAGE>
<TABLE>
<S> <C>
The Pentegra International Stock Fund Annual Return
invests in over 1,000 foreign stocks in
20 countries, based in Europe, [BAR CHART APPEARS HERE]
Australia, and the Far East. Its goal
is to approximate the performance of
the Morgan Stanley Capital
International (MSCI) EAFE (Europe,
Australia, Far East) Index by investing
in most of the same stocks as the
Index. Unlike the Index, however, the
Fund limits its investment in Japanese
stocks to no more than 25% of the
Fund's overall portfolio. Its objective
is to offer the potential return of
investing in the stocks of established
non-U.S. companies, as well as the
potential risk-reduction of broad
diversification over time. Current 5-Year Annualized Rate of Return: 10.4% - 10-Year Annualized Rate of Return: 9.1%
annual fees of 0.65% are deducted Fund inception July 2, 1997. Returns prior to inception are simulated
before unit values are calculated and using the returns of market indices for, or actual funds of, the Fund's
the rate of return is published. investment components, and are net of fees.
PENTEGRA S&P MIDCAP STOCK FUND
<CAPTION>
<S> <C>
The Pentegra S&P MidCap Stock Fund Annual Return
invests in the stocks of mid-sized U.S.
companies, which are expected to grow [BAR CHART APPEARS HERE]
faster than larger, more established
companies. Its goal is to match the
performance of the S&P MidCap 400 Index
by investing in most of the same stocks
as the Index. The MidCap Index
includes 400 stocks which represent the
middle tier of the U.S. stock market.
Its objective is to earn higher returns
which reflect the growth potential of
mid-sized companies over time. Current 5-Year Annualized Rate of Return: 18.2% - 10-Year Annualized Rate of Return: 18.7%
annual fees of 0.54% are deducted Barclays Global Investors (BGI) began management of this Fund June 17, 1997.
before unit values are calculated and Returns prior to June 17, 1997, are hypothetical and are based on investment
the rate of return is published. in the current underlying funds managed by BGI, and are net of fees.
PENTEGRA S&P 500 STOCK FUND
<CAPTION>
<S> <C>
The Pentegra S&P 500 Stock Fund invests Annual Return
in the stocks of a broad array of
established U.S. companies. Its goal [BAR CHART APPEARS HERE]
is to match the performance of the S&P
500 Index, a widely recognized
benchmark of U.S. stocks,
representative of almost 72% of the
value of all publicly traded common
stocks in this country. The S&P 500
Index represents the largest tier of
the U.S. stock market. Its objective
is to earn higher returns by investing
in the largest companies in the U.S.
economy over time. Current annual 5-Year Annualized Rate of Return: 23.4% - 10-Year Annualized Rate of Return: 18.6%
fees of 0.524% are deducted before Barclays Global Investors (BGI) began management of this Fund June 17, 1997.
unit values are calculated and the Returns prior to June 17, 1997, are hypothetical and are based on investment in
rate of return is published. the current underlying funds managed by BGI, and are net of fees.
</TABLE>
<PAGE>
PENTEGRA GOVERNMENT BOND FUND
<TABLE>
<S> <C>
The Pentegra Government Bond Fund Annual Return
invests in U.S. Treasury bonds with a
maturity of 20 years or more. The [BAR CHART APPEARS HERE]
Fund=s goal is to match the performance
of the Lehman Brothers 20+ Year
Treasury Bond Index. Its objective is
to earn a higher level of income along
with the potential for capital
appreciation over time. Current annual 5 Year Annualized Rate of Return: 9.1% - 10 Year Annualized Rate of Return: 11.2%
fees of 0.60% are deducted before unit Barclays Global Investors (BGI) began management of this Fund June 17, 1997.
values are calculated and the rate of Returns prior to June 17, 1997, are hypothetical and are based on
return is published. investment in the current underlying funds managed by BGI, and are net of fees.
PENTEGRA STABLE VALUE FUND
<CAPTION>
<S> <C>
The Pentegra Stable Value Fund invests Annual Return
primarily in Guaranteed Investment
Contracts (GICs) and Synthetic [BAR CHART APPEARS HERE]
Guaranteed Investment Contracts
(SGICs). These contracts pay a steady
rate of interest over a certain period
of time (usually between three and five
years). Its objective is to achieve a
stable return over short to
intermediate periods of time while
preserving the value of your investment
over time. Current annual fees of
0.551% are deducted before unit values
are calculated and the rate of return 5-Year Annualized Rate of Return: 6.5% - 10-Year Annualized Rate of Return:
is published. 7.5% Expected Return Range for second half of 1999: 5.2% to 5.7%
PENTEGRA MONEY MARKET FUND
<CAPTION>
<S> <C>
The Pentegra Money Market Fund invests Annual Return
in a broad range of high-quality,
short-term instruments issued by banks, [BAR CHART APPEARS HERE]
corporations and the U.S. Government
and its agencies. These instruments
include certificates of deposit and
U.S. Treasury bills. Its objective is
to achieve competitive, short-term
rates of return while preserving the
value of your principal over time. Current annualized rate of return for June 1999: 4.7% 5-Year Annualized Rate of
Current annual fees of 0.38% are Return: 5.4% - 10-Year Annualized Barclays Global Investors (BGI) began
deducted before unit values are management of this Fund June 17, 1997. Returns prior to June 17, 1997, are
calculated and the rate of return is hypothetical and are based on investment in the current underlying funds managed
published. by BGI, and are net of fees.
</TABLE>
<PAGE>
EXHIBIT 10.9
AMERICAN SAVINGS BANK
SUPPLEMENTAL RETIREMENT PLAN
FOR CHIEF EXECUTIVE OFFICER
Effective as of October 1, 1999
<PAGE>
AMERICAN SAVINGS BANK
SUPPLEMENTAL RETIREMENT PLAN
FOR CHIEF EXECUTIVE OFFICER
The American Savings Bank Supplemental Retirement Plan for Chief Executive
Officer has been authorized and adopted by the Board of Directors of American
Savings Bank effective as of October 1, 1999. The purpose of the Plan is to
provide supplemental retirement benefits to the chief executive officer of the
Bank.
The Plan is unfunded and all benefits payable under the Plan shall be paid out
of the general assets of the Bank. The Bank may establish and fund one or more
grantor trusts in order to aid it in providing benefits due under the Plan;
provided, that the establishment of any such trust shall not cause the Plan to
be other than "unfunded."
The Plan is intended to constitute a plan for the benefit of a select group of
management or highly compensated employees for purposes of ERISA.
<PAGE>
AMERICAN SAVINGS BANK
SUPPLEMENTAL RETIREMENT PLAN
FOR CHIEF EXECUTIVE OFFICER
<TABLE>
<CAPTION>
ARTICLE
<S> <C> <C>
I. DEFINITIONS........................................................... 1
II. PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS
2.01 Participation................................................... 2
2.02 Vesting......................................................... 2
2.03 Amount of Benefits.............................................. 2
2.04 Payment of Benefits............................................. 4
2.05 Death........................................................... 4
2.06 Resumption of Employment........................................ 5
2.07 Change-in-Control............................................... 5
III. PLAN ADMINISTRATION
3.01 Administration.................................................. 6
3.02 Claims Procedure................................................ 6
3.03 Expenses........................................................ 7
IV. GENERAL PROVISIONS
4.01 No Funding..................................................... 8
4.02 Amendment of the Plan.......................................... 8
4.03 Termination of the Plan........................................ 9
4.04 Plan Not a Contract of Employment.............................. 9
4.05 Facility of Payment............................................ 10
4.06 Withholding Taxes.............................................. 10
4.07 Nonalienation.................................................. 10
4.08 Forfeiture for Cause........................................... 11
4.09 Construction................................................... 11
</TABLE>
<PAGE>
AMERICAN SAVINGS BANK
SUPPLEMENTAL RETIREMENT PLAN
FOR CHIEF EXECUTIVE OFFICER
ARTICLE I
DEFINITIONS
The following terms when capitalized herein shall have the meanings assigned
below.
1.01 Bank shall mean American Savings Bank, a bank organized under the laws of
Connecticut, or any successor by merger, purchase or otherwise.
1.02 Board of Directors shall mean the Board of Directors of the Bank.
1.03 Change-in-Control shall mean a change in control as defined in the
American Savings Bank Supplemental Executive Retirement Plan, as amended
from time to time.
1.04 Chief Executive Officer shall mean the chief executive officer of the
Bank.
1.05 Code shall mean the Internal Revenue Code of 1986, as amended from time to
time.
1.06 Effective Date shall mean October 1, 1999.
1.07 Participant shall mean a Chief Executive Officer who is participating in
the Plan pursuant to Section 2.01 hereof.
1.08 Plan shall mean the American Savings Bank Supplemental Retirement Plan for
Chief Executive Officer, as set forth herein and as may be amended from
time to time.
1
<PAGE>
ARTICLE II
PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS
2.01 Participation
(a) The Chief Executive Officer as of the Effective Date shall participate in
the Plan as of that date.
Any subsequent Chief Executive Officer shall become a Participant only upon
action by the Board of Directors approving his participation in the Plan.
(b) A Participant's participation in the Plan shall terminate upon the
Participant's death or upon the Participant ceasing to be Chief Executive
Officer, unless a benefit is payable under the Plan with respect to the
Participant or his spouse under the provisions of this Article II.
2.02 Vesting
A Participant shall be fully vested in, and have a nonforfeitable right to,
the benefit payable under this Article II upon completion of 60 months of
employment, whether or not consecutive, with the Bank. A Chief Executive
Officer who ceases to be a Participant before becoming vested shall receive
no benefit under the Plan.
2.03 Amount of Benefits
A Participant's benefit under the Plan shall be an annual benefit, payable
in monthly installments for the life of the Participant, equal to six
percent (6.0%) of the Participant's Final Earnings multiplied by Recognized
Years of Service, to a maximum of sixty percent of Final Earnings, reduced
by Other Pension Plan Benefits.
For purposes of this section:
2
<PAGE>
(a) "Final Earnings" means the sum of the Participant's immediately preceding
annual rate of base pay from the Bank plus the average of the three (3)
most recently earned short-term incentive compensation bonuses.
(b) "Recognized Years of Service" means years of service as an executive
officer of the Bank, to the extent recognized by the Board of Directors
for this purpose, plus any other years of service with the Bank that may be
credited by the Board of Directors in its sole discretion for this purpose.
(c) "Other Pension Plan Benefits" means the actuarial equivalent of the pension
benefits which the Participant is entitled to receive at retirement from
qualified and nonqualified plans (other than this Plan) maintained by the
Bank and all other employers of the Participant, whether or not such
benefits become payable at the same time as the benefit provided under the
Plan. "Other Pension Plan Benefits" shall not include retirement benefits
that are attributable to the Participant's own contributions or that are
payable from a defined contribution plan, employee stock ownership plan, or
welfare plan. For purposes of determining the actuarial equivalent of
benefits payable from another plan, the actuarial factors of such other
plan shall be used (subject to their availability); otherwise, reasonable
actuarial factors as established by an actuary appointed by the Board of
Directors shall be used, and the date of determination shall be the date
benefit payments begin under this Plan, all as reasonably determined by an
actuary appointed by the Board. Following a Change-in-Control, a change in
the actuary may only take effect with the unanimous written consent or all
Participants in the Plan and, in the case of a deceased Participant, any
surviving spouse who is entitled to benefits under the Plan.
2.04 Payment of Benefits
(a) A Participant shall receive the benefit payable under Section 2.03,
commencing as of
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the first of the month next following the later of (i) the Participant's
attainment of age 62, or (ii) his last day as an employee of the Bank.
(b) A Participant who ceases to be an employee of the Bank before attaining age
sixty-two may elect to receive the benefit payable under Section 2.03
commencing as of the first of any month following the later of (i) the
Participant's attainment of age 60, or (ii) his last day as an employee of
the Bank.
2.05 Death
(a) If a Participant who is entitled to a vested benefit under the Plan dies
before his benefit payments begin, such Participant's surviving spouse
shall receive a monthly payment for life commencing as of the first of the
month next following the date the Participant would have attained age 62 or
the date of the Participant's death, if later. Such surviving spouse may
elect to begin receiving monthly benefits as of the first day of any month
following the date the Participant would have attained age 60 but before
the date the Participant would have attained age 62.
The amount of the benefit payable to a surviving spouse shall be fifty
percent (50%) of the monthly benefit the Participant would have been
entitled to receive as of the benefit commencement date.
(b) If a Participant dies after benefit payments have commenced, such
Participant's surviving spouse shall receive a monthly benefit for life
commencing as of the first of the month next following the Participant's
death. The amount of such benefit shall be fifty percent
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(50%) of the monthly benefit being received by the Participant immediately
before his death.
(c) If a Participant is not married at the time of death, no further benefits
will be paid under the Plan.
2.06 Resumption of Employment
If a Participant who is receiving benefits under the Plan again becomes an
executive officer of the Bank, all benefit Payments to such Participant
shall cease during the period of re-employment. Payments shall resume upon
subsequent termination of employrnent, without adjustment for the period
during which payments were not made.
2.07 Change-in-Control
In the event of a Change-in-Control of the Bank, each Participant shall
become fully vested in his benefit, and shall be entitled to receive such
benefit in accordance with Sections 2.04 and 2.05.
In addition, within a reasonable period following a Change-in-Control, the
Bank shall establish a grantor trust, as described in Section 4.01 (b). The
Bank shall contribute to such trust the amount necessary to fund all
benefits accrued as of the Change-in-Control, determined in accordance with
Section 2.03 by the actuary appointed by the Board, using reasonable
actuarial factors based on the actuarial standards set forth in Section
4.07(e) of the Code or any successor thereto. Following a Change-in-
Control, a change in the actuary may only take effect with the unanimous
written consent of all Participants in the Plan, including, in the case of
a deceased Participant, any surviving spouse who is
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entitled to benefits under the Plan.
ARTICLE III
PLAN ADMINISTRATION
3.01 Administration
The administration of the Plan, the exclusive power to interpret it, and
the responsibility for carrying out its provisions are vested in the Board
or its designate. The Board or its designate shall have the authority to
resolve any question under the Plan. The determination of the Board or its
designate as to the interpretation of the Plan or any disputed question
shall be conclusive and final to the extent permitted by applicable law.
3.02 Claims Procedure
(a) Claims for benefits under the Plan shall be submitted in writing to the
Board or to an individual designated by the Board for this purpose.
(b) If any claim for benefits is wholly or partially denied, the claimant shall
be given written notice within a reasonable period following the date on
which the claim is filed, which notice shall set forth
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions on which the denial is
based;
(iii) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(iv) an explanation of the Plan's claim review procedure.
If the claim has not been granted and written notice of the denial of the
claim is not
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furnished in a timely manner following the date on which the claim is filed,
the claim shall be deemed denied for the purpose of proceeding to the claim
review procedure.
(c) The claimant or his authorized representative shall have 30 days after
receipt of written notification of denial of a claim to request a review of
the denial by making written request to the Board, and may review pertinent
documents and submit issues and comments in writing within such 30-day
period.
After receipt of the request for review, the Board or its designate shall,
in a timely manner, render and furnish to the claimant a written decision,
which shall include specific reasons for the decision and shall make
specific references to pertinent Plan provisions on which it is based. Such
decision by the Board shall not be subject to further review. If a decision
on review is not furnished to a claimant, the claim shall be deemed to have
been denied on review.
(d) No claimant shall institute any action or proceeding in any state or
federal court of law or equity or before any administrative tribunal or
arbitrator for a claim for benefits under the Plan until the claimant has
first exhausted the procedures set forth in this section.
3.03 Expenses
Expenses attributable to the administration of the Plan shall be paid
directly by the Bank.
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ARTICLE IV
GENERAL PROVISIONS
4.01 No Funding
(a) All amounts payable in accordance with the Plan shall constitute a general
unsecured obligation of the Bank. Such amounts, as well as any
administrative costs relating to the Plan, shall be paid out of the general
assets of the Bank, to the extent not paid from the assets of any trust
established pursuant to paragraph (b) below.
(b) The Bank may, for administrative reasons, establish a grantor trust with an
independent trustee for the benefit of Participants in the Plan. The
assets placed in said trust shall be held separate and apart from other
Bank funds and shall be used exclusively for the purposes set forth in the
Plan and the applicable trust agreement, subject to the following
conditions:
(i) the Bank shall be treated as "grantor" of said trust for purposes of
Section 677 of the Code; and
(ii) the agreement of said trust shall provide that its assets may be used
upon the insolvency or bankruptcy of the Bank to satisfy claims of the
Bank's general creditors and that the rights of such general creditors are
enforceable by them under federal and state law.
4.02 Amendment of the Plan
The Board reserves the right to modify or amend the Plan, in whole or in
part, at any time, and from time to time. However, no modification or
amendment shall adversely affect the right of any Participant or surviving
spouse of a deceased Participant to receive the vested benefits accrued as
of the date of such modification, amendment or discontinuance without their
unanimous written consent.
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Notwithstanding the foregoing, no amendment or modification to the Plan may
be made in connection with, or after, a Change-in-Control without the
unanimous written consent of the Participants and, in the case of any
deceased Participants, any surviving spouses who are entitled to benefits
under the Plan.
4.03 Termination of the Plan
The Bank reserves the right to terminate the Plan at any time, provided,
however, that no termination shall be effective retroactively. As of the
effective date of termination of the Plan:
(a) the benefits of any Participant or spouse whose benefit payments have
commenced shall continue to be paid, and
(b) any Participant whose benefit is vested in accordance with Section 2.02 and
spouse thereof shall be entitled to receive such benefit in accordance with
the terms of the Plan.
Notwithstanding the foregoing, the Plan may not be terminated in connection
with, or after, a Change-in-Control without the unanimous written consent
of the Participants and, in the case of any deceased Participants, any
surviving spouses who are entitled to benefits under the Plan.
4.04 Plan Not a Contract of Employment
The Plan is not a contract of employment, and the terms of employment of
any Participant shall not be affected in any way by the Plan or related
instruments, except as specifically provided therein. The establishment of
the Plan shall be construed as conferring any legal rights upon any person
for a continuation of employment, nor shall it interfere with the rights of
the Bank to discharge any person and to treat the Participant without
regard to the effect which such treatment might have upon the Participant
under the Plan. Each Participant and all persons who may have or claim any
right
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by reason of his participation shall be bound by the terms of the
Plan and all agreements entered into pursuant thereto.
4.05 Facility of Payment
In the event that the Bank shall find that a Participant or surviving
spouse is unable to care for his affairs because of illness or accident, or
because such individual is a minor or has died, the Bank may, unless claim
shall have been made therefor by a duly appointed legal representative,
direct that any benefit payment due him be paid on his behalf to his
spouse, a child, a parent or other blood relative, or to a person with whom
he resides, and any such payment so made shall be a complete discharge of
the liabilities of the Bank and the Plan therefor.
4.06 Withholding Taxes
The Bank shall have the right to deduct from each payment to be made under
the Plan any required withholding taxes.
4.07 Nonalienation
Subject to any applicable law, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt to do so shall be void, nor
shall any such benefit be in any manner liable for or subject to
garnishment, attachment, execution or levy, or liable for or subject to the
debts, contracts, liabilities, engagements or torts of the person entitled
to such benefits.
4.08 Forfeiture for Cause
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In the event that the Participant's employment with the Bank is
involuntarily terminated for reason of serious misconduct, including by way
of example, dishonesty or fraud on the part of such Participant in his
relationship with the Bank, all benefits that would otherwise be payable to
the Participant or to his spouse under the Plan shall be forfeited.
Notwithstanding the foregoing, no forfeiture shall take place following a
Change-in-Control unless the Participant is convicted of a felony involving
dishonesty or fraud on the part of such Participant in his relationship
with the Bank.
4.09 Construction
(a) The Plan shall be construed, regulated and enforced under ERISA and the
laws of the State of Connecticut, except where ERISA controls.
(b) The masculine pronoun shall mean the feminine wherever appropriate.
(c) The illegality of any particular provision of this document shall not
affect the other provisions and the document shall be construed in all
respects as if such invalid provision were omitted.
(d) The headings and subheadings in the Plan have been inserted for convenience
of reference only, and are to be ignored in any construction of the
provisions thereof.
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[KPMG LOGO]
Cityplace II
Hartford, CT 06103-4103
Consent of Independent Certified Public Accounts
Board of Directors
American Savings Bank:
We consent to the use of our report dated February 17, 1999, except for Note 17
which is as of June 28, 1999, included in the prospectus of American Financial
Holdings, Inc., which is a part of the registration statement on Form S-1 (No.
333-84463) for American Financial Holdings, Inc., a part of the application for
conversion and a part of the notice of intent to convert to stock form filed
pursuant to 12 CFR 303.161 for American Savings Bank, relating to the
consolidated balance sheets of American Savings Bank as of December 31, 1998 and
1997, and the related consolidated statements of income, equity, and cash flows
for each of the years in the three-year period ended December 31, 1998. We
further consent to the use of our opinions referred to in the prospectus
regarding certain income tax consequences of the proposed reorganization and
offering and of the proposed charitable foundation.
We consent to the references to our firm under the headings "American Savings
Bank Consolidated Statements of Income", "The Conversion--Effects of Conversion
to Stock Form--Tax Effects", "Legal and Tax Opinions", and "Experts" in the
prospectus.
/s/ KPMG LLP
Hartford, Connecticut
September 17, 1999
