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As filed with the Securities and Exchange Commission on August 4, 1999
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
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(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 $ 124,878
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Participation (3) _______ $ 7,000,000 (4)
Interests
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(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) 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.
(4) The securities of American Financial Holdings, Inc. to be purchased by
American Savings Bank 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.
<PAGE>
INTERESTS IN
AMERICAN SAVINGS BANK
EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN
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 and Profit-Sharing Plan 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.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS__________________, 1999.
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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.
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. 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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TABLE OF CONTENTS
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THE OFFERING......................................... 1
Securities Offered.............................. 1
Election to Purchase American Financial Common
Stock in the Conversion of American Savings.... 1
Value of Participation Interests................ 2
Method of Directing Transfer.................... 2
Time for Directing Transfer..................... 2
Irrevocability of Transfer Direction............ 2
Purchase Price of American Financial Common
Stock.......................................... 2
Nature of a Participant's Interest in American
Financial Common Stock......................... 2
Voting and Tender Rights of American Financial
Common Stock................................... 3
DESCRIPTION OF THE SAVINGS PLAN...................... 3
Introduction.................................... 3
Eligibility and Participation................... 4
Contributions Under the Savings Plan............ 4
Limitations on Contributions.................... 4
Limitation on Employee Salary Deferral.......... 4
Investment of Contributions..................... 6
Benefits Under the Savings Plan................. 8
Withdrawals and Distributions From the Savings
Plan........................................... 8
Administration of the Savings Plan.............. 9
Reports to Savings Plan Participants............ 9
Plan Administrator.............................. 9
Amendment and Termination....................... 10
Merger, Consolidation or Transfer............... 10
Federal Income Tax Consequences................. 10
Restrictions on Resale.......................... 12
SEC Reporting and Short-Swing Profit Liability.. 13
LEGAL OPINIONS....................................... 14
CHANGE OF INVESTMENT ALLOCATION FORM................. 15
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<PAGE>
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 the conversion offering is oversubscribed and some or all of your
funds cannot be used to purchase common stock in the conversion offering, the
trustee will reallocate the amount not invested in American Financial common
stock on a proportionate basis to the other investment options you have
selected. If you fail to direct the investment of your account, your account
balance will remain in the other investment options of the Savings Plan.
Your ability to invest in the American Financial Stock Fund is based on
your status as an eligible account holder, supplemental eligible account holder,
or other member 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, supplemental eligible account holders or other members 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.
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.
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.
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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
On ____________________, 1999, American Savings implemented the Thrift and
Profit Sharing Plan for Employees of American Savings. Effective
__________________, 1999, American Savings withdrew from the Thrift and Profit
Sharing Plan and simultaneously adopted the American Savings Employees' Savings
and Profit Sharing Plan to include the American Financial Stock Fund as an
investment alternative. 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 _______________________ 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 total pay reportable on
IRS Form W-2 for purposes of income-tax withholding. 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 the month.
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 3% 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
--------------------------------------------
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 are adjusted annually to reflect increases in the
cost of living.
Top-Heavy Plan Requirements. If for any calendar year the Savings Plan is
---------------------------
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.
Immediately before ________ __, 1999, the Savings Plan offered the
following 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.
A. Previous Funds.
--------------
Before the conversion of American Savings and implementation of the
American Financial Stock Fund, contributions under the Savings Plan were
invested in the funds specified below. The annual percentage return on these
funds for the prior three years was:
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1998 1997 1996
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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>
7
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B. The American Financial Stock Fund.
---------------------------------
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
-------
Savings Plan. You vest in regular matching contributions on the first month
following two (2) years of participation in the Savings Plan. Special
contributions vest 100% on January 1st following the employer contribution.
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 and the withdrawal
of un-matched after-tax 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 _____ hardship
withdrawals in any calendar year.
Distribution Upon Retirement or Disability. Upon retirement or disability,
------------------------------------------
you will receive a 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 $5,000, the trustee will make your distribution on your
normal retirement date, unless you request otherwise. If your account balances
does not exceed $5,000, 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________________
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
<PAGE>
PLAN ADMINISTRATOR
The current plan administrator of the Savings Plan is
____________________________. 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>
PSI FORM 7 (97) - H12
CHANGE OF INVESTMENT ALLOCATION
MEMBER DATA (Please Type or Print Clearly):
1. Soc. Sec. Number ___ ___ ____ - ___ ___ - ___ ___ ___ ___
2. Name ___________________________________________________________________
Last First Middle Initial
3. Current Address _______________________________________________________
Street City State Zip Code
SECTION I
NEW INVESTMENT DIRECTIONS (APPLICABLE TO ACCUMULATED BALANCES ONLY)
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 the
selected Funds in whole percentages.
THE TOTAL OF YOUR FUND TO FUND PERCENTAGES MUST TOTAL 100%.
<TABLE>
<CAPTION>
<S> <C> <C>
______% FROM ______% FROM ______% FROM
S&P 500 STOCK FUND TO: STABLE VALUE FUND TO: S&P MIDCAP STOCK FUND TO:
______% Stable Value Fund ______% S&P 500 Stock Fund ______% S&P 500 Stock Fund
______% S&P MidCap Stock Fund ______% S&P MidCap Stock Fund ______% Stable Value Fund
______% Money Market Fund ______% Government Bond Fund ______% Money Market Fund
______% Government Bond Fund ______% International Stock Fund ______% Government Bond Fund
______% International Stock Fund ______% Income Plus Fund ______% International Stock Fund
______% Income Plus Fund ______% Growth and Income Fund ______% Income Plus Fund
______% Growth and Income Fund ______% Growth Fund ______% Growth and Income Fund
______% Growth Fund % American Financial Stock Fund ______% Growth Fund
% American Financial Stock Fund ====== % American Financial Stock Fund
====== 100 ======
100 100
______% FROM ______% FROM ______% FROM
MONEY MARKET FUND TO: GOVERNMENT BOND FUND TO: INTERNATIONAL STOCK FUND TO:
______% S&P 500 Stock Fund ______% S&P 500 Stock Fund ______% S&P 500 Stock Fund
______% Stable Value Fund ______% Stable Value Fund ______% Stable Value Fund
______% S&P MidCap Stock Fund ______% S&P MidCap Stock Fund ______% S&P MidCap Stock Fund
______% Government Bond Fund ______% Money Market Fund ______% Money Market Fund
______% International Stock Fund ______% International Stock Fund ______% Government Bond Fund
______% Income Plus Fund ______% Income Plus Fund ______% Income Plus Fund
______% Growth and Income Fund ______% Growth and Income Fund ______% Growth and Income Fund
______% Growth Fund ______% Growth Fund ______% Growth Fund
% American Financial Stock Fund % American Financial Stock Fund % American Financial Stock Fund
====== ====== ======
100 100 100
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
______% FROM ______% FROM ______% FROM
INCOME PLUS ASSET ALLOCATION FUND TO: GROWTH AND INCOME ASSET ALLOCATION FUND TO: GROWTH ASSET ALLOCATION FUND TO:
______% S&P 500 Stock Fund ______% S&P 500 Stock Fund ______% S&P 500 Stock Fund
______% Stable Value Fund ______% Stable Value Fund ______% Stable Value Fund
______% S&P MidCap Stock Fund ______% S&P MidCap Stock Fund ______% S&P MidCap Stock Fund
______% Money Market Fund ______% Money Market Fund ______% Money Market Fund
______% Government Bond Fund ______% Government Bond Fund ______% Government Bond Fund
______% International Stock ______% International Stock ______% International Stock Fund
______% Growth and Income Fund ______% Income Plus Fund ______% Income Plus Fund
______% Growth Fund ______% Growth Fund ______% Growth and Income Fund
% American Financial Stock Fund % American Financial Stock Fund % American Financial Stock Fund
====== ====== ======
100 100 100
</TABLE>
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, the S&P MidCap Stock Fund, Government Bond Fund, International Stock Fund,
Income Plus Asset Allocation Fund, Growth and Income Asset Allocation Fund,
Growth Asset Allocation Fund and/or American Financial 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 from the Stable Value Fund that have not
satisfied the equity wash requirement. Such amounts will remain in either the
S&P 500 Stock Fund, the S&P MidCap Stock Fund, Government Bond Fund,
International Stock Fund, Income Plus Asset Allocation Fund, Growth and Income
Asset Allocation Fund, Growth Asset Allocation Fund, and/or American Financial
Stock Fund and a separate direction to transfer them to the Money Market Fund
will be required when they become available.
MEMBER'S SIGNATURE
___________________________ ________________
Signature of Member Date
PENTEGRA SERVICES IS HEREBY AUTHORIZED TO MAKE THE ABOVE LISTED CHANGE(S) TO
THIS MEMBER'S RECORD.
____________________________________ _________________
Signature of American Savings Date
Authorized Representative
<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 Financial is offering for sale shares of common stock in
connection with the conversion of American Savings Bank from the mutual to stock
form of organization. American Savings will become a wholly owned subsidiary of
American Financial. American Financial has already received subscriptions for
the remaining _________ shares of the aggregate of up to ________ shares to be
sold. No common stock will be sold unless additional subscriptions are received
for at least the minimum number of shares in the offering. All funds submitted
to American Savings to purchase shares of stock will be placed in a deposit
account at American Savings until the shares are issued or the funds are
returned.
There is currently no public market for the common stock. The common stock
is expected to be quoted on the Nasdaq National Market. Sandler O'Neill &
Partners, L.P. intends to make a market in the common stock.
================================================================================
TERMS OF THE OFFERING
This offering will expire no later than 12:00 noon, Eastern time, on
____________, 1999, unless extended.
. Price Per Share $10.00
. Number of Shares
Minimum/Maximum
. Underwriting Commissions and Other Expenses
Minimum/Maximum
. Net Proceeds to American Financial
in the Offering
Minimum/Maximum
. Net Proceeds per Share to American Financial
Offering
Minimum/Maximum
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE __ OF THE ACCOMPANYING
DOCUMENT.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the State of Connecticut Department of Banking, nor any other state
securities regulator has approved or disapproved these securities or determined
if this prospectus is accurate 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 in a syndicated community offering
a minimum of ___________ shares and up to __________ shares of common stock, at
a per share price of $10.00. These shares are to be sold upon the conversion of
American Savings Bank, New Britain, Connecticut 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 such conversion have been subscribed for in
subscription and community offerings by persons with $50 or more on deposit at
American Savings as of December 31, 1997, by the American Savings employee stock
ownership plan, a tax-qualified employee benefit plan, and related trust, by
persons with $50 or more on deposit at American Savings as of ___________, 1999,
by American Savings' directors, officers and employees who do not have a higher
priority right and American Savings' corporators and, by members of the general
public. The prospectus in the form used in the subscription and community
offerings follows 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 community offerings.
Funds submitted to the American Savings with purchase orders will earn
interest at the American Savings' passbook rate of interest from the date of
receipt until completion or termination of the conversion. THIS SYNDICATED
COMMUNITY OFFERING WILL EXPIRE NO LATER THAN _______________, 1999, UNLESS
EXTENDED BY AMERICAN SAVINGS AND AMERICAN FINANCIAL WITH THE APPROVAL OF THE
STATE OF CONNECTICUT DEPARTMENT OF BANKING. Such extensions may not go beyond
August 3, 2001. If the syndicated community offering is extended, all
subscribers will be notified of such extension, and of their rights to confirm,
modify or rescind their subscriptions and have their funds returned promptly
with interest, and of the time period within which the subscriber must notify
American Savings of his intention to confirm, modify or rescind his
subscription. If an affirmative response to any resolicitation is not received
by American Savings and American Financial from subscribers, such orders will be
rescinded and all funds will be returned promptly with interest. The minimum
number of shares which may be purchased is 25 shares. Except for the employee
stock ownership plan, which intends to purchase up to 8% of the total number of
shares of common stock issued in the conversion, no person, together with
associates of and persons acting in concert with such person, may purchase in
the community offering or syndicated community offering more than $500,000 of
common stock (50,000 shares); provided however, that shares of common stock
purchased in the community offering by any persons, together with associates of
and persons acting in concert with such persons, will be aggregated with
purchases in the syndicated community offering and be subject to an overall
maximum purchase limitation of 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.
American Financial and American Savings have engaged Sandler O'Neill &
Partners, L.P. as financial advisors to assist them in the sale of the common
stock in the syndicated community offering. It is anticipated that Sandler
O'Neill will use the services of other registered broker-dealers and that fees
to Sandler O'Neill and such selected dealers will not exceed __% of the
aggregate purchase price of the shares sold in the syndicated community
offering. Neither Sandler O'Neill nor any selected dealer shall have any
obligation to take or purchase any shares of common stock in the syndicated
community offering.
Prior to 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 a market
may have an adverse impact on both the price and liquidity of the stock.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" ON PAGES __ TO __ OF THE PROSPECTUS.
2
<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 and will become a wholly owned subsidiary of American Financial
Holdings, Inc.
Price Per Share: $10.00
Expected Trading Market: Nasdaq National Market
<TABLE>
<CAPTION>
Minimum Maximum
------- -------
<S> <C> <C>
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
</TABLE>
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 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 the Federal Deposit Insurance Corporation or any other government agency.
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......................................................
Use of Proceeds..................................................................................
Dividend Policy..................................................................................
Market for Common Stock..........................................................................
Capitalization...................................................................................
Historical and Pro Forma Regulatory Capital Compliance...........................................
Pro Forma Data...................................................................................
Comparison of Valuation and Pro Forma 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
<TABLE>
<S> <C>
American Financial Holdings, Inc. (page __) American Savings formed American Financial to be its holding
102 West Main Street company. To date, American Financial has only conducted
New Britain, Connecticut 06051 organizational activities. After the conversion, it will
(860) 832-4000 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 bank dedicated to serving
178 Main Street the financial service needs of consumers within its primary
New Britain, Connecticut 06051 market area. Currently, American Savings operates out of
(860) 832-4000 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 its offering of products
and services beyond traditional loan and deposit products.
It began offering trust services in 1996. In 1993, it began
to offer mutual funds, annuities and other non-deposit
investment products through a third party. In 1997,
American Savings established a wholly owned subsidiary,
which directly and through such third party, offered these
financial products and services to customers. See "Business
of American Savings--Trust Services" and "--Subsidiary
Activities--American Investment Services, Inc."
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
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."
</TABLE>
THE CONVERSION
<TABLE>
<S> <C>
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 us that it does not intend to object to
the conversion.
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;
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. 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 commitment to its local
(page _______) 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. 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, see "Pro
Forma Data" and "Comparison of Valuation and Pro Forma
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 Bank Foundation, Inc., which had assets of $11.2 million
at May 31, 1999, 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 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 Savings intend to adopt the
(page __) 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
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<S> <C>
are issued in the conversion, to 3,124,872 shares, assuming
39,060,900 shares are issued in the conversion. 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. 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.
This plan may also award shares of stock to key employees and
directors at no cost to the recipient. 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.
. 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.
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<S> <C>
. 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>
<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>
<TABLE>
<S> <C>
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 --Issuance of shares for benefit programs
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 1. Persons with $50 or more on deposit at American
transferable, and persons with subscription Savings as of December 31, 1997.
rights may not subscribe for shares for the
benefit of any other person. If you violate 2. The American Savings employee stock
this prohibition, you may lose your rights ownership plan.
to purchase shares and may face criminal
prosecution and/or other sanctions. 3. Persons with $50 or more on deposit at
American Savings as of __________, 1999.
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5
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<S> <C>
4. American Savings' directors, officers and
employees who do not have a higher priority
right.
5. American Savings' corporators.
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.
Community Offering (page __) American Financial may offer shares not sold in the subscription
offering to the general public in a 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 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 community offering at any time during
the subscription offering.
American Financial and American Savings may reject orders received
in the community offering either in whole or in 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 _________ __, 1999, and
Conversion 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. Extensions may not go
beyond August 3, 2001.
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.
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<S> <C>
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 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>
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<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
Connecticut thrifts....................... 13.89 163.73
Median for the comparable group............... 12.61 131.42
</TABLE>
<TABLE>
<S> <C>
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 is $500,000 of
common stock, which equals 50,000 shares.
The maximum purchase by any person in the community offering is
$500,000 of common stock, which equals 50,000 shares.
The maximum purchase in the subscription offering and 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 subscription offering
or place a purchase order for shares in the community offering,
Note: Once American Financial receives your you must complete an original stock order form and send it
order, you cannot cancel or change it together with full payment to American Savings in the postage-paid
without American Financial's consent. If envelope provided. You must sign the certification that is part
American Financial intends to sell fewer of the stock order form. American Savings must receive your stock
than 26,732,500 shares or more than order form before the end of the subscription offering or the end
41,592,625 shares, all subscribers will be of the community offering, as appropriate.
notified and given the opportunity to change
or cancel their orders. If you do not You may pay for shares in the subscription offering or the
respond to this notice, American Financial community offering in any of the following ways:
will return your funds promptly with
interest. . By cash, if delivered in person to a full-service banking
office of American Savings.
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<S> <C>
. 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 at least one
week before the end of the subscription offering or the community
offering, as appropriate, 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.
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 retain the remaining net proceeds for general
business purposes. 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 gross proceeds of
the offering 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, and will
keep the remainder of the net proceeds for general business purposes. These
purposes may include, for example, investment in securities, paying cash dividends
or buying back shares of common stock, although they have no specific plans to do
so at this time.
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 executive officers intend to subscribe for 308,000
Officers (page __) 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
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9
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<S> <C>
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 amount or frequency of payments.
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RISK FACTORS
Before investing in American Financial Holdings, Inc.'s common stock please
carefully consider the matters discussed below.
American Savings' return on equity will continue to be below average after
conversion because of high capital levels
Return on 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 expects that
its return on average equity will continue to be below that average after the
offering. 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
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
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.
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."
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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."
Issuance of shares for benefit programs 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 these
plans. 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
12
<PAGE>
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 Valuation and Pro Forma 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
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. 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 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
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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.
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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
for loan losses....................... 18,120 17,869 42,522 40,594 37,187 37,418 37,007
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
of securities......................... 2,797 4,196 6,696 4,655 3,950 2,877 1,429
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
of average assets........................... 1.65 1.70 1.78 1.55 1.48 1.50 1.14
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>
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 the 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
stock ownership plan............................................... $ 23,097 $ 31,249 $ 35,936
</TABLE>
American Financial has received conditional approval from the State of
Connecticut Department of Banking and from the Federal Deposit Insurance
Corporation to 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.
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 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.
17
<PAGE>
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 amount that
may be paid or when the payments may begin. 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.
18
<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 "___" 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.
19
<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
----------------------------------------------
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
stock ownership plan (5)................................ -- (23,097) (31,249) (35,936)
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 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 programs 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.
20
<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 Estimated Estimated
Valuation Range Valuation Range Valuation 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.
21
<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) Sandler O'Neill will receive a fee equal to 1.35% of the aggregate
purchase price of the shares sold in the conversion, 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
(2) 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, 1998 and 1999, 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, respectively, 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 offering begins. 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.
. 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
22
<PAGE>
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 under the stock option 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 shareholders 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 the 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.
23
<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.......................................... $ 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.......................................... $ 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................ 10.96x 13.89x 15.43x
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1998
----------------------------------------------
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........... 26,676,896 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........................................ $ 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........................................ $ 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>
25
<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.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
----------- ----------- -----------
(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 offered 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. 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) 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, and that the combined federal and state income tax rate
is 35%. 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%.
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.
26
<PAGE>
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
----------- ----------- -----------
(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>
27
<PAGE>
COMPARISON OF VALUATION AND
PRO FORMA INFORMATION WITH AND WITHOUT FOUNDATION
If the American Savings Charitable Foundation is not established and funded as
part of the conversion, FinPro estimates that the pro forma market
capitalization of American Financial would be approximately $360.0 million at
the midpoint of the estimated valuation range, which is approximately $20.3
million greater than the pro forma market capitalization of American Financial
if the foundation is included, and would result in approximately a $45.5
million, or 14.5%, 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 would be the same as this estimate.
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 in the "Pro Forma Data."
<TABLE>
<CAPTION>
At the Maximum,
At the Minimum At the Maximum as Adjusted
------------------------ ------------------------- ------------------------
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 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(1)........................ 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(1).............. 0.38 0.37 0.30 0.30 0.27 0.27
Pro Forma Pricing Ratios:
Offering price as a percentage of pro forma
stockholders' equity per share........... 55.49% 55.74% 64.68% 64.43% 68.87% 68.35%
Offering price to pro forma net income
per share................................ 10.96 11.26 13.89 13.89 15.43 15.43
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) Net income and net income per share data are based on the five month
period ended May 31, 1999.
28
<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 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.
29
<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:
30
<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.
31
<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.
32
<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."
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
33
<PAGE>
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. 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. 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.
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
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<PAGE>
1998, compared to $62.2 million for the prior year. This increase was due to an
$81.8 million increase in the 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.
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 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
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<PAGE>
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 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
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<PAGE>
$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.
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<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.
38
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------------------
1998 1997
----------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)............................... $ 874,373 $66,754 7.63% $ 792,578 $62,202 7.85%
Federal funds sold..................... 29,683 1,600 5.39 25,072 1,379 5.50
Investment securities.................. 348,089 20,585 5.91 403,636 23,855 5.91
Mortgage-backed securities............. 134,201 9,064 6.75 105,545 7,278 6.90
FHLB stock............................. 9,169 580 6.33 8,371 541 6.46
Interest-earning deposits.............. 6,943 406 5.85 -- -- --
---------- ------- ------- ---------- ------- ------
Total interest-earning assets....... 1,402,458 98,989 7.06 1,335,202 95,255 7.13
Non-interest earning assets............ 97,056 85,755
---------- ----------
Total assets........................ $1,499,514 $1,420,957
========== ==========
Interest-bearing liabilities:
Deposits:
Money market accounts............... $ 61,190 $ 1,678 2.74 $ 62,440 $ 1,694 2.71
NOW accounts........................ 58,551 785 1.34 44,852 712 1.59
Savings accounts(2)................. 192,212 3,962 2.06 189,360 3,871 2.04
Certificates of deposit and
retirement accounts.............. 778,142 42,398 5.45 777,725 42,844 5.51
---------- ------- ------- ---------- ------- ------
Total interest-bearing
deposits....................... 1,090,095 48,823 4.48 1,074,377 49,121 4.57
FHLB advances.......................... 83,312 5,244 6.29 52,490 3,386 6.45
---------- ------- ------- ---------- ------- -------
Total interest-bearing
liabilities.................... 1,173,407 54,067 4.61 1,126,867 52,507 4.66
Non-interest-bearing demand
deposits............................ 23,733 23,063
Other non-interest-bearing
liabilities......................... 35,754 29,351
---------- ----------
Total liabilities................ 1,232,894 1,179,281
Equity................................. 266,620 241,676
---------- ----------
Total liabilities and equity..... $1,499,514 $1,420,957
========== ==========
Net interest-earning assets............ $ 229,051 $ 208,335
========== ==========
Net interest income.................... $44,922 $42,748
======= =======
Interest rate spread................... 2.45% 2.47%
Net interest margin (net interest
income as a percentage of
total interest-earning assets)..... 3.20% 3.20%
Ratio of total interest-earning
assets to total interest-bearing
liabilities........................ 119.52% 118.49%
<CAPTION>
1996
--------------------------------------
Average
Average Yield/
Balance Interest Rate
------- -------- -------
<S> <C> <C> <C>
Interest-earning assets:
Loans(1)..................................... $ 704,501 $56,781 8.06%
Federal funds sold........................... 40,295 2,219 5.51
Investment securities........................ 367,573 20,360 5.54
Mortgage-backed securities................... 109,106 7,473 6.85
FHLB stock................................... 8,371 541 6.46
Interest-earning deposits.................... 20,191 1,114 5.52
---------- ------- ------
Total interest-earning assets............. 1,250,037 88,488 7.08
Non-interest earning assets.................. 67,094
----------
Total assets.............................. $1,317,131
==========
Interest-bearing liabilities:
Deposits:
Money market accounts..................... $ 64,348 $ 1,757 2.73
NOW accounts.............................. 32,474 569 1.75
Savings accounts(2)....................... 183,757 3,983 2.17
Certificates of deposit and
retirement accounts.................... 773,447 42,680 5.52
---------- ------- ------
Total interest-bearing deposits........ 1,054,026 48,989 4.65
FHLB advances................................ 1,023 62 6.06
---------- ------- ------
Total interest-bearing liabilities..... 1,055,049 49,051 4.65
Non-interest-bearing demand deposits......... 23,017
Other non-interest-bearing
liabilities............................... 22,939
----------
Total liabilities...................... 1,101,005
Equity....................................... 216,126
----------
Total liabilities and equity........... $1,317,131
==========
Net interest-earning assets.................. $ 194,988
==========
Net interest income.......................... $39,437
=======
Interest rate spread......................... 2.43%
Net interest margin (net interest
income as a percentage of total
interest-earning assets).................. 3.15%
Ratio of total interest-earning
assets to total interest-bearing
liabilities.............................. 118.48%
</TABLE>
(1) Average balances include nonaccrual loans.
(2) Includes mortgagors' escrow accounts.
39
<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 Compared to Compared to
Five 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
------- --------- -------- -------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
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.
40
<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>
41
<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
42
<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
43
<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.
Because substantially all of American Savings' borrowers are individuals
rather than commercial enterprises, 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.
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
44
<PAGE>
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.
45
<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.
46
<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."
47
<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.
48
<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 December 31,
At May 31, ----------------------------------------------------
1999 1998 1997
--------------------------- ------------------------- -------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
---------- ------------ ------------ ------------ ---------- -------------
(Dollars in thousands)
<S> <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%
Residential construction... 15,745 1.7 17,177 1.9 11,755 1.4
Multi-family............... 859 0.1 872 0.1 969 0.1
Commercial................. 339 -- 351 -- 1,094 0.1
-------- ----- -------- ----- -------- -----
Total real estate loans 669,959 70.8 643,219 70.4 601,868 71.4
Consumer loans:
Home equity loan and
lines of credit........... 255,985 27.0 243,102 26.6 216,814 25.7
Automobiles................ 17,319 1.8 20,085 2.2 20,793 2.5
Other...................... 3,542 0.4 6,940 0.8 3,557 0.4
-------- ----- -------- ----- -------- -----
Total consumer loans.... 276,846 29.2 270,127 29.6 241,164 28.6
-------- ----- -------- ----- -------- -----
Total loans............. 946,805 100.0% 913,346 100.0% 843,032 100.0%
===== ===== =====
Net deferred loan
origination costs (fees).. 2,419 1,534 928
Allowance for loan losses.. (7,973) (7,626) (6,277)
-------- -------- --------
Total loans, net........ $941,251 $907,254 $837,683
======== ======== ========
<CAPTION>
At December 31,
----------------------------------------------------------------------------------
1996 1995 1994
--------------------------- ------------------------- -------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
---------- ------------ ------------ ------------ ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family.......... $542,085 72.0% $507,023 74.2% $457,129 72.6%
Residential construction..... 8,979 1.2 2,821 0.4 370 0.1
Multi-family................. 981 0.1 1,132 0.2 484 0.1
Commercial................... 1,711 0.2 1,476 0.2 2,192 0.3
-------- ----- -------- ----- -------- -----
Total real estate loans... 553,756 73.5 512,452 75.0 460,175 73.1
Consumer loans:
Home equity loan and
lines of credit............. 184,370 24.5 160,372 23.5 163,521 26.0
Automobiles.................. 10,945 1.5 6,435 0.9 1,932 0.3
Other........................ 3,573 0.5 4,323 0.6 3,864 0.6
-------- ----- -------- ----- -------- -----
Total consumer loans...... 198,888 26.5 171,130 25.0 169,317 26.9
-------- ----- -------- ----- -------- -----
Total loans............... 752,644 100.0% 683,582 100.0% 629,492 100.0%
===== ===== =====
Net deferred loan
origination costs (fees).. 484 (276) (1,256)
Allowance for loan losses.... (5,588) (4,484) (2,793)
-------- -------- --------
Total loans, net.......... $747,540 $678,822 $625,443
======== ======== ========
</TABLE>
49
<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.
50
<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
51
<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
-------------------------------------------------------------------------------------------------
Home equity
One-to- Residential Multi- loans and lines
four family construction family Commercial of credit Automobiles Other
------------ ------------- --------- ------------- ------------------ -------------- -------
(In thousands)
<S> <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
Due in one to two years..... 21,175 1,961 19 29 14,328 5,606 178
Due in two to three years... 22,187 -- 21 30 13,876 3,124 102
Due in four to five years... 45,086 -- 45 28 25,715 1,203 --
Due in six to ten years..... 115,789 -- 451 58 174,675 -- --
Due in eleven to
fifteen years............ 124,705 -- 173 101 11,439 -- --
Due in over fifteen years... 303,506 -- 132 65 1,039 -- --
-------- ------- ---- ---- -------- ------- ------
Total amount due......... $653,016 $15,745 $859 $339 $255,985 $17,319 $3,542
======== ======= ==== ==== ======== ======= ======
<CAPTION>
-------
Total
-------
<S> <C>
Due in one year or less........... $ 59,959
Due in one to two years........... 43,296
Due in two to three years......... 39,340
Due in four to five years......... 72,077
Due in six to ten years........... 290,973
Due in eleven to
fifteen years.................. 136,418
Due in over fifteen years......... 304,742
--------
Total amount due............... $946,805
========
</TABLE>
52
<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.
53
<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.
54
<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,
prepayments and other, net................ 166,629 128,758 306,392 178,793 159,272
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
55
<PAGE>
contacting the borrower and seeking the payment. A late notice is mailed on the
16/th/ day of the month. In most 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 90/th/ 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.
56
<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 Number Principal Number Principal
Number Balance Number Balance of Balance of Balance
of Loans of Loans of Loans of Loans Loans of Loans 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 Number Principal Number Principal
Number Balance Number Balance of Balance of Balance
of Loans of Loans of Loans of Loans Loans of Loans 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
57
<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
58
<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,
beginning of period................ $ 7,626 $ 6,277 $ 6,277 $ 5,588 $ 4,484 $ 2,793 $ 1,620
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."
59
<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>
60
<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------
1998 1997
--------------------------------- --------------------------------
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
------ --------- ----------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans...................... $6,874 90.1% 70.4% $6,102 97.2% 71.4%
Consumer loans......................... 752 9.9 29.6 176 2.8 28.6
------ ----- ----- ------ ----- -----
Total allowance
for loan losses............... $7,626 100.0% 100.0% $6,278 100.0% 100.0%
====== ===== ===== ====== ===== =====
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------------- -------------------------------- --------------------------------
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
------ --------- ----------- ------ --------- ----------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans.......... $5,450 97.5% 73.5% $4,319 96.3% 75.0% $2,671 95.6% 73.1%
Consumer loans............. 138 2.5 26.5 165 3.7 25.0 122 4.4 26.9
------ ----- ----- ------ ----- ----- ------ ----- -----
Total allowance
for loan losses... $5,588 100.0% 100.0% $4,484 100.0% 100.0% $2,793 100.0% 100.0%
====== ===== ===== ====== ===== ===== ====== ===== =====
</TABLE>
61
<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. 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.
62
<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 December 31,
At May 31, -------------------------------------------------------------------
1999 1998 1997 1996
----------------------- --------------------- --------------------- ----------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
------------ ---------- ---------- --------- ---------- --------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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>
63
<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
---------- ------------ ---------- ---------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
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>
64
<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
------------ ---------- ---------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
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>
At May 31, 1999
----------------------------------------------
More than
Ten Years Totals
--------------------- -------------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
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>
65
<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 prior to 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.
66
<PAGE>
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
----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(In thousands)
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>
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>
Weight
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>
67
<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 Year Ended December 31,
For the Five Months Ended -----------------------------------
May 31, 1999 1998
--------------------------------- -----------------------------------
Percent Percent
of Total Weighted of Total Weighted
Average Average 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>
For the Year Ended December 31,
--------------------------------------------------------------------------
1997 1996
----------------------------------- -------------------------------------
Percent Percent
of Total Weighted of Total Weighted
Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
----------- ----------- ------------ ---------- ----------- -------------
(Dollars in thousands)
<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.
68
<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 December 31,
---------------------------------------- ---------------------
Total at
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
----------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
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 December 31,
At May 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>
69
<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
70
<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.
71
<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
- ---------------------------------- -------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Administrative Office: (In thousands)
102 West Main Street
New Britain, Connecticut 06051 Owned 1995 -- $2,385
Banking Offices:
178 Main Street
New Britain, Connecticut 06051 Owned 1959 -- 2,598
655 West Main Street
New Britain, Connecticut 06053 Owned 1961 -- 309
1133 Main Street
Newington, Connecticut 06111 Owned 1965 -- 765
123 Main Street
Plainville, Connecticut 06062 Owned 1966 -- 266
Route 195
Mansfield, Connecticut 06250 Leased 1975 2000 (1) 56
25 New London Turnpike
Glastonbury, Connecticut 06033 Owned 1976 -- 152
185 Route 81
Killingworth, Connecticut 06419 Leased 1977 2002 (1) 45
143 South Main Street
West Hartford, Connecticut 06107 Leased 1980 2000 (2) 83
587 Hartford Road
New Britain, Connecticut 06053 Leased 1980 2000 (2) 99
25 Wells Road
Wethersfield, Connecticut 06109 Leased 1986 2006 90
252 Allen Street
New Britain, Connecticut 06053 Leased 1988 2003 (1) 77
714 Hopmeadow Street
Simsbury, Connecticut 06070 Leased 1988 2008 (3) 49
29 South Main Street
West Hartford, Connecticut 06107 Leased 1996 2001 (2) 17
315 West Main Street
Avon, Connecticut 06001 Leased 1997 2005 308
1127 Farmington Avenue
Berlin, Connecticut 06037 Leased 1998 2018 (4) 509
747 Farmington Avenue
New Britain, Connecticut Leased 1998 2003 (3) 161
632 Cromwell Avenue
Rocky Hill, Connecticut 06067 Leased 1998 2003 (2) 286
------
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.
72
<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 after their initial election by 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 after their initial
election by 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 after their initial election by
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:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
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
</TABLE>
73
<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 1991 2001
and Chief 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
Executive Officers Who Are Not Directors
Position Held With American
Name Age (1) Savings
- ---- ------- ---------------------------
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.
74
<PAGE>
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.
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.
75
<PAGE>
Jeffrey T. Witherwax is President of The Naugatuck Glass Company in
Naugatuck, Connecticut.
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.
76
<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. Directors, all
of whom are corporators of American Savings, also receive $125 per year for
attendance at the corporators' meetings. After the conversion, American
Financial expects to pay a retainer of $________________ for service on its
Board of Directors. For a discussion of additional benefits provided to
Directors, see "Benefits--Performance Appreciation Unit Plan."
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 plan will terminate in connection with the conversion.
77
<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 include the value of 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, Perugini and
Ms. Pasqualoni, will be $_______, $_______, $_______, $_______, $_______ and
$_______,
78
<PAGE>
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 hours of service
in a consecutive 12-month period. A participant in the pension plan becomes
vested in his accrued
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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 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>
Years of Service
Average Annual ----------------------------------------------------------------
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.
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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 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 60. 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. 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 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
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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 12 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. In addition, certain designated officers
and key employees will be eligible to receive 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. Assuming that
a change in control had occurred at
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December 31, 1998, and resulted in the termination of all eligible employees,
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
(the "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. 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. 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 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,
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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
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
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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 before the one-year period ends 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 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.
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.
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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
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 Connecticut Banking Commissioner and/or 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 such debt
securities did not exceed 15% of American Savings' total equity capital and
reserves for loan and lease losses and 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.
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 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.
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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 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
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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."
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. 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
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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.
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
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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
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
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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 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
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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.
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
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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.
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
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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 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.
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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) 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.
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 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
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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 may
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 or sold and the
Connecticut Banking Commissioner approves the final valuation 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 over the long-term. By
further enhancing American Savings' visibility and reputation in its local
community,
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American Savings believes that the foundation will enhance the long-term value
of American Savings' community banking franchise.
Purpose of American Savings Charitable Foundation. The purpose of American
Savings Charitable Foundation is to provide funding to support charitable causes
and community development activities. In recent years, American Savings has
emphasized community lending and community activities within its local community
and previously formed 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 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." American Savings Charitable Foundation is
being formed as a complement to American Savings' existing community activities
and its existing foundation's activities, not as a replacement for such
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. In this regard,
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 is a means of enabling American Savings'
community to share in the potential growth and success of American Financial
long after completion of 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. Charitable foundations have been formed by other
financial institutions for this purpose, among others. 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
made charitable contributions to community organizations and contributions to
American Savings Bank Foundation, Inc. in the aggregate amount of $4.0 million,
$2.4 million and $2.3 million, respectively. American Savings expects in future
periods 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. 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 are the current owners
of American Savings. Purchasers of American Financial's stock make their
investment decision with full knowledge of the proposed contribution to American
Savings Charitable Foundation.
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 (7) and twelve (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.
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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.
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 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
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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 Valuation and Pro Forma 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 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."
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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 American Savings' Conversion:
1. the Federal Deposit Insurance Corporation can examine American Savings
charitable Foundation;
2. the foundation must comply with supervisory directives imposed by the
Federal Deposit Insurance Corporation;
3. the foundation will operate in accordance with 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 provide a proposed operating plan prior to
conversion and annual reports to the Federal Deposit Insurance
Corporation describing the grants made and grant recipients; and
5. 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.
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.
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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 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
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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 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.
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.
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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
surplus, undivided profits and general loss reserve, 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 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 a 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 a deposit account on December
31, 1997 or ________, 1999, then the subaccount balance for a 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
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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 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 accountholder's
qualifying deposits compared to total qualifying deposits of all subscribing
eligible account holders. Subscription rights received by officers, directors,
corporators and their 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.
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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 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.
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. 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 determined by the amount of the respective
orders. 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
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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.
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.
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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; 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
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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 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
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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. 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 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,
unless extended.
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 in each account, the account number and the
approximate account balance as of the appropriate eligibility date. 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 or third party checks 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
at the conversion center 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.
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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.
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
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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 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
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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.
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
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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:
1. The maximum purchase in the subscription offering by any person or
group of persons through a single account 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 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,
provided further, that shares of common stock purchased in the direct
community offering by any persons, together with associates of and
persons acting in concert with such persons, will be aggregated with
purchases in the syndicated community offering in applying the
$500,000 purchase limitation; 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, 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
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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 an increase in the maximum purchase limitation and the
sale of 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," with respect to a particular
person, to mean any corporation or organization other than American Financial,
American Savings or a 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. 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 an executive officer of
American Savings, including its Chairman of the Board, President, Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
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 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 shall bear a legend
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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 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, officers, or any person who was an executive officer or director of
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.
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
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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.
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
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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.
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:
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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;
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.
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 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.
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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.
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 (1) American Savings has a
class of voting securities which is registered under Section 12 of the Exchange
Act, or (2) 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.
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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.
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 thereof may have a priority over the holders of the
common stock with respect to dividends.
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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 (1) its corporators who elect American
Savings' directors, and (2) 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.
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.
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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."
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.
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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 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-_____) 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 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 the Federal Deposit Insurance
Corporation. This prospectus omits certain information contained in that
application. 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 and at the Federal Deposit
Insurance Corporation's offices at 15 Braintree Hill, Office Park, Braintree,
Massachusetts 02184.
129
<PAGE>
American Financial has filed with the Office of Thrift Supervision an
application to form a holding company. This prospectus omits certain
information contained in that application. Such 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.
130
<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 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 29 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
Sale of loans, originated for sale (10,441,521) (6,461,987) (13,474,627) (6,327,280) (16,838,332)
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 (3,983,233) 308,322 665,514 3,491,819 (3,679,119)
------------- ------------ ------------- ------------ -----------
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 (24,771,596) (18,577,613) (60,785,561) (88,376,338) (55,399,491)
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 (12,490,204) (27,545,706) (72,035,578) (82,842,139) (109,857,140)
------------- ------------ ------------- ------------ -----------
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>
<CAPTION>
<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)..................................... 45,420
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.......................................... 15,798
-----------
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 Draft Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.1 Draft 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 Plan*
10.8 American Savings Bank 401(k) Plan*
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
______________________________________
*To be filed by amendment
(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 August 4, 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 August 4, 1999
- ----------------------------
Robert T. Kenney and Director (principal executive officer)
/s/ Charles J. Boulier III Executive Vice President, Treasurer August 4, 1999
- ----------------------------
Charles J. Boulier III and Chief Financial Officer
(principal accounting
and financial officer)
/s/ Adolf G. Carlson Director August 4, 1999
- ----------------------------
Adolf G. Carlson
/s/ Marie S. Gustin Director August 4, 1999
- ----------------------------
Marie S. Gustin
/s/ Fred M. Hollfelder Director August 4, 1999
- ----------------------------
Fred M. Hollfelder
/s/ Mark E. Karp Director August 4, 1999
- ----------------------------
Mark E. Karp
/s/ Steven T. Martin Director August 4, 1999
- ----------------------------
Steven T. Martin
/s/ Harry N. Mazadoorian Director August 4, 1999
- ----------------------------
Harry N. Mazadoorian
/s/ Jeffrey T. Witherwax Director August 4, 1999
- ----------------------------
Jeffrey T. Witherwax
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on August 4, 1999
Registration No.333-_____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
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>
TABLE OF CONTENTS
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 Draft Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.1 Draft 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. a
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 Plan*
10.8 American Savings Bank 401(k) Plan*
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
_______________
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
[Letterhead of Sandler O'Neill & Partners, L.P.]
EXHIBIT 1.1
July 30, 1999
Mr. Robert T. Kenney
Chairman, President and Chief Executive Officer
American Savings Bank
178 Main Street
New Britain, Connecticut 06051-2267
Dear Mr. Kenney:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"), is pleased to act as
conversion agent to American Savings Bank (the "Bank") in connection with the
Bank's proposed conversion from mutual to stock form (the "Conversion"). This
letter is to confirm the terms and conditions of our engagement.
SERVICES AND FEES
- -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
<PAGE>
Mr. Robert T. Kenney
July 30, 1999
Page 2
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$75,000. This fee is based upon a total number of unconsolidated accounts of
approximately 185,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5%, the fee will be
proportionately increased.
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual
or additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$10,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder regardless of whether the Conversion is consummated,
including, without limitation, travel, lodging, food, telephone, postage,
listings, forms and other similar expenses; provided, however, that Sandler
-------- -------
O'Neill shall document such expenses to the reasonable satisfaction of the Bank.
The provisions of this paragraph are not intended to apply to or in any way
impair the indemnification provisions of this agreement.
In addition, all taxes however designated, arising from or based upon this
agreement or the payments made to Sandler O'Neill pursuant hereto, including,
but not limited to, any applicable sales, use, excise and similar taxes, shall
be paid by the Bank as the same become due, and the Bank shall, upon request by
Sandler O'Neill, pay the same either to Sandler O'Neill or to the appropriate
taxing authority at any time during, or after the termination of, this
Agreement; provided, however, that the Bank shall not be responsible for the
payment of any state, federal, or local franchise or income taxes based upon the
net income of Sandler O'Neill.
<PAGE>
Mr. Robert T. Kenney
July 30, 1999
Page 3
RELIANCE ON INFORMATION PROVIDED
- --------------------------------
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume responsibility for the
accuracy or completeness of the information. The Bank will also inform Sandler
O'Neill within a reasonable period of time of any changes in the Plan which
require changes in Sandler O'Neill's services. If a substantial expense results
from any such change, the parties shall negotiate an equitable adjustment in the
fee.
LIMITATIONS
- -----------
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties or
obligations other than those specifically set forth herein; (b) will be regarded
as making no representations and having no responsibilities as to the validity,
sufficiency, value or genuineness of any order form or any stock certificates or
the shares represented thereby, and will not be required to and will make no
representations as to the validity, value or genuineness of the offer; (c) shall
not be liable to any person, firm or corporation including the Bank by reason of
any error of judgment or for any act done by it in good faith, or for any
mistake of law or fact in connection with agreement and the performance hereof
unless caused by or arising out of its own bad faith or gross negligence; (d)
will not be obliged to take any legal action hereunder which might in its
judgment involve any expense or liability, unless it shall have been furnished
with reasonable indemnity satisfactory to it; and (e) may rely on and shall be
protected in acting in reliance upon any certificate, instrument, opinion,
notice, letter, telex, telegram, or other document or security delivered to it
and in good faith believed by it to be genuine and to have been signed by the
proper party or parties.
Anything in this agreement to the contrary notwithstanding, in no event
shall Sandler O'Neill be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if Sandler O'Neill has been advised of the likelihood of such loss or damage and
regardless of form of action.
INDEMNIFICATION
- ---------------
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under
<PAGE>
Mr. Robert T. Kenney
July 30, 1999
Page 4
applicable federal or state law, or otherwise, related to or arising out of the
engagement of Sandler O'Neill pursuant to, and the performance by Sandler
O'Neill of the services contemplated by this letter, and will reimburse any
Indemnified Party for all expenses (including reasonable counsel fees and
expenses) as they are incurred, including expenses incurred in connection with
the investigation of, preparation for or defense of any pending or threatened
claim or any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party. The Bank will not be liable under the foregoing
indemnification provision to the extent that any loss, claim, damage, liability
or expense is found in a final judgment by a court of competent jurisdiction to
have resulted primarily from Sandler O'Neill's bad faith or gross negligence.
MISCELLANEOUS
- -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: American Savings Bank
178 Main Street
New Britain, Connecticut 06050-0174
Attention: Mr. Robert T. Kenney
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mr. Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws
of the State of New York.
<PAGE>
Mr. Robert T. Kenney
July 30, 1999
Page 5
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
---------------------------
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
American Savings Bank
By: /s/ Mr. Robert T. Kenney
-----------------------------------------------------
Mr. Robert T. Kenney
Chairman, President and Chief Executive Officer
cc: Douglas P. Faucette
Muldoon, Murphy & Faucette
<PAGE>
APPENDIX A
OUTLINE OF CONVERSION AGENT SERVICES
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms for
voting and ordering stock.
3. Target group identification for subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the
Conversion Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing the
conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services *
1. Direct proxy solicitation if independent solicitor not used.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special meeting.
5. Produce final report of vote.
* To the extent independent third parties are required by any
regulatory agency to perform such services, it is understood and
agreed that Sandler O'Neill will subcontract for such services and
that the Bank will reimburse Sandler O'Neill for such reasonable
fees and expenses incurred as a result of such regulatory
requirement.
A-1
<PAGE>
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgement letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A-2
<PAGE>
[Letterhead of Sandler O'Neill & Partners, L.P.]
July 30, 1999
Mr. Robert T. Kenney
Chairman, President and Chief Executive Officer
American Savings Bank
102 West Main Street
New Britain, Connecticut 06051-2267
Dear Mr. Kenney:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"), is pleased to act as
an independent financial advisor to American Savings Bank (the "Bank") in
connection with the Bank's proposed conversion from mutual to stock form (the
"Conversion"), including the offer and sale of certain shares of the common
stock of the proposed new holding company for the Bank (the "Holding Company")
to the Bank's eligible account holders in a Subscription Offering, to members of
the Bank's community in a Direct Community Offering and, under certain
circumstances, to the general public in a Syndicated Community Offering
(collectively, the "Offerings"). For purposes of this letter, the term "Actual
Purchase Price" shall mean the price at which the shares of the Holding
Company's common stock are sold in the Conversion. This letter is to confirm
the terms and conditions of our engagement.
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Bank and the
Holding Company and will work with the Bank's management, counsel, accountants
and other advisors in connection with the Conversion and the Offerings. We
anticipate that our services will include the following, each as may be
necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
<PAGE>
Mr. Robert T. Kenney
July 30, 1999
Page 2
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility of
the Bank and the Holding Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by 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, which shall not exceed 6% of the
aggregate Actual Purchase Price of the shares sold under such agreements.
Sandler O'Neill will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and the
requirements of the Plan of Conversion, 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 shares of the Holding Company's common stock.
<PAGE>
Mr. Robert T. Kenney
July 30, 1999
Page 3
FEES
- ----
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
1. a fee of one and thirty-five hundredths percent (1.35%) of the
aggregate Actual Purchase Price of the shares of common stock sold in
the Subscription Offering, excluding in each case shares purchased by
(i) any employee benefit plan of the Holding Company or the Bank
established for the benefit of their respective directors, officers
and employees, and (ii) any Charitable Foundation formed by the Bank
or the holding company, and (iii) any director, officer or employee of
the Holding Company or the Bank or members of their immediate
families; and;
2. with respect to any shares of the Holding Company's common stock sold
by an NASD member firm under any selected dealers agreement in the
Syndicated Community Offering, (a) the sales commission payable to the
selected dealer under such agreement, (b) any sponsoring dealer's
fees, and (c) a management fee to Sandler O'Neill of one and thirty-
five hundredths percent (1.35%).
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable out-of-
pocket expenses incurred in connection with its engagement hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Bank agrees to make advance
payments to Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which
shall be payable upon execution of this letter and the remaining $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.
<PAGE>
Mr. Robert T. Kenney
July 30, 1999
Page 4
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder, regardless of whether the Conversion is consummated,
including, without limitation, legal fees, advertising, promotional,
syndication, and travel expenses; provided, however, that Sandler O'Neill shall
document such expenses to the reasonable satisfaction of the Bank. Total
expenses shall not exceed $200,000. The provisions of this paragraph are not
intended to apply to or in any way impair the indemnification provisions of this
letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, conversion agent and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of the
Bank or the Holding Company, the Bank will reimburse Sandler O'Neill for such
fees and expenses whether or not the Conversion is consummated; provided,
--------
however, that Sandler O'Neill shall not incur any substantial expenses on behalf
- -------
of the Bank or the Holding Company pursuant to this paragraph without the prior
approval of the Bank.
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Bank and the Holding Company, and their respective
directors, officers, agents and employees, as Sandler O'Neill and its counsel in
their sole discretion may deem appropriate under the circumstances. In this
regard, the Bank agrees that, at its expense, it will make available to Sandler
O'Neill all information which Sandler O'Neill requests, and will allow Sandler
O'Neill the opportunity to discuss with the Bank's and the Holding Company's
management the financial condition, business and operations of the Bank and the
Holding Company. The Bank and the Holding Company acknowledge that Sandler
O'Neill will rely upon the accuracy and completeness of all information received
from the Bank and the Holding Company and their directors, trustees, officers,
employees, agents, independent accountants and counsel.
<PAGE>
Mr. Robert T. Kenney
July 30, 1999
Page 5
BLUE SKY MATTERS
- ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Bank obtained in
connection with its engagement hereunder (whether or not the Conversion is
consummated). As used in this paragraph, the term "Confidential Information"
shall not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Sandler O'Neill, (ii) was
available to Sandler O'Neill on a non-confidential basis prior to its disclosure
to Sandler O'Neill by the Bank, or (iii) becomes available to Sandler O'Neill on
a non-confidential basis from a person other than the Bank who is not otherwise
known to Sandler O'Neill to be bound not to disclose such information pursuant
to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Bank and the Holding
Company in connection with the Conversion, the Holding Company and the Bank
agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act (Sandler O'Neill and each such person
being an "Indemnified Party") harmless from and against any and all losses,
claims, damages and liabilities, joint or several, to which such Indemnified
Party may become subject under applicable federal or state law, or otherwise,
related to or arising out of the Conversion or the engagement of Sandler O'Neill
pursuant to, or the performance by Sandler O'Neill of the services contemplated
by, this letter, and will reimburse any Indemnified Party for all expenses
(including reasonable legal fees and expenses) as they are incurred, including
expenses incurred in connection with the investigation of, preparation for or
defense of any pending or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party; provided, however,
-------- -------
that the Bank and the Holding Company will not be liable in any such case to the
extent that any such loss, claim, damage, liability or expense (i) arises out of
or is based upon any untrue statement of a material fact or the omission of a
material fact required to be stated therein or necessary to make not misleading
any statements
<PAGE>
Mr. Robert T. Kenney
July 30, 1999
Page 6
contained in any proxy statement or prospectus (preliminary or final), or any
amendment or supplement thereto, or any of the applications, notices, filings or
documents related thereto made in reliance on and in conformity with written
information furnished to the Bank by Sandler O'Neill expressly for use therein,
or (ii) is primarily attributable to the gross negligence, willful misconduct or
bad faith of Sandler O'Neill. If the foregoing indemnification is unavailable
for any reason, the Bank and the Holding Company agree to contribute to such
losses, claims, damages, liabilities and expenses in the proportion that its
financial interest in the Conversion bears to that of Sandler O'Neill.
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b), the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the Holding Company and Sandler O'Neill with respect to the subject matter
hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expenses," (2) those set forth
under the captions "Confidentiality" and "Indemnification," and (3) as set forth
in a duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement
shall be in form and content satisfactory to Sandler O'Neill, the Bank and the
Holding Company and their respective counsel and shall contain standard
indemnification provisions consistent herewith.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Bank's
business, financial condition and results of operations, (ii) preparation of
offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler O'Neill's counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to
June 30, 2000.
ELIMINATION OF HOLDING COMPANY
- ------------------------------
If the Board of Directors of the Bank, for any reason, elects not to proceed
with the formation of the Holding Company but determines to proceed with the
Conversion and substitute the common stock of the Bank for the common stock of
the Holding Company, all of the provisions of this letter relating to the common
stock of the Holding Company will be deemed to pertain to the common
<PAGE>
Mr. Robert T. Kenney
July 30, 1999
Page 7
stock of the Bank on the same terms and conditions that such provisions pertain
to the common stock of the Holding Company and all of the references in this
letter to the Holding Company shall be deemed to refer to the Bank or shall have
no effect, as the context of the reference requires.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
-------------------------------
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
American Savings Bank
By: /s/ Mr. Robert T. Kenney
--------------------------------------------------------
Mr. Robert T. Kenney
Chairman, President and Chief Executive Officer
cc: Douglas P. Faucette
Muldoon, Murphy & Faucette
<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
<PAGE>
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.
3
<PAGE>
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
4
<PAGE>
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
<PAGE>
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 Eligible Account Holders, or
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.
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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.
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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 may be increased by up to 15% of the
number of shares offered in the Subscription and Direct Community Offerings 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 to be
issued 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
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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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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
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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 or Supplemental 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
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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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(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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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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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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(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."
20
<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.
21
<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.
22
<PAGE>
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 the issuance of the
Conversion Stock, 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;
24
<PAGE>
(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.
4
<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.
1
<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.
2
<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>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
AMERICAN FINANCIAL HOLDINGS, INC
FIRST: The name of the Corporation is American Financial Holdings, Inc.
-----
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
------
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is one hundred and thirty million
(130,000,000) consisting of:
1. Ten million (10,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. One hundred and twenty million (120,000,000) shares of Common
Stock, par value one cent ($.01) per share (the "Common
Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly
or indirectly, by a person who, as of any record date for the
determination of
<PAGE>
stockholders entitled to vote on any matter, beneficially owns
in excess of 10% of the then-outstanding shares of Common
Stock (the 10% "Limit"), be entitled, or permitted to any vote
in respect of the shares held in excess of the 10% Limit. The
number of votes which may be cast by any record owner by
virtue of the provisions hereof in respect of Common Stock
beneficially owned by such person beneficially owning shares
in excess of the 10% Limit shall be a number equal to the
total number of votes which a single record owner of all
Common Stock beneficially owned by such person would be
entitled to cast, (subject to the provisions of this Article
FOURTH) multiplied by a fraction, the numerator of which is
the number of shares of such class or series which are both
beneficially owned by such person and owned of record by such
record owner and the denominator of which is the total number
of shares of Common Stock beneficially owned by such person
owning shares in excess of the 10% Limit.
2. The following definitions shall apply to this Section C of
this Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, as in effect
on the date of filing of this Certificate of
Incorporation.
b. "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, (or any
successor rule or statutory provision), or, if said Rule
13d-3 shall be rescinded and there shall be no successor
rule or provision thereto, pursuant to said Rule 13d-3 as
in effect on the date of filing of this Certificate of
Incorporation; provided, however, that a person shall, in
any event, also be deemed the "beneficial owner" of any
Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has: (i)
the right to acquire (whether such right is
exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the
2
<PAGE>
beneficial owner of any voting shares solely by
reason of an agreement, contract, or other
arrangement with this Corporation to effect any
transaction which is described in any one or more of
clauses 1 through 5 of Section A of Article EIGHTH
of this Certificate of Incorporation ("Article
EIGHTH")), or upon the exercise of conversion
rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or
investment power with respect thereto pursuant to
any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed
to be the beneficial owner of any voting shares
solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a
public solicitation of proxies for such meeting,
with respect to shares of which neither such person
nor any such Affiliate is otherwise deemed the
beneficial owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such
first mentioned person or any of its Affiliates acts
as a partnership, limited partnership, syndicate or
other group pursuant to any agreement, arrangement
or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of
capital stock of this Corporation; and provided
further, however, that: (1) no Director or Officer
of this Corporation (or any Affiliate of any such
Director or Officer) shall, solely by reason of any
or all of such Directors or Officers acting in their
capacities as such, be deemed, for any purposes
hereof, to beneficially own any Common Stock
beneficially owned by any other such Director or
Officer (or any Affiliate thereof); and (2) neither
any employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation,
nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of such
capacity of such trustee), shall be deemed, for any
purposes hereof, to beneficially own any Common
Stock held under any such plan. For purposes only of
computing the percentage of beneficial ownership of
Common Stock of a person, the outstanding Common
Stock shall
3
<PAGE>
include shares deemed owned by such person through
application of this subsection but shall not include
any other Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon
exercise of conversion rights, warrants or options,
or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common
Stock then outstanding and shall not include any
Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options,
or otherwise.
c. The "10% Limit" shall mean 10% of the then-outstanding
shares of Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, 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
securities or any other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with respect
to: (i) the number of shares of Common Stock beneficially
owned by any person; (ii) whether a person is an affiliate of
another; (iii) whether a person has an agreement,
arrangement, or understanding with another as to the matters
referred to in the definition of beneficial ownership; (iv)
the application of any other definition or operative
provision of the section to the given facts; or (v) any other
matter relating to the applicability or effect of this
section.
4. The Board of Directors shall have the right to demand that
any person who is reasonably believed to beneficially own
Common Stock in excess of the 10% Limit (or holds of record
Common Stock beneficially owned by any person in excess of
the 10% Limit) supply the Corporation with complete
information as to: (i) the record owner(s) of all shares
beneficially owned by such person who is reasonably believed
to own shares in excess of the 10% Limit; and (ii) any other
factual matter relating to the applicability or effect of
this section as may reasonably be requested of such person.
4
<PAGE>
5. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the
Corporation entitling the holders thereof to cast a majority
of the votes (after giving effect, if required, to the
provisions of this Section C) entitled to be cast by the
holders of shares of capital stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate of
Incorporation to a majority or other proportion of capital
stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder
consent or approval shall be deemed to refer to such majority
or other proportion of the votes (or the holders thereof)
then entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by
the Board of Directors pursuant to this section in good faith
and on the basis of such information and assistance as was
then reasonably available for such purpose shall be
conclusive and binding upon the Corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or
portions thereof) of this Section shall remain in full force
and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each
such remaining provision (or portion thereof) of this Section
C remain, to the fullest extent permitted by law, applicable
and enforceable as to all stockholders, including
stockholders owning an amount of stock over the 10% Limit,
notwithstanding any such finding.
D. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who as of any record date
for the determination of stockholders entitled to vote on any
matter, beneficially owns in excess of 5% of the then-
outstanding shares of Common Stock (the "5% Limit"), be
entitled or permitted to any vote in respect of the shares
held in excess of the 5% Limit, unless such person
beneficially owns, holds or controls such shares in the
ordinary course of business and not with the purpose nor with
the effect of changing or influencing the control of the
Corporation. The number of votes
5
<PAGE>
which may be cast by any record owner by virtue of the
provisions hereof in respect of Common Stock beneficially
owned by such person beneficially owning shares in excess of
the 5% Limit shall be a number equal to the total number of
votes which a single record owner of all Common Stock
beneficially owned by such person would be entitled to cast,
(subject to the provisions of this Article FOURTH) multiplied
by a fraction, the numerator of which is the number of shares
of such class or series which are both beneficially owned by
such person and owned of record by such record owner and the
denominator of which is the total number of shares of Common
Stock beneficially owned by such person owning shares in
excess of the 5% Limit.
2. The following definitions shall apply to this Section D of
this Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, as in effect
on the date of filing of this Certificate of
Incorporation.
b. "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, (or any
successor rule or statutory provision), or, if said Rule
13d-3 shall be rescinded and there shall be no successor
rule or provision thereto, pursuant to said Rule 13d-3 as
in effect on the date of filing of this Certificate of
Incorporation; provided, however, that a person shall, in
any event, also be deemed the "beneficial owner" of any
Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has: (i)
the right to acquire (whether such right is
exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by
reason of an agreement, contract, or other
arrangement with this Corporation to effect any
transaction which is described in any one or more of
clauses 1 through 5 of
6
<PAGE>
Section A of Article EIGHTH of this Certificate of
Incorporation ("Article EIGHTH")), or upon the
exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or
shared voting or investment power with respect
thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall
not be deemed to be the beneficial owner of any
voting shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for
such meeting, with respect to shares of which
neither such person nor any such Affiliate is
otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such
first mentioned person or any of its Affiliates acts
as a partnership, limited partnership, syndicate or
other group pursuant to any agreement, arrangement
or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of
capital stock of this Corporation; and provided
further, however, that: (1) no Director or Officer
of this Corporation (or any Affiliate of any such
Director or Officer) shall, solely by reason of any
or all of such Directors or Officers acting in their
capacities as such, be deemed, for any purposes
hereof, to beneficially own any Common Stock
beneficially owned by any other such Director or
Officer (or any Affiliate thereof); and (2) neither
any employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation,
nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of such
capacity of such trustee), shall be deemed, for any
purposes hereof, to beneficially own any Common
Stock held under any such plan. For purposes only of
computing the percentage of beneficial ownership of
Common Stock of a person, the outstanding Common
Stock shall include shares deemed owned by such
person through application of this subsection but
shall not include any other Common Stock which may
be issuable by this Corporation pursuant to any
agreement, or upon
7
<PAGE>
exercise of conversion rights, warrants or options,
or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common
Stock then outstanding and shall not include any
Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options,
or otherwise.
c. The "5% Limit" shall mean 5% of the then-outstanding
shares of Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, 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
securities or any other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with respect
to: (i) the number of shares of Common Stock beneficially owned
by any person; (ii) whether a person is an affiliate of
another; (iii) whether a person has an agreement, arrangement,
or understanding with another as to the matters referred to in
the definition of beneficial ownership; (iv) the application of
any other definition or operative provision of the section to
the given facts; or (v) any other matter relating to the
applicability or effect of this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common
Stock in excess of the 5% Limit (or holds of record Common
Stock beneficially owned by any person in excess of the 5%
Limit) supply the Corporation with complete information as to:
(i) the record owner(s) of all shares beneficially owned by
such person who is reasonably believed to own shares in excess
of the 5% Limit; and (ii) any other factual matter relating to
the applicability or effect of this section as may reasonably
be requested of such person.
5. Except as otherwise provided by law or expressly provided in
this Section D, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the Corporation
entitling the
8
<PAGE>
holders thereof to cast a majority of the votes (after giving
effect, if required, to the provisions of this Section D)
entitled to be cast by the holders of shares of capital stock
of the Corporation entitled to vote shall constitute a quorum
at all meetings of the stockholders, and every reference in
this Certificate of Incorporation to a majority or other
proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any
requirement for stockholder consent or approval shall be deemed
to refer to such majority or other proportion of the votes (or
the holders thereof) then entitled to be cast in respect of
such capital stock.
6. Any constructions, applications, or determinations made by the
Board of Directors pursuant to this section in good faith and
on the basis of such information and assistance as was then
reasonably available for such purpose shall be conclusive and
binding upon the Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this Section
D shall be found to be invalid, prohibited or unenforceable for
any reason, the remaining provisions (or portions thereof) of
this Section shall remain in full force and effect, and shall
be construed as if such invalid, prohibited or unenforceable
provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its
stockholders that each such remaining provision (or portion
thereof) of this Section D remain, to the fullest extent
permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock
over the 5% Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
9
<PAGE>
C. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
SIXTH:
-----
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term of
office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the
annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the annual meeting of stockholders two
years thereafter with each Director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
Directors elected to succeed those Directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election with each Director to hold
office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred
Stock outstanding, the newly created directorships resulting from any
increase in the authorized number of Directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by
a majority vote of the Directors then in office, though less than a quorum,
and Directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which
they have been chosen expires. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred
Stock then outstanding, any Director, or the entire Board of Directors, may
be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80%
10
<PAGE>
of the voting power of all of the then-outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of Directors
(after giving effect to the provisions of Article FOURTH of this
Certificate of Incorporation ("Article FOURTH")), voting together as a
single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
-------
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of Directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
------
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any Interested
Stockholder (as hereinafter defined); or (ii) any other
corporation (whether or not itself an Interested Stockholder)
which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder, or any Affiliate of any
Interested Stockholder, of any assets of the Corporation or
any Subsidiary having an aggregate Fair Market Value (as
hereinafter defined) equaling or exceeding 25% or more of the
combined assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market
Value (as hereinafter defined) equaling or exceeding 25% of the
combined Fair Market Value of the outstanding
11
<PAGE>
common stock of the Corporation and its Subsidiaries, except
for any issuance or transfer pursuant to an employee benefit
plan of the Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder) which
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter
defined).
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<PAGE>
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by the holders of Common Stock in such
Business Combination shall at least be equal to the higher
of the following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder or any of
its Affiliates for any shares of Common Stock
acquired by it: (i) within the two-year period
immediately prior to the first public announcement of
the proposal of the Business Combination (the
"Announcement Date"); or (ii) in the transaction in
which it became an Interested Stockholder, whichever
is higher; or
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Stockholder became an Interested
Stockholder (such latter date is referred to in this
Article EIGHTH as the "Determination Date"),
whichever is higher.
b. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by holders of shares of any class of
outstanding Voting Stock other than Common Stock shall be
at least equal to the highest of the following (it being
intended that the requirements of this subparagraph (b)
shall be required to be met with respect to every such
class of outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any shares
of a particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder for any
shares
13
<PAGE>
of such class of Voting Stock acquired by it: (i)
within the two-year period immediately prior to the
Announcement Date; or (ii) in the transaction in
which it became an Interested Stockholder, whichever
is higher; or
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of
Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; or
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
c. The consideration to be received by holders of a
particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
Interested Stockholder has previously paid for shares of
such class of Voting Stock. If the Interested Stockholder
has paid for shares of any class of Voting Stock with
varying forms of consideration, the form of consideration
to be received per share by holders of shares of such
class of Voting Stock shall be either cash or the form
used to acquire the largest number of shares of such class
of Voting Stock previously acquired by the Interested
Stockholder. The price determined in accordance with
subparagraph B.2 of this Article EIGHTH shall be subject
to appropriate adjustment in the event of any stock
dividend, stock split, combination of shares or similar
event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there
shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding stock
having preference over the Common Stock as to dividends or
liquidation; (2) there shall have been: (i) no reduction
in the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of the
Common Stock), except as
14
<PAGE>
approved by a majority of the Disinterested Directors; and
(ii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or
any similar transaction which has the effect of reducing
the number of outstanding shares of the Common Stock,
unless the failure to so increase such annual rate is
approved by a majority of the Disinterested Directors, and
(3) neither such Interested Stockholder or any of its
Affiliates shall have become the beneficial owner of any
additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any
tax credits or other tax advantages provided, directly or
indirectly, by the Corporation, whether in anticipation of
or in connection with such Business Combination or
otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements
of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder (or any subsequent
provisions replacing such Act, and the rules or
regulations thereunder) shall be mailed to stockholders of
the Corporation at least 30 days prior to the consummation
of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to
such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, 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 securities or any other entity.
15
<PAGE>
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who or
which:
a. is the beneficial owner, directly or indirectly, of more than
10% of the voting power of the outstanding Voting Stock; or
b. is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more
of the voting power of the then outstanding Voting Stock; or
c. is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction
or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership" shall
be determined in the manner provided in Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in
effect on the date of filing of this Certificate of
Incorporation.
5. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in Paragraph 2 of
this Section C, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security
is owned, directly or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and
was a member of the Board of Directors prior to the time that the
Interested Stockholder became an Interested Stockholder, and any
Director who is thereafter chosen to fill any vacancy of the
Board of Directors or who is elected and who, in either event, is
unaffiliated with the Interested Stockholder and in connection
with his or her initial
16
<PAGE>
assumption of office is recommended for appointment or election
by a majority of Disinterested Directors then on the Board of
Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price of the
stock during the 30-day period immediately preceding the
date in question of a share of such stock on the National
Association of Securities Dealers Automated Quotation System
or any system then in use, or, if such stock is admitted to
trading on a principal United States securities exchange
registered under the Securities Exchange Act of 1934, as
amended, Fair Market Value shall be the highest sale price
reported during the 30-day period preceding the date in
question, or, if no such quotations are available, the Fair
Market Value on the date in question of a share of such
stock as determined by the Board of Directors in good faith,
in each case with respect to any class of stock,
appropriately adjusted for any dividend or distribution in
shares of such stock or any stock split or reclassification
of outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of
shares of such stock; and
b. in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as
determined by the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment
for any dividend or distribution in shares of such stock or any
stock split or reclassification of outstanding shares of such
stock into a greater number of shares of such stock or any
combination or reclassification of outstanding shares of such
stock into a smaller number of shares of such stock.
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be
received" as used in Subparagraphs (a) and (b) of Paragraph 2 of
Section B of this Article EIGHTH shall include the shares of
Common Stock and/or the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
17
<PAGE>
D. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of the Voting Stock (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall
be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
-----
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings institution to fulfill the objectives of a
stock form savings institution under applicable statutes and regulations.
18
<PAGE>
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 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
19
<PAGE>
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 of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
20
<PAGE>
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.
TWELFTH: The Corporation reserves the right to amend or repeal any
-------
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of Directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Sections C or D of Article
FOURTH, Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH,
Article EIGHTH or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
----------
follows:
Name Mailing Address
---- ---------------
Joseph P. Daly Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
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<PAGE>
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this
23rd day of July, 1999.
\s\ Joseph P. Daly
--------------------
Incorporator
22
<PAGE>
EXHIBIT 3.2
AMERICAN FINANCIAL HOLDINGS, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for
<PAGE>
all purposes, unless or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine
the order of business and the procedures at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
or her in order. The date and time of the opening and closing of the polls for
each matter upon which the stockholders will vote at the meeting shall be
announced at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
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<PAGE>
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter such stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business; (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder; and
(iv) any material interest of such stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be brought before or
conducted at an annual meeting except in accordance with the provisions of this
Section 6(b). The Officer of the Corporation or other person presiding over the
annual meeting shall, if the facts so warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 6(b) and, if he or she should so determine,
shall so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible
3
<PAGE>
for election as a Director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The Officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she shall so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
4
<PAGE>
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
--------- ------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be eight
(8). The Board of Directors shall annually elect a Chairman of the Board from
among its members who shall, when present, preside at its meetings.
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 31st
in the calendar year in which he or she attains seventy-five (75) years of age.
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 31st in the
calendar year in which he or she attained seventy (70) years of age.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
5
<PAGE>
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President are incapacitated or otherwise unable to call such meeting,
by the Secretary, and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
6
<PAGE>
Section 7. Conduct of Business.
-------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any
Officer upon any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs;
and
(9) To fix the Compensation of officers and employees of the
Corporation and its subsidiaries as it may determine.
7
<PAGE>
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
---------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such
8
<PAGE>
Bylaw; and (b) to recommend to the Whole Board nominees for election to the
Board of Directors to replace those Directors whose terms expire at the annual
meeting of stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after
the annual meeting of stockholders shall choose a Chairman of the Board, a
President and Chief Executive Officer, one or more Vice Presidents, a Secretary
and a Treasurer and from time to time may choose such other officers as it may
deem proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors are chosen but
any Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have
such powers and duties as generally pertain to their respective Offices, subject
to the specific provisions of this ARTICLE IV. Such officers shall also have
such powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board, subject to the provisions of these Bylaws and to
the direction of the Board of Directors, when present shall preside at all
meetings of the stockholders of the Corporation. The Chairman of the Board
shall perform such duties designated to him by the Board of Directors and which
are delegated to him or her by the Board of Directors by resolution of the Board
of Directors.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer shall have general responsibility
for the management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of President and Chief Executive Officer or which are delegated to
him or her by the Board of Directors. Subject to the direction of the Board of
Directors, the President and Chief Executive Officer shall have power to sign
all stock certificates, contracts and other instruments of the Corporation which
are authorized and shall have general supervision of all of the other Officers
(other than the Chairman of the Board), employees and agents of the Corporation.
9
<PAGE>
Section 4. Vice President.
---------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
Section 6. Treasurer.
---------- ----------
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- -----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
---------- --------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
10
<PAGE>
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
11
<PAGE>
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of business because
the meeting is not lawfully called or convened.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
12
<PAGE>
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of July 23, 1999, the date of incorporation of
American Financial Holdings, Inc.
13
<PAGE>
EXHIBIT 4.0
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
AMERICAN FINANCIAL HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
AMERICAN FINANCIAL HOLDINGS, INC.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his or
her duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, American Financial Holdings, Inc. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President Secretary
<PAGE>
AMERICAN FINANCIAL HOLDINGS, INC.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect 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 outstanding shares of common stock (the "10% Limit") be entitled or
permitted to any vote in respect of shares held in excess of the 10% Limit.
The shares represented by the Certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect 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 outstanding shares of common stock (the "5% Limit") be entitled or
permitted to any vote in respect of shares held in excess of the 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 Holdings, Inc.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT - ___________ custodian __________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(State)
</TABLE>
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint_____________________________________________________ Attorney to
transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
DATED ________________________ _________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: __________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
EXHIBIT 5.0
_______________, 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.
______________, 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 ___, 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.
________________, 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,
DRAFT
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
Exhibit 8.0
________________, 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
___________________, 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
___________________, 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:
(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
___________________, 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
___________________, 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
___________________, 1999
Page 6
(t) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
(u) 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.
(v) 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
<PAGE>
Board of Directors
___________________, 1999
Page 7
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.
(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).
<PAGE>
Board of Directors
___________________, 1999
Page 8
(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 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.
<PAGE>
Board of Directors
___________________, 1999
Page 9
* * *
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.
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,
DRAFT
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
EXHIBIT 8.1
DRAFT
August 3, 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 ________________, 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.
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
<PAGE>
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 on December 31, 1997), (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 (depositors whose savings accounts in the Bank totaled
$50 or more on _________,1999), (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. 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 3, 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
<PAGE>
Supplemental Eligible Account Holder shall be determined by multiplying the
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 December 31, 1997, or __________, 1999 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 December 31, 1997 or _______, 1999, or the
amount of the "qualifying deposit" in a savings account on December 31, 1997 or
________, 1999, 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.
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
<PAGE>
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.
(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 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,
<PAGE>
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.
(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
<PAGE>
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 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 3, 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.
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
<PAGE>
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).
. 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 section
12-217(a)(1)(D) less expenses related to dividends. CGS (S)12-217(a)(2)(A).
<PAGE>
. 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 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
(1) 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
<PAGE>
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.
In addition, FinPro has issued an opinion dated August 3, 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>
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 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 withdrawble 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
<PAGE>
Page 11
The Board of Directors
American Financial Holdings, Inc.
August 3, 1999
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 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
<PAGE>
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.
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 merger.
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 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,
<PAGE>
Page 13
The Board of Directors
American Financial Holdings, Inc.
August 3, 1999
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.
DRAFT
KPMG LLP
<PAGE>
EXHIBIT 10.1
[ AMERICAN FINANCIAL HOLDINGS, INC. LETTERHEAD]
American Savings Bank
178 Main Street
New Britain, Connecticut 06051
Dear_________________:
This letter confirms American Financial Holdings, Inc.'s commitment to fund
a leveraged ESOP in an amount up to $________________. The commitment is
subject to the following terms and conditions:
1. Lender: American Financial Holdings, Inc. (the "Company").
------
2. Borrower: American Savings Bank Employee Stock Ownership Plan.
--------
3. Trustee: _________________________
-------
4. Security: Unallocated shares of stock of the Company held in
--------
the American Savings Bank Employee Stock Ownership Plan.
5. Maturity: Up to ____ years
--------
6. Amortization: Equal annual principal and interest payments.
------------
7. Pricing: The Prime Rate as published in the Wall Street Journal
-------
on the date of the loan transaction.
8. Interest Payments: Annual on a 360 day basis.
-----------------
9. Prepayment: Voluntary prepayments are permitted at any time.
----------
10. Conditions Precedent to Closing: Receipt by the Company of all
-------------------------------
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of American Savings Bank or the Company.
11. Closing Date: Not later than ____________, 199__ unless such date is
------------
waived by the Company.
<PAGE>
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Lending Officer
Accepted on Behalf of
American Savings Bank
By: Date:
---------------------------- ------------------------
<PAGE>
FORM OF PLEDGE AGREEMENT
------------------------
THIS PLEDGE AGREEMENT ("Pledge Agreement") is made as of the ___ day
of___________, 1999, by and between the AMERICAN SAVINGS BANK EMPLOYEE STOCK
OWNERSHIP PLAN TRUST ("Pledgor"), and AMERICAN FINANCIAL HOLDINGS, INC., a
corporation organized and existing under the laws of the State of Delaware
("Pledgee").
W I T N E S S E T H
WHEREAS, this Pledge Agreement is being executed and delivered to the
Pledgee pursuant to the terms of a Loan Agreement ("Loan Agreement"), by and
between the Pledgor and the Pledgee;
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and in the Loan Agreement, the parties hereto do hereby covenant and agree as
follows:
Section 1. Definitions. The following definitions shall apply for
-----------
purposes of this Pledge Agreement, except to the extent that a different meaning
is plainly indicated by the context; all capitalized terms used but not defined
herein shall have the respective meanings assigned to them in the Loan
Agreement:
Collateral shall mean the Pledged Shares and, subject to section 5 hereof,
----------
and to the extent permitted by applicable law, all rights with respect thereto,
and all proceeds of such Pledged Shares and rights.
ESOP shall mean the American Savings Bank Employee Stock Ownership Plan.
----
Event of Default shall mean an event so defined in the Loan Agreement.
----------------
Liabilities shall mean all the obligations of the Pledgor to the Pledgee,
-----------
howsoever created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing, or due or to become due, under the Loan
Agreement and the Promissory Note.
Pledged Shares shall mean all the Shares of Common Stock of the Pledgee
--------------
purchased by the Pledgor with the proceeds of the loan made by the Pledgee to
the Pledgor pursuant to the Loan Agreement, but excluding any such shares
previously released pursuant to section 4.
Section 2. Pledge. To secure the payment of and performance of all the
------
Liabilities, the Pledgor hereby pledges to the Pledgee, and the grants to the
Pledgee, a security interest in, and lien upon, the Collateral.
Section 3. Representations and Warranties of the Pledgor. The Pledgor
---------------------------------------------
represents, warrants, and covenants to the Pledgee as follows:
<PAGE>
(a) the execution, delivery and performance of this Pledge Agreement and
the pledging of the Collateral hereunder do not and will not conflict with,
result in a violation of, or constitute a default under, any agreement binding
upon the Pledgor;
(b) the Pledged Shares are and will continue to be owned by the Pledgor
free and clear of any liens or rights of any other person except the lien
hereunder and under the Loan Agreement in favor of the Pledgee, and the security
interest of the Pledgee in the Pledged Shares and the proceeds thereof is and
will continue to be prior to and senior to the rights of all others;
(c) this Pledge Agreement is the legal, valid, binding and enforceable
obligation of the Pledgor in accordance with its terms;
(d) the Pledgor shall, from time to time, upon request of the Pledgee,
promptly deliver to the Pledgee such stock powers, proxies, and similar
documents, satisfactory in form and substance to the Pledgee, with respect to
the Collateral as the Pledgee may reasonable request; and
(e) subject to the first sentence of section 4(b), the Pledgor shall not,
so long as any Liabilities are outstanding, sell, assign, exchange, pledge or
otherwise transfer or encumber any of its rights in and to any of the
Collateral.
Section 4. Eligible Collateral.
-------------------
(a) As used herein the term "Eligible Collateral" shall mean the amount of
Collateral which has an aggregate fair market value equal to the amount by which
the Pledgor is in default (without regard to any amounts owing solely as the
result of an acceleration of the Loan Agreement) or such lesser amount of
Collateral as may be required pursuant to section 13 of this Pledge Agreement.
(b) The Pledged Shares shall be released from this Pledge Agreement in a
manner conforming to the requirements of Treasury Regulations Section 54.4975-
7(b)(8), as the same may be from time to time amended or supplemented, and the
applicable provisions of the ESOP. Subject to such Regulations, the Pledgee may
from time to time, after any Default or Event of Default, and without prior
notice to the Pledgor, transfer all or any part of the Eligible Collateral in
the name of the Pledgee or its nominee, without disclosing that such Eligible
Collateral is subject to any rights of the Pledgor and may from time to time,
whether before or after any of the Liabilities shall become due and payable,
without notice to the Pledgor, take all or any of the following actions: (i)
notify the parties obligated on any of the Eligible Collateral to make payment
to the Pledgee of any amounts due or due to become due thereunder, (ii) release
or exchange all or any part of the Eligible Collateral, or compromise or extend
or renew for any period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto, and (iii) take
control of any proceeds of the Eligible Collateral.
2
<PAGE>
Section 5. Delivery.
--------
(a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge
Agreement (i) either (A) certificates for the Pledged Shares, each certificate
duly signed in blank by the Pledgor or accompanied by a stock transfer power
duly signed in blank by the Pledgor and each such certificate accompanied by all
required documentary or stock transfer tax stamps or (B) if the Trustee does not
yet have possession of the Pledged Shares, an assignment by the Pledgor of all
the Pledgor's rights to and interest in the Pledged Shares and (ii) an
irrevocable proxy, in form and substance satisfactory to the Pledgee, signed by
the Pledgor with respect to the Pledged Shares.
(b) So long as no Default or Event of Default shall have occurred and be
continuing, (i) the Pledgor shall be entitled to exercise any and all voting and
other rights pertaining to the Collateral or any part thereof for any purpose
not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor
shall be entitled to receive any and all cash dividends or other distributions
paid in respect of the Collateral.
Section 6. Events of Default.
-----------------
(a) If a Default or Event Default shall be existing, in addition to the
rights it may have under the Loan Agreement, the Promissory Note, and this
Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may
exercise, with respect to the Eligible Collateral, from time to time, any rights
and remedies available to it under the Uniform Commercial Code as in effect from
time to time in the State of Delaware or otherwise available to it and (ii) the
Pledgee shall have the right, for and in the name, place and stead of the
Pledgor, to execute endorsement, assignments, stock powers and other instruments
of conveyance or transfer with respect to all or any of the Eligible Collateral.
Written notification of intended disposition of any of the Eligible Collateral
shall be given by the Pledgee to the Pledgor at least three (3) Business Days
before such disposition. Subject to section 13 below, any proceeds of any
disposition of Eligible Collateral may be applied by the Pledgee to the payment
of expenses in connection with the Eligible Collateral, including, without
limitation, reasonable attorneys's fees and legal expenses, and any balance of
such proceeds may be applied by the Pledgee toward the payment of such of the
Liabilities as are in Default, and in such order of application, as the Pledgee
may from time to time elect. No action of the Pledgee permitted hereunder shall
impair or affect its rights in and to the Eligible Collateral. All rights and
remedies of the Pledgee expressed hereunder are in addition to all other rights
and remedies possessed by it, including, without limitation, those contained in
the documents referred to in the definition of Liability in section 1 hereof.
(b) In any sale of any of the Eligible Collateral after a Default or an
Event of Default shall have occurred, the Pledgee is hereby authorized to comply
with any limitation or restriction in connection with such sale as it may be
advised by counsel is necessary in order to avoid violation of applicable law
(including, without limitation, compliance with such procedures as may restrict
the number of prospective bidders and purchasers or further restrict such
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing for their own account
3
<PAGE>
for investment and not with a view to the distribution or resale of such
Eligible Collateral), or in order to obtain such required approval of the sale
or of the purchase by any governmental regulatory authority or official, and the
Pledgor further agrees that such compliance shall not result in such sale's
being considered or deemed not to have been made in a commercially reasonable
manner, nor shall the Pledgee be liable or accountable to the Pledgor for any
discount allowed by reason of the fact that such Eligible Collateral is sold in
compliance with any such limitation or restriction.
Section 7. Payment in Full. Upon the payment in full of all outstanding
---------------
Liabilities, this Pledge Agreement shall terminate and the Pledgee shall
forthwith assign, transfer and deliver to the Pledgor, against receipt and
without recourse to the Pledgee, all Collateral then held by the Pledgee
pursuant to the Pledge Agreement.
Section 8. No Waiver. No failure or delay in the part of the Pledgee in
---------
exercising any right or remedy hereunder or under any other document which
confers or grants any rights in the Pledgee in respect of the Liabilities shall
operate as a waiver thereof nor shall any single or partial exercise of any such
rights or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy of the Pledgee.
Section 9. Binding Effect; No Assignment or Delegation. This Pledge
-------------------------------------------
Agreement shall be binding upon and inure to the benefit of the Pledgor, the
Pledgee and their respective successors and assigns, except that the Pledgor may
not assign or transfer it rights hereunder without the prior written consent of
the Pledgee (which consent shall not unreasonably be withheld). Each duty or
obligation of the Pledgor to the Pledgee pursuant to the provisions of this
Pledge Agreement shall be performed in favor of any person or entity designated
by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be
performed by any other person or entity designated by the Pledgee.
Section 10. Governing Law. This Pledge Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware applicable to
agreements to be performed wholly within the State of Delaware.
Section 11. Notices. All notices, requests, instructions or documents
-------
hereunder shall be in writing and delivered personally or sent by United States
mail, registered or certified, return receipt requested, with proper postage
prepaid as follows:
(a) If to the Pledgee:
______________________
______________________
______________________
______________________
4
<PAGE>
(b) If to the Pledgor:
_______________________
_______________________
_______________________
or at such other address as either of the parties may designate by written
notice to the other party. If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made, and, if deliver by mail, the sate on which such notice,
request, instruction, or document is deposited in the mail shall be the date of
delivery. Each notice, request, instruction or document shall bear the date on
which it is delivered.
Section 12. Interpretation. Wherever possible each provision of this
--------------
Pledge Agreements shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision herein shall be prohibited by
or invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, with out invalidating the remainder of such
provision or the remaining provisions hereof.
Section 13. Construction. All provisions hereof shall be construed so as
------------
to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan
under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the
"Code"), (b) the Trust as exempt from taxation under section 501(a) of the Code
and (c) the Trust Loan as an exempt loan under section 54.4975-7(b) of the
Treasury Regulations and as described in Department of Labor Regulation section
2550.408b-3.
5
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the
parties hereto as of the day and year first above written.
AMERICAN SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
____________________________________
__________________
Trustee
____________________________________
__________________
Trustee
AMERICAN FINANCIAL HOLDINGS, INC.
By:__________________________
6
<PAGE>
FORM OF PROMISSORY NOTE
-----------------------
$_________________ _______, 1999
PRINCIPAL
FOR VALUE RECEIVED, the undersigned, the AMERICAN SAVINGS BANK EMPLOYEE
STOCK OWNERSHIP PLAN TRUST ("Borrower"), hereby promises to pay to the order of
AMERICAN FINANCIAL HOLDINGS, INC. ("Lender")________________________ dollars
($___________) payable in accordance with the Loan Agreement made and entered
into between the Borrower and the Lender of even date herewith ("Loan
Agreement") pursuant to which this Promissory Note is issued.
The Principal Amount of this Promissory Note shall be payable in accordance
with the schedule attached hereto ("Schedule I").
This Promissory Note shall bear interest at the rate per annum set for or
established under the Loan Agreement, such interest to be payable in accordance
with Schedule I.
Anything herein to the contrary notwithstanding, the obligation of the
Borrower to make payments of interest shall be subject to the limitation that
payments of interest shall not be required to be made to the Lender to the
extent that the Lender's receipt thereof would not be permissible under the law
or laws applicable to the Lender limiting rates on interest which may be charged
or collected by the Lender. Any such payments on interest which are not made as
a result of the limitation referred to in the preceding sentence shall be made
by the Borrower to the Lender on the earliest interest payment date or dates on
which the receipt thereof would be permissible under the laws applicable to the
Lender limiting rates of interest which may be charges or collected by the
Lender. Such deferred interest shall not bear interest.
Payments of both principal and interest on this Promissory Note are to be
made at the principal office of the Lender or such other place as the holder
hereof shall designate to the Borrower in writing, in lawful money of the United
States of America in immediately available funds.
Failure to make any payments of principal on this Promissory Note when due,
or failure to make any payment of interest on this Promissory Note not later
than five (5) Business Days after the date when due, shall constitute a default
hereunder, whereupon the principal amount of accrued interest on this Promissory
Note shall immediately become due and payable in accordance with the terms of
the Loan Agreement.
<PAGE>
This Promissory Note is secured by a Pledge Agreement between the Borrower
and the Lender of even date herewith and is entitled to the benefits thereof.
AMERICAN SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
____________________________________
_________________
Trustee
____________________________________
_________________
Trustee
2
<PAGE>
FORM OF LOAN AGREEMENT
----------------------
THIS LOAN AGREEMENT ("Loan Agreement") is made and entered in as of the __
day of___________, 1999, by and between the AMERICAN SAVINGS BANK EMPLOYEE STOCK
OWNERSHIP PLAN TRUST ("Borrower"), a trust forming part of the American Savings
Bank Employee Stock Ownership Plan ("ESOP"); and AMERICAN FINANCIAL HOLDINGS,
INC. ("Lender"), a corporation organized and existing under the laws of the
State of Delaware.
W I T N E S S E T H
WHEREAS, the Borrower is authorized to purchase shares of common stock of
American Financial Holdings, Inc. ("Common Stock"), either directly from
American Financial Holdings, Inc. or in open market purchases in an amount not
to exceed ____________ shares of Common Stock.
WHEREAS, the Borrower is authorized to borrow funds from the Lender for the
purpose of financing authorized purchases of Common Stock; and
WHEREAS, the Lender is willing to make a loan to the Borrower for such
purpose:
NOW, THEREFORE, the parties agree hereto as follows:
ARTICLE I
---------
DEFINITIONS
-----------
The following definitions shall apply for purposes of this Loan Agreement,
except to the extent that a different meaning is plainly indicated by the
context:
Business Day means any day other than a Saturday, Sunday or other day on
------------
which banks are authorized or required to close under federal or local law.
Code means the Internal Revenue Code of 1986 (including the corresponding
----
provisions of any succeeding law).
Default means an event or condition which would constitute an Event of
-------
Default. The determination as to whether an event or condition would constitute
an Event of Default shall be determined without regard to any applicable
requirements of notice or lapse of time.
ERISA means the Employee Retirement Income Security Act of 1974, as amended
-----
(including the corresponding provisions of any succeeding law).
Event of Default means an event or condition described in Article 5.
----------------
Loan means the loan described in section 2.1
----
<PAGE>
Loan Documents means, collectively, the Loan Agreement, the Promissory Note
--------------
and the Pledge Agreement and all other documents now or hereafter executed and
delivered in connection with such documents, including all amendments,
modifications and supplements of or to all such documents.
Pledge Agreement means the agreement described in section 2.8(a).
----------------
Principal Amount means the face amount of the Promissory Note, determined
----------------
as set forth in section 2.1(c).
Promissory Note means the promissory note described in section 2.3.
---------------
Register means the register described in section 2.9.
--------
ARTICLE II
----------
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
-----------------------------------
Section 2.1 The Loan; Principal Amount.
--------------------------
(a) The Lender hereby agrees to lend to the Borrower such amount, and at
such time, as shall be determined under this Section 2.1; provided, however,
that in no event shall the aggregate amount lent under this Loan Agreement from
time to time exceed the greater of (i) $_____________or (ii) the aggregate
amount paid by the Borrower to purchase up to___________ shares of Common Stock.
(b) Subject to the limitations of Section 2.1(a), the Borrower shall
determine the amounts borrowed under this Agreement, and the time at which such
borrowings are effected. Each such determination shall be evidenced in a writing
which shall set forth the amount to be borrowed and the date on which the Lender
shall disburse such amount, and such writing shall be furnished to the Lender by
notice from the Borrower. The Lender shall disburse to the Borrower the amount
specified in each such notice on the date specified therein or, if later, as
promptly as practicable following the Lender's receipt of such notice; provided,
however, that the Lender shall have no obligation to disburse funds pursuant to
this Agreement following the occurrence of a Default or an Event of Default
until such time as such Default or Event of Default shall have been cured.
(c) For all purposes of this Loan Agreement, the Principal Amount on any
date shall be equal to the excess, if any, of:
(i) the aggregate amount disbursed by the Lender pursuant to section
2.1(b) on or before such date; over
2
<PAGE>
(ii) the aggregate amount of any repayments of such amounts made before
such date.
The Lender shall maintain on the Register a record of, and shall record in the
Promissory Note, the Principal Amount, any changes in the Principal Amount and
the effective date of any changes in the Principal Amount.
Section 2.2 Interest.
--------
(a) The Borrower shall pay to the Lender interest on the Principal Amount,
for the period commencing with the first disbursement of funds under this Loan
Agreement and continuing until the Principal Amount shall be paid in full, at
the rate of______________ (______%) per annum. Interest payable under this
Agreement shall be computed on the basis of a year of 365 days and actual days
elapsed (including the first day but excluding the last) occurring during the
period to which the computation relates.
(b) Accrued interest on the Principal Amount shall be payable by the
Borrower on the dates set forth in Schedule I to the Promissory Note. All
interest on the Principal Amount shall be paid by the Borrower in immediately
available funds.
(c) Anything in the Loan Agreement or the Promissory Note to the contrary
notwithstanding, the obligation of the Borrower to make payments of interest
shall be subject to the limitation that payments of interest shall not be
required to be made to the Lender to the extent that the Lender's receipt
thereof would not be permissible under the law or laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Any
such payment referred to in the preceding sentence shall be made by the Borrower
to the Lender on the earliest interest payment date or dates on which the
receipt thereof would be permissible under the laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender.
Such deferred interest shall not bear interest.
Section 2.3 Promissory Note.
---------------
The Loan shall be evidenced by the Promissory Note of the Borrower attached
hereto as an exhibit payable to the order of the lender in the Principal Amount
and otherwise duly completed.
Section 2.4 Payment of Trust Loan.
---------------------
The Principal Amount of the Loan shall be repaid in accordance with
Schedule I to the Promissory Note on the dates specified therein until fully
paid.
3
<PAGE>
Section 2.5 Prepayment.
----------
The Borrower shall be entitled to prepay the Loan in whole or in part, at
any time and from time to time; provided, however, that the Borrower shall give
notice to the Lender of any such prepayment; and provided, further, that any
partial prepayment of the Loan shall be in an amount not less than $1,000. Any
such prepayment shall be: (a) permanent and irrevocable; (b) accompanied by all
accrued interest through the date of such prepayment; (c) made without premium
or penalty; and (d) applied on the inverse order of the maturity of the
installment thereof unless the Lender and the Borrower agree to apply such
prepayments in some other order.
Section 2.6 Method of Payments.
------------------
(a) All payments of principal, interest, other charges (including
indemnities) and other amounts payable by the Borrower hereunder shall be made
in lawful money of the United States, in immediately available funds, to the
Lender at the address specified in or pursuant to this Loan Agreement for
notices to the Lender, on the date on which such payment shall become due. Any
such payment made on such date but after such time shall, if the amount paid
bears interest, and except as expressly provided to the contrary herein, be
deemed to have been made on, and interest shall continue to accrue and be
payable thereon until, the next succeeding Business Day. If any payment of
principal or interest becomes due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day, and when paid, such
payment shall include interest to the day on which payment is in fact made.
(b) Notwithstanding anything to the contrary contained in this Loan
Agreement or the Promissory Note, the Borrower shall not be obligated to make
any payment, repayment or prepayment on the Promissory Note if doing so would
cause the ESOP to cease to be an employee stock ownership plan within the
meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of
the Code or cause the Borrower to cease to be a tax exempt trust under section
501(a) of the Code or if such act or failure to act would cause the Borrower to
engage in any "prohibited transaction" as such term is defined in the section
4975(c) of the Code and the regulations promulgated thereunder which is not
exempted by section 4975(c)(2) or (d) of the Code and the regulations
promulgated thereunder or in section 406 of ERISA and the regulations
promulgated thereunder which is not exempted by section 408(b) of ERISA and the
regulations promulgated thereunder; provided, however, that in each case, the
Borrower, may act or refrain from acting pursuant to this section 2.6(b) on the
basis of an opinion of counsel, and any opinion of such counsel. The Borrower
may consult with counsel, and any opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken or suffered
or omitted by it hereunder in good faith and in accordance with such opinion of
counsel. Nothing contained in this section 2.6(b) shall be construed as imposing
a duty on the Borrower to consult with counsel. Any obligation of the Borrower
to make any payment, repayment or prepayment on the Promissory Note or refrain
from taking any other act hereunder or under the Promissory Note which is
excused pursuant to this section 2.6(b) shall be considered a binding obligation
of the Borrower, or both, as the case may be, for the purposes of determined
whether a Default or Event of Default has occurred hereunder or
4
<PAGE>
under the Promissory Note and nothing in this section 2.6(b) shall be construed
as providing a defense to any remedies otherwise available upon a Default or an
Event of Default hereunder (other than the remedy of specific performance).
Section 2.7 Use of Proceeds of Loan.
-----------------------
The entire proceeds of the Loan shall be used solely for acquiring shares
of Common Stock, and for no other purpose whatsoever.
Section 2.8 Security.
--------
(a) In order to secure the due payment and performance by the Borrower of
all of its obligations under this Loan Agreement, simultaneously with the
execution and delivery of this Loan Agreement by the Borrower, the Borrower
shall:
(i) pledge to the Lender as Collateral (as defined in the Pledge
Agreement), and grant to the Lender a first priority lien on and security
interest in, the Common Stock purchased with the Principal Amount, by the
execution and delivery to the lender of the Pledge Agreement attached
hereto as an exhibit; and
(ii) execute and deliver, or cause to be executed and delivered, such other
agreement, instruments and documents as the Lender may reasonable require
in order to effect the purposes of the Pledge Agreement and this Loan
Agreement.
(b) The Lender shall release from encumbrance under the Pledge Agreement
and transfer to the Borrower, as of the date on which any payment or repayment
of the Principal Amount is made, a number of shares of Common Stock held as
Collateral determined pursuant to the applicable provisions of the ESOP.
Section 2.9 Registration of the Promissory Note.
-----------------------------------
(a) The Lender shall maintain a Register providing for the registration of
the Principal Amount and any stated interest and of transfer and exchange of the
Promissory Note. Transfer of the Promissory Note may be effected only by the
surrender of the old instrument and either the reissuance by the Borrower of the
old instrument to the new holder or the issuance by the Borrower of a new
instrument to the new holder. The old Promissory Note so surrendered shall be
canceled by the Lender and returned to the Borrower after such cancellation.
(b) Any new Promissory Note issued pursuant to section 2.9(a) shall carry
the same rights to interest (unpaid and to accrue) carried by the Promissory
Note so transferred or exchanged so that there will not be any loss or gain of
interest on the note surrender. Such new Promissory Note shall be subject to all
of the provisions and entitled to all of the benefits of this Agreement. Prior
to due presentment for registration or transfer, the Borrower may deem and treat
the registered holder of any Promissory Note as the holder thereof for purposes
of payment and other purposes. A notation
5
<PAGE>
shall be made on each new Promissory Note of the amount of all payments of
principal and interest theretofore paid.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
----------------------------------------------
The Borrower hereby represents and warrants to the Lender as follows:
Section 3.1 Power, Authority, Consents.
--------------------------
The Borrower has the power to execute, deliver and perform this Loan
Agreement, the Promissory Note and Pledge Agreements, all of which have been
duly authorized by all necessary and proper corporate or other action.
Section 3.2 Due Execution, Validity, Enforceability.
---------------------------------------
Each of the Loan Documents, including, without limitation, this Loan
Agreement, the Promissory Note and the Pledge Agreement, have been duly executed
and delivered by the Borrower; and each constitutes the valid and legally
binding obligation of the Borrower, enforceable in accordance with its terms.
Section 3.3 Properties, Priority of Liens.
-----------------------------
The liens which have been created and granted by the Pledge Agreement
constitute valid, first liens on the properties and assets covered by the Pledge
Agreement, subject to no prior or equal lien.
Section 3.4 No Defaults, Compliance with Laws.
---------------------------------
The Borrower is not in default in any material respect under any agreement,
ordinance, resolution, decree, bond, note, indenture, order or judgement to
which it is an party or by which it is bound, or any other agreement or other
instrument by which any of the properties or assets owned by it is materially
affected.
Section 3.5 Purchase of Common Stock.
------------------------
Upon consummation of any purchase of Common Stock by the Borrower with the
proceeds of the Loan, the Borrower shall acquire valid, legal and marketable
title to all of the Common Stock so purchased, free and clear of any liens,
other than a pledge to the Lender of the Common Stock so purchased pursuant to
the Pledge Agreement. Neither the execution and delivery of the Loan Documents
nor the performance of any obligation thereunder violates any provisions of law
or conflicts with or results in a breach of or creates (with or without the
giving of notice of lapse of
6
<PAGE>
time, or both) a default under any agreement to which the Borrower is a party or
by which it is bound or any of its properties is affected. No consent of any
federal, state, or local governmental authority, agency, or other regulatory
body, the absence of which could have a materially adverse effect on the
Borrower or the Trustee, is or was required to be obtained in connection with
the execution, delivery, or performance of the Loan Documents and the
transaction contemplated therein or in connection therewith, including without
limitation, with respect to the transfer of the shares of Common Stock purchased
with the proceeds of the Loan pursuant thereto.
Section 3.6 ESOP; Contributions.
-------------------
As of the effective date of the ESOP sponsor's mutual-to-stock conversion,
the ESOP and the Borrower will be duly created, organized and maintained by the
ESOP sponsor in compliance with all applicable laws, regulations and rulings.
The ESOP will qualify as an "employee stock ownership plan" as defined in
section 4975(e)(7) of the Code. The ESOP provides that the ESOP sponsor may
make contributions to the ESOP in an amount necessary to enable the Trustee to
amortize the Loan in accordance with the terms of the Promissory Note; provided,
however, that no such contributions shall be required if they would adversely
affect the qualification of the ESOP under section 401(a) of the Code.
Section 3.7 Trustee.
-------
The trustees of the ESOP have been duly appointed by the ESOP sponsor.
Section 3.8 Compliance with Laws; Actions.
-----------------------------
Neither the execution and delivery by the Borrower of this Loan Agreement
or any instruments required thereby, nor compliance with the terms and
provisions of any such documents by the lender, constitutes a violation of any
provision of any law or any regulation, order, writ, injunction or decree or any
court or governmental instrumentality, or an event of default under any
agreement, to which the Borrower is a party of which the Borrower is bound or to
which the Borrower is subject, which violation or event of default would have a
material adverse effect on the Borrower. There is no action or proceeding
pending or threatened against either the ESOP or the Borrower before any court
or administrative agency.
7
<PAGE>
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF THE LENDER
--------------------------------------------
The Lender hereby represents and warrants to the Borrower as follows:
Section 4.1 Power, Authority, Consents.
--------------------------
The Lender has the power to execute, deliver and perform this Loan
Agreement, the Pledge Agreement and all documents executed by the Lender in
connection with the Loan, all of which have been duly authorized by all
necessary and proper corporate or other action. No consent, authorization or
approval or other action by any governmental authority or regulatory body, and
no notice by the Lender to, or filing by the Lender with any governmental
authority or regulatory body is required for the due execution, delivery and
performance of this Loan Agreement.
Section 4.2 Due Execution, Validity, Enforceability.
---------------------------------------
This Loan Agreement and the Pledge Agreement have been duly executed and
delivered by the Lender, and each constitutes a valid and legally binding
obligation of the Lender, enforceable in accordance with its terms.
ARTICLE V
---------
EVENTS OF DEFAULT
-----------------
Section 5.1 Events of Default under Loan Agreement.
--------------------------------------
Each of the following events shall constitute an "Event of Default"
hereunder:
(a) Failure to make any payment or mandatory prepayment of principal of
the Promissory Note when due, or failure to make any payment of interest on the
Promissory Note not later than five (5) Business Days after the date when due.
(b) Failure by the Borrower to perform or observe any term, condition or
covenant of this Loan Agreement or of any of the other Loan Documents, including
without limitation, the Promissory Note and the Pledge Agreement.
(c) Any representation or warranty made in writing to the Lender in any of
the Loan Documents, or any certificate, statement or report made or delivered in
compliance with this Loan Agreement, shall have been false or misleading in any
material respect when made or delivered.
8
<PAGE>
Section 5.2 Lender's Rights upon Event of Default.
-------------------------------------
If an Event of Default under this Loan Agreement shall occur and be
continuing, the Lender shall have no rights to assets of the Borrower other
than: (a) contributions (other than contributions of Common Stock) that are made
by the ESOP sponsor to enable the Borrower to meet its obligations pursuant to
this Loan Agreement and earnings attributable to the investment of such
contributions and (b) "Eligible Collateral" (as defined in the Pledge
Agreement); provided, however, that; (i) the value of the Borrower's assets
transferred to the Lender following an Event of Default in satisfaction of the
due and unpaid amount of the Loan shall not exceed the amount in default
(without regard to amounts owing solely as a result of any acceleration of the
Loan); (ii) the Borrower's assets shall be transferred to the Lender following
an Event of Default only to the extent of the failure of the Borrower to meet
the payment schedule of the Loan; and (iii) all rights of the Lender to the
Common Stock purchased with the proceeds of the Loan covered by the Pledge
Agreement following an Event of Default shall be governed by the terms of the
Pledge Agreement.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
Section 6.1 Payments Due to the Lender.
--------------------------
If any amount is payable by the Borrower to the Lender pursuant to any
indemnity obligation contained herein, then the Borrower shall pay, at the time
or times provided therefor, any such amount and shall indemnify the Lender
against and hold it harmless from any loss of damage resulting from or arising
out of the nonpayment or delay in payment of any such amount. If any amounts as
to which the Borrower has so indemnified the Lender hereunder shall be assessed
or levied against the Lender, the Lender may notify the Borrower and make
immediate payment thereof, together with interest or penalties in connection
therewith, and shall thereupon be entitled to and shall receive immediate
reimbursement therefor from the Borrower together with interest on each such
amount as provided in section 2.2(c). Notwithstanding any other provision
contained in this Loan Agreement, the covenants and agreements of the Borrower
contained in this section 6.1 shall survive: (a) payment of the Promissory Note
and (b) termination of this Loan Agreement.
Section 6.2 Payments.
--------
All payments hereunder and under the Promissory Note shall be made without
set-off or counterclaim and in such amounts as may be necessary in order that
all such payments shall not be less than the amounts otherwise specified to be
paid under this Loan Agreement and the Promissory Note, subject to any
applicable tax withholding requirements. Upon payment in full of the Promissory
Note, the Lender shall mark such Promissory Note "Paid" and return it to the
Borrower.
9
<PAGE>
Section 6.3 Survival.
--------
All agreements, representations and warranties made herein shall
survive the delivery of this Loan Agreement and the Promissory Note.
Section 6.4 Modifications, Consents and Waivers; Entire Agreement.
-----------------------------------------------------
No modification, amendment or waiver of or with respect to any provision of
this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the
other Loan Documents, nor consent to any departure from any of the terms or
conditions thereof, shall in any event be effective unless it shall be in
writing and signed by the party against whom enforcement thereof is sought. Any
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No consent to or demand on a party in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other circumstances. This Loan Agreement embodies the entire agreement and
understanding between the Lender and the Borrower and supersedes all prior
agreements and understandings relating to the subject matter hereof.
Section 6.5 Remedies Cumulative.
-------------------
Each and every right granted to the Lender hereunder or under any other
document delivered hereunder or in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time. No failure
on the part of the Lender or the holder of the Promissory Note to exercise, and
no delay in exercising, any right shall operate as a waiver thereof, nor shall
any single or partial exercise of any right preclude any other or future
exercise thereof or the exercise of any other right. The due payment and
performance of the obligations under the Loan Documents shall be without regard
to any counterclaim, right of offset or any other claim whatsoever which the
Borrower may have against the Lender and without regard to any other obligation
of any nature whatsoever which the Lender may have to the Borrower, and no such
counterclaim or offset shall be asserted by the Borrower in any action, suit or
proceeding instituted by the Lender for payment or performance of such
obligations.
Section 6.6 Further Assurances; Compliance with Covenants.
---------------------------------------------
At any time and from time to time, upon the request of the Lender, the
Borrower shall execute, deliver and acknowledge or cause to be executed,
delivered and acknowledged, such further documents and instruments and do such
other acts and things as the Lender may reasonably request in order to fully
effect the terms of this Loan Agreement, the Promissory Note, the Pledge
Agreement, the other Loan Documents and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the Loan.
10
<PAGE>
Section 6.7 Notices.
-------
Except as otherwise specifically provided for herein, all notice, requests,
reports and other communications pursuant to this Loan Agreement shall be in
writing, either by letter (delivered by hand or commercial messenger service or
sent by registered or certified mail, return receipt requested, except for
routine reports delivered in compliance with Article VI hereof which may be sent
by ordinary first-class mail) or telex or telecopier addressed as follows:
(a) If to the Borrower:
__________________
__________________
__________________
(b) If to the Lender:
___________________
___________________
___________________
___________________
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or by commercial messenger
service, or sent by telex or telecopier, to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day deposited in
the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder; provided, however, that any such notice shall be deemed to
have been given only when actually received by the party to whom it is
addressed.
Section 7.1 Counterparts.
------------
This Loan Agreement may be signed in any number of counterparts which, when
taken together, shall constitute one and the same document.
Section 7.2 Construction; Governing Law.
---------------------------
The headings used in the table of contents and in this Loan Agreement are
for convenience only and shall not be deemed to constitute a part hereof. All
uses herein of any gender or of singular or plural terms shall be deemed to
include uses of the other genders or plural or singular terms, as the context
may require. All references in this Loan Agreement of an Article or section
shall be to an Article or section of this Loan Agreement, unless otherwise
specified. This Loan Agreement, the Promissory Note, the Pledge Agreement and
the other Loan Documents shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Delaware.
11
<PAGE>
Section 7.3 Severability.
------------
Wherever possible, each provision of this Loan Agreement shall be
interpreted in such manner as to be effective and valid under applicable law;
however, the provisions of this Loan Agreement are severable, and if any clause
of provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provisions in this Loan Agreement in and jurisdiction. Each of
the covenants, agreements and conditions contained in this Loan Agreement
independent, and compliance by a party with any of them shall not excuse non-
compliance by such party with any other. The Borrower shall not take any action
the effect of which shall constitute a breach or violation of any provision of
this Loan Agreement.
Section 7.4 Binding Effect: No Assignment or Delegation.
-------------------------------------------
This Loan Agreement shall be binding upon and inure to the benefit of the
Borrower and its successors and the Lender and its successors and assigns. The
rights and obligations of the Borrower under this Agreement shall not be
assigned or delegated without the prior written consent of the Lender, and any
purported assignment or delegation without such consent shall be void.
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be
executed as of the date first written above.
AMERICAN SAVING BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
____________________________________
__________________
Trustee
____________________________________
________________
Trustee
AMERICAN FINANCIAL HOLDINGS, INC.
By:__________________________
12
<PAGE>
EXHIBIT 10.2
FORM OF
AMERICAN SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT, entered into on ____________, 1999, by and between American
Savings Bank (the "Institution"), a state-chartered savings institution, with
its principal administrative office at 178 Main Street, New Britain, CT 06051,
American Financial Holdings, Inc. (the "Holding Company"), a corporation
organized under the laws of the state of Delaware and the holding company of the
Institution, and_________________ ("Executive").
WHEREAS, the Institution wishes to continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Institution on a full-time basis in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. CONSIDERATION PROVIDED BY THE EXECUTIVE.
During the period of his employment hereunder, Executive agrees to serve as
[TITLE] of the Institution. Executive shall render administrative and
management services to the Institution such as are customarily performed by
persons in a similar executive capacity. During said period, Executive also
agrees to serve, if elected, as an officer and director of the Institution.
Failure to reelect Executive as [TITLE] of the Institution, or failure to
nominate or reelect Executive to the Board of Directors of the Institution,
without the consent of Executive, shall constitute a breach of this Agreement.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months. Commencing on the first
anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the
Insitution ("Board") may extend the Agreement an additional year such that the
remaining term of the Agreement shall be thirty-six (36) months unless the
Executive elects not to extend the term of this Agreement by giving written
notice in accordance with Section 8 of this Agreement. The Board will review
the Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement and the rationale and results thereof shall be
included in the minutes of the Board's meeting. The Board shall give notice to
the Executive as soon as possible after such review as to whether the Agreement
is to be extended.
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(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Institution and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in the Board's judgment,
will not present any conflict of interest with the Institution, or materially
affect the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Institution may be terminated by the Institution or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. CONSIDERATION PROVIDED BY THE INSTITUTION.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Institution in exchange for the duties described in
Section 1. The Institution shall pay Executive as compensation a salary of not
less than $__________ per year ("Base Salary"). Base Salary shall include any
amounts of compensation deferred by Executive under any employee benefit plan or
deferred compensation arrangement maintained by the Institution or the Holding
Company. Such Base Salary shall be payable bi-weekly. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or a committee
designated by the Board, and the Board may increase Executive's Base Salary at
any time. The increased Base Salary shall become the new "Base Salary" for
purposes of this Agreement. In addition to the Base Salary provided in this
Section 3(a), the Institution shall also provide Executive, at no cost to
Executive, with all such other benefits as are provided uniformly to permanent
full-time employees of the Institution or the Holding Company.
(b) The Institution will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, and the Institution will not, without Executive's prior
written consent, make any changes in such plans, arrangements or perquisites
which would adversely affect Executive's rights or benefits thereunder, without
separately providing for an arrangement that ensures Executive receives or will
receive the economic value that Executive would otherwise lose as a result of
such adverse affect. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive will be entitled to participate in
or receive benefits under any employee benefit plans, whether tax-qualified or
otherwise, including, but not limited to, retirement plans, supplemental
retirement plans, pension plans, profit-sharing plans, health-and-accident plan,
medical coverage or any other employee benefit plan or arrangement
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made available by the Institution now or in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan or arrangement of the Institution in which Executive is eligible to
participate. Nothing paid to Executive under any such plan or arrangement will
be deemed to be in lieu of other compensation to which Executive is entitled
under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Institution shall pay or reimburse Executive for all reasonable travel
and other expenses incurred by Executive in performing his obligations under
this Agreement, including expenses associated with membership in clubs or
organizations, as mutually agreed to between the Board and Executive.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the Institution of Executive's full-time employment hereunder for any reason
other than, Retirement, as defined in Section 6 hereof, or Termination for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Institution's employ, upon any (A) notice to Executive by the Institution of
non-renewal of the term of this Agreement, (B) failure to elect or reelect or to
appoint or reappoint Executive as [TITLE], or failure to nominate or reelect
Executive to the Board of Directors of the Institution, unless Executive
consents to any such event, (C) a material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1 above (and any such material change
shall be deemed a continuing breach of this Agreement), (D) a relocation of
Executive's principal place of employment by more than fifty (50) miles from its
location at the effective date of this Agreement, or a material reduction in the
benefits and perquisites available to Executive to which Executive does not
consent or for which Executive is not or will not be provided the economic
benefit pursuant to Section 3(b) hereof, (E) liquidation or dissolution of the
Institution or the Holding Company, or (F) breach of this Agreement by the
Institution. Upon the occurrence of any event described in clauses (A), (B),
(C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within a reasonable period of time
not to exceed, except in case of a continuing breach, four calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination on the Date of
Termination as defined in Section 8, the Institution shall be obligated to pay
Executive, or, in the event of his
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subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be: (i) the amount of the remaining payments and benefits that Executive
would have earned if he had continued his employment with the Institution or
Holding Company during the remaining unexpired term of this Agreement, based on
the Executive's Base Salary and (ii) benefits provided at the Date of
Termination, as set out in Sections 3(a) and (b) hereof, as the case may be, and
the amount still due the Executive under any paragraph of Section 3 for service
through the Date of Termination. At the election of Executive, which election is
to be made within thirty (30) days of the Date of Termination, such payments
shall be made in a lump sum or paid monthly during the remaining term of the
agreement following Executive's termination. In the event that no election is
made, payment to Executive will be made in a lump sum. Such payments shall not
be reduced in the event Executive obtains other employment following termination
of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Institution or
the Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Institution or the Holding Company continues to
offer any life, medical, health, disability or dental insurance plan or
arrangement in which Executive participates in on the last day of his employment
(each being a "Welfare Plan"), after an Event of Termination (as herein
defined), Executive and his dependents shall continue participating in such
Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death; (ii) his employment by another employer other than
one of which he is the majority owner; or (iii) the end of the remaining term of
this Agreement. If the Institution or the Holding Company does not offer the
Welfare Plans after the Event of Termination, then the Institution shall provide
Executive with a payment equal to the actuarial value of the provision of such
benefit for the period which runs until the earlier of (i) his death; (ii) his
employment by another employer other than one of which he is the majority owner;
or (iii) the end of the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or the Holding Company shall mean an event of a nature that: (i)
would be required to be reported in
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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
Institution 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
Institution, 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 Institution
or the Holding Company representing 20% or more of the Institution's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Institution 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 Institution or
the Holding Company or similar transaction occurs or is effectuated in which the
Institution 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 Institution 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 Institution or
the Holding Company shall be distributed, or (E) a tender offer is made for 20%
or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f) and (g) of this Section 5 upon his termination of
employment on or after the date the Change in Control occurs at any time during
the term of this Agreement due to (1) Executive's dismissal; (2) Executive's
voluntary resignation for any reason on or within the sixty (60) day period
immediately following the date a Change in Control has occurred; or (3)
Executive's resignation following any demotion, loss of title, office or
significant authority or responsibility, reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 50
miles from its location immediately prior to the Change in Control, unless such
termination is
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because of his death, or Termination for Cause; provided, however, that such
payments shall be reduced by any payment made under Section 4 of this agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in Section 5(b), the Institution shall
pay Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of: (1) the payments due for the
remaining term of the Agreement or (2) ___________(___) times Executive's
average annual compensation for the ________(___) preceding taxable years. In
determining Executive's average annual compensation, annual compensation shall
include Base Salary and any other taxable income, including but not limited to
amounts related to the granting, vesting or exercise of restricted stock or
stock option awards, commissions, bonuses, pension and profit sharing plan
contributions or benefits (whether or not taxable), severance payments,
retirement benefits, director or committee fees and fringe benefits paid or to
be paid to Executive or paid for Executive's benefit during any such year. At
the election of Executive, which election is to be made prior to or within
thirty (30) days of the Date of Termination on or following a Change in Control,
such payment may be made in a lump sum (without discount for early payment) on
or immediately following the Date of Termination (which may be the date a Change
in Control occurs) or paid in equal monthly installments during the thirty-six
(36) months following Executive's termination. In the event that no election is
made, payment to Executive will be made on a monthly basis during the thirty-six
(36) months following Executive's termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled
to receive benefits due him under or contributed by the Institution or the
Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Institution will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Institution or Holding Company for Executive and any
of his dependents covered under such plans prior to the Change in Control. Such
coverage and payments shall cease upon the expiration of thirty-six (36) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Institution shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and his dependents would otherwise have been
entitled to receive under such plans and programs from which their continued
participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent
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that any item referred to in this paragraph will at the end of the term of this
Agreement, no longer be available to the Executive, the Executive will have the
option to purchase all rights then held by the Institution or the Holding
Company to such item for a price equal to the then fair market value of the
item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
(h) Notwithstanding the preceding paragraphs of this Section 5, for any
taxable year in which the Executive shall be liable, as determined for the
payment of an excise tax under Section 4999 of the Code (or any successor
provision thereto), with respect to any payment in the nature of the
compensation made by the Institution or the Holding Company (or for the benefit
of) Executive pursuant to this Agreement or otherwise, the Institution shall pay
to the Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E x P
----------------------------
1 - [(FI x (1 - SLI)) + SLI + E + (M + PO)]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 5;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question;
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question;
M = highest marginal rate of Medicare; and
PO = adjustment for phase out of or loss of deduction, personal
exemption or other similar items.
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With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Institution is required to withhold such tax, (ii)
the date the tax is required to be paid by Executive, or (iii) at the time of
the Change in Control. It is the intention of the parties that the Institution
provide Executive with a full tax gross-up under the provisions of this Section,
so that on a net after-tax basis, the result to Executive shall be the same as
if the excise tax under Section 4999 (or any successor provisions) of the Code
had not been imposed. The tax gross-up may be adjusted if alternative minimum
tax rules are applicable to Executive.
(i) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P", above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Institution's independent
accountants shall determine the amount (the "Adjustment Amount") the Institution
must pay to the Executive, in order to put the Executive (or the Institution, as
the case may be) in the same position as the Executive (or the Holding Company,
as the case may be) would have been if the amount determined as "P" above had
been equal to the Determinative Excess Parachute Payment. In determining the
Adjustment Amount, the independent accountants shall take into account any and
all taxes (including any penalties and interest) paid by or for Executive or
refunded to Executive or for Executive's benefit. As soon as practicable after
the Adjustment Amount has been so determined, the Holding Company shall pay the
Adjustment Amount to Executive.
(k) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Institution as described above. The Institution
shall indemnify and hold Executive harmless from any and all losses, costs and
expenses (including without limitation, reasonable attorney's fees, interest,
fines and penalties) which Executive incurs as a result of so reporting such
information. Executive shall promptly notify the Institution in writing whenever
the Executive receives notice of the institution of a judicial or administrative
proceeding, formal or informal, in which the federal tax treatment under Section
4999 of the Code of any amount paid or payable under this Supplemental Agreement
is being reviewed or is in dispute. The Institution shall assume control at its
expense over all legal and accounting matters pertaining to such federal tax
treatment (except to the extent necessary or appropriate for Executive to
resolve any such proceeding with respect to any matter unrelated to amounts paid
or payable pursuant to this contract) and Executive shall cooperate fully with
the Institution in any such proceeding. Executive shall cooperate fully with the
Holding Company in any such proceeding. Executive shall not enter into any
compromise or settlement or otherwise prejudice any rights the Institution may
have in connection therewith without prior consent to the Institution.
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6. DISABILITY BENEFITS.
In the event of the disability of Executive, the Institution shall continue
to pay Executive the compensation provided by this Agreement during the period
of his disability. In the event Executive is disabled for a continuous period
exceeding 12 calendar months, the Institution may, at its election, terminate
this Agreement; provided, however, the last 6 months of such 12-month period
shall constitute the "elimination period" for benefit determination under the
Institution's Long-Term Disability Plan. As used in this Agreement, the term
"disability" shall mean the complete and permanent inability of Executive to
perform his duties under this Agreement as determined by an independent
physician selected with the approval of the Institution and Executive. If, in
the opinion of said physician, there is a reasonable prognosis of recovery, this
Agreement may not be terminated by the Holding Company pursuant to this
paragraph 6.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: (1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or (2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Institution or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause. During the period beginning on the date of the Notice of
Termination for Cause pursuant to Section 8 hereof through the Date of
Termination, stock options and related limited rights granted to Executive under
any stock option plan shall not be exercisable nor shall any unvested awards
granted to Executive under any stock benefit plan of the Institution, the
Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination, such stock options and related limited rights and any such unvested
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
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8. NOTICE.
(a) Any purported termination by the Institution or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Institution
will continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
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10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Institution for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Institution has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Institution. The parties hereto,
recognizing that irreparable injury will result to the Institution, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Institution, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the termination
of his employment pursuant to Section 7 hereof, Executive's experience and
capabilities are such that Executive can obtain employment in a business engaged
in other lines and/or of a different nature than the Institution and that the
enforcement of a remedy by way of injunction will not prevent Executive from
earning a livelihood. Nothing herein will be construed as prohibiting the
Institution from pursuing any other remedies available to the Institution for
such breach or threatened breach, including the recovery of damages from
Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Institution as it
may exist from time to time, is a valuable, special and unique asset of the
business of the Institution. Executive will not, during or after the term of his
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Institution thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Institution. Further, Executive may
disclose information regarding the business activities of the Institution to the
Connecticut Department of Banks, OTS and the FDIC pursuant to a formal
regulatory request. In the event of a breach or threatened breach by the
Executive of the provisions of this Section, the Institution will be entitled to
an injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Institution or from rendering any services to any person, firm, corporation,
other entity to whom such knowledge, in whole or in part, has been disclosed or
is threatened to be disclosed. Nothing herein will be construed as prohibiting
the Institution from pursuing any other remedies available to the Institution
for such breach or threatened breach, including the recovery of damages from
Executive.
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11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Institution. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts and
benefits due hereunder to Executive and, if such amounts and benefits due from
the Institution are not timely paid or provided by the Institution, such amounts
and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated ________________,
1999, between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Institution or any
predecessor of the Institution and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement 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 any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver
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shall be deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future as to any
act other than that specifically waived.
15. REQUIRED PROVISIONS.
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. (S) 1828(k) and
any rules and regulations promulgated thereunder, including 12 C.F.R. Part 359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Connecticut,
unless otherwise specified herein.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
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20. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
21. INDEMNIFICATION.
During the term of this Agreement and for an additional period of seven
years thereafter, the Institution shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall indemnify, hold
harmless and defend Executive (and his heirs, executors and administrators) to
the fullest extent permitted under Connecticut law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his having
been a director or officer of the Institution (whether or not he continues to be
a director or officer at the time of incurring such expenses or liabilities),
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.
22. SUCCESSOR TO THE INSTITUTION.
The Institution 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 Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, American Savings Bank and American Financial Holdings,
Inc. have caused this Agreement to be executed and their seals to be affixed
hereunto by their duly authorized officers and directors, and Executive has
signed this Agreement, on the _________ day of __________________, 1999.
ATTEST: AMERICAN SAVINGS BANK
BY:
___________________________ ___________________________
Secretary For the Board of Directors
[SEAL]
ATTEST: AMERICAN FINANCIAL HOLDINGS,
INC.
(Guarantor)
BY:
___________________________ ___________________________
Secretary For the Board of Directors
[SEAL]
WITNESS: EXECUTIVE
___________________________ ___________________________
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Exhibit 10.3
FORM OF
AMERICAN FINANCIAL HOLDINGS, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT, entered into on____________,1999, by and between American
Financial Holdings, Inc. (the "Holding Company"), a corporation organized under
the laws of Delaware, with its principal administrative office at 102 West Main
Street, New Britain, CT 06051 and______________ ("Executive"). Any reference to
"the Bank" herein shall mean American Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Holding Company on a full-time basis in accordance with the terms of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. CONSIDERATION PROVIDED BY THE EXECUTIVE.
During the period of his employment hereunder, Executive agrees to serve
as___________ and__________________ of the Holding Company. Executive shall
render administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of any subsidiary of the Holding Company. Failure to reelect Executive as
_____________ and____________________ of the Holding Company, failure to reelect
Executive as______________ and_________________ of the Bank, or failure to
nominate or reelect Executive to the Board of Directors of the Holding Company
or the Bank, any without the consent of Executive, shall constitute a breach of
this Agreement.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months from said date. The term
of this Agreement shall be extended for one day each day so that a constant
thirty-six (36) calendar month term shall remain in effect, until such time as
the Board of Directors of the Holding Company (the "Board") or Executive elects
not to extend the term of the Agreement by giving written notice to the other
party in accordance with Section 8 of this Agreement, in which case the term of
this Agreement shall be fixed and shall end on the third anniversary of the date
of such written notice.
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(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Holding Company and the Bank and participation
in community and civic organizations; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
the Board's judgment, will not present any conflict of interest with the
Holding Company, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. CONSIDERATION PROVIDED BY THE HOLDING COMPANY.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Holding Company in exchange for the duties described
in Section 1 of this Agreement. The Holding Company shall pay Executive as
compensation a salary of not less than $_____________ per year ("Base Salary").
Base Salary shall include any amounts of compensation deferred by Executive
under any employee benefit plan or deferred compensation arrangement maintained
by the Bank or the Holding Company. Executive's Base Salary shall be payable in
accordance with the Holding Company's general payroll practices. During the
period of this Agreement, Executive's Base Salary shall be reviewed at least
annually; the first such review will be made no later than one year from the
date of this Agreement. Such review shall be conducted by the Board or a
committee designated by the Board, and the Board may increase Executive's Base
Salary at any time. The increased Base Salary shall become the new "Base
Salary" for purposes of this Agreement. In addition to the Base Salary provided
in this Section 3(a), the Holding Company shall also provide Executive at no
cost to Executive with all such other benefits as are provided uniformly to
permanent full-time employees of the Holding Company and the Bank.
(b) The Holding Company will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, and the Holding Company will not, without Executive's prior
written consent, make any changes in such plans, arrangements or perquisites
which would adversely affect Executive's rights or benefits thereunder, without
separately providing for an arrangement that ensures Executive receives or will
receive the economic value that Executive would otherwise lose as a result of
such adverse affect. Without limiting the generality of the foregoing
provisions of this paragraph (b), Executive will be entitled to participate in
or receive benefits under any employee benefit plans, whether tax-qualified or
otherwise, including, but not limited to, retirement plans, supplemental
retirement plans, pension plans, profit-sharing plans, employee stock ownership
plans,
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health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the Holding Company now or in the future to its
senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive will be entitled to incentive compensation and
bonuses as provided in any plan or arrangement of the Holding Company in which
Executive is eligible to participate. Nothing paid to Executive under any such
plan or arrangement will be deemed to be in lieu of other compensation to which
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation and benefits provided for by paragraph (b) of
this Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel and other expenses incurred by Executive in performing his
obligations under this Agreement, including expenses associated with membership
in clubs or organizations, as mutually agreed to between the Board and
Executive.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than, Retirement, as defined in paragraph (f) hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Holding Company's employ, upon any (A) notice to Executive
by the Holding Company of non-renewal of the term of this Agreement, (B) failure
to elect or reelect or to appoint or reappoint Executive as [Title] of the
Holding Company, failure to elect or reelect or to appoint or reappoint
Executive as [Title] of the Bank, or, failure to nominate or reelect Executive
to the Board of Directors of the Holding Company or Bank, unless Executive
consents to any such event, (C) a material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1 above (and any such material change
shall be deemed a continuing breach of this Agreement), (D) a relocation of
Executive's principal place of employment by more than fifty (50) miles from its
location at the effective date of this Agreement, or a material reduction in the
benefits and perquisites available to Executive to which Executive does not
consent or for which Executive is not or will not be provided the economic
benefit pursuant to Section 3(b) hereof, (E) liquidation or dissolution of the
Bank or the Holding Company, or (F) breach of this Agreement by the Holding
Company. Upon the occurrence of any event described in clauses (A), (B), (C),
(D), (E) or (F), above, Executive shall have the right to elect to terminate his
employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within a reasonable period of time not to
exceed, except in case of a continuing breach, four calendar months after the
event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination on the Date of
Termination as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of
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his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be: (i) the amount of the remaining payments and benefits that
Executive would have earned or accrued if he had continued his employment with
the Holding Company or the Bank during the remaining unexpired term of this
Agreement, based on the Executive's Base Salary and benefits provided at the
Date of Termination, as set out in Sections 3(a) and (b) hereof, as the case may
be, and (ii) the amount still due the Executive under any paragraph of Section 3
for service through the Date of Termination. At the election of Executive, which
election is to be made within thirty (30) days of the Date of Termination, such
payments shall be made in a lump sum or paid monthly during the remaining term
of the agreement following Executive's termination. In the event that no
election is made, payment to Executive will be made in a lump sum. Such payments
shall not be reduced in the event Executive obtains other employment following
termination of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Bank or the
Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Bank or the Holding Company on Executive's behalf to the
extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Holding Company or the Bank continues to offer
any life, medical, health, disability or dental insurance plan or arrangement in
which Executive participates in on the last day of his employment (each being a
"Welfare Plan"), after an Event of Termination (as herein defined), Executive
and his dependents shall continue participating in such Welfare Plans, subject
to the same premium contributions on the part of Executive as were required
immediately prior to the Event of Termination until the earlier of (i) his
death; (ii) his employment by another employer other than one of which he is the
majority owner; or (iii) the end of the remaining term of this Agreement. If the
Holding Company or Bank does not offer the Welfare Plans after the Event of
Termination, then the Holding Company shall provide Executive with a payment
equal to the actuarial value of the provision of such benefit for the period
which runs until the earlier of (i) his death; (ii) his employment by another
employer other than one of which he is the majority owner; or (iii) the end of
the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
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(f) For the purpose of this Section, termination of Executive based on
"Retirement" shall mean termination in accordance with the Holding Company's or
Bank's retirement policy or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Holding Company or the Bank and other plans to which
Executive is a party or a participant.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Bank 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
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.
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(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f) and (g) of this Section 5 upon his termination of
employment on or after the date the Change in Control occurs at any time during
the term of this Agreement due to (1) Executive's dismissal; (2) Executive's
voluntary resignation for any reason on or within the sixty (60) day period
immediately following the date a Change in Control has occurred; or (3)
Executive's resignation during the term of this Agreement following any
demotion, loss of title, office or significant authority or responsibility,
reduction in annual compensation or benefits or relocation of his principals
place of employment by more than 50 miles from its location immediately prior to
the Change in Control, unless such termination is because of his death, or
Termination for Cause; provided, however, that such payments shall be reduced by
any payment made under Section 4 of this agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in Section 5(b), the Holding Company
shall pay Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of: (1) the payments due for the
remaining term of the Agreement or (2) three (3) times Executive's average
annual compensation for the three (3) preceding taxable years. In determining
Executive=s average annual compensation, annual compensation shall include Base
Salary and any other taxable income, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, pension, profit sharing and employee stock
ownership plan contributions or benefits (whether pursuant to a tax-qualified
plan or a deferred compensation arrangement and whether or not taxable),
severance payments, retirement benefits, director or committee fees and fringe
benefits paid or to be paid to Executive or paid for Executive's benefit during
any such year. At the election of Executive, which election is to be made prior
to or within thirty (30) days of the Date of Termination on or following a
Change in Control, such payment may be made in a lump sum (without discount for
early payment) on or immediately following the Date of Termination (which may be
the date a Change in Control occurs) or paid in equal monthly installments
during the thirty-six (36) months following Executive's termination. In the
event that no election is made, payment to Executive will be made on a monthly
basis during the thirty-six (36) months following Executive's termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled
to receive benefits due him under or contributed by the Bank or the Holding
Company on his behalf pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
Bank or the Holding Company on Executive's behalf to the extent such benefits
are not otherwise paid to Executive under a separate provision of this
Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Holding Company will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Bank or Holding Company for Executive and any of his
dependents covered under such plans prior to the Change in
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Control. Such coverage and payments shall cease upon the expiration of thirty-
six (36) full calendar months following the Date of Termination. In the event
Executive's participation in any such plan or program is barred, the Holding
Company shall arrange to provide Executive and his dependents with benefits
substantially similar as those of which Executive and his dependents would
otherwise have been entitled to receive under such plans and programs from which
their continued participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to the Executive, the Executive will have the option to purchase all rights then
held by the Holding Company or Bank to such item for a price equal to the then
fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
(h) Notwithstanding the preceding paragraphs of this Section 5, for any
taxable year in which the Executive shall be liable, as determined for the
payment of an excise tax under Section 4999 of the Code (or any successor
provision thereto), with respect to any payment in the nature of the
compensation made by the Holding Company or the Bank to (or for the benefit of)
Executive pursuant to this Agreement or otherwise, the Holding Company shall pay
to the Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E X P
---------------------------
1 - [(FI X (1 - SLI)) + SLI + E + (M + PO)]
E = the rate at which the excise tax is assessed under Section 4999 of
the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 5;
FI = the highest marginal rate of federal income, employment, and other
taxes (other than taxes imposed under Section 4999 of the Code)
applicable to Executive for the taxable year in question;
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SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question;
M = highest marginal rate of Medicare; and
PO = adjustment for phase out of or loss of deduction, personal exemption
or other similar items.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It is the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section, so that on a net after-tax basis, the result to Executive shall be the
same as if the excise tax under Section 4999 (or any successor provisions) of
the Code had not been imposed. The tax gross-up may be adjusted if alternative
minimum tax rules are applicable to Executive.
(i) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P", above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount"), the Holding
Company must pay to the Executive, in order to put the Executive (or the Holding
Company, as the case may be) in the same position as the Executive (or the
Holding Company, as the case may be) would have been if the amount determined as
"P" above had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, the independent accountants shall take into
account any and all taxes (including any penalties and interest) paid by or for
Executive or refunded to Executive or for Executive's benefit. As soon as
practicable after the Adjustment Amount has been so determined, the Holding
Company shall pay the Adjustment Amount to Executive.
(j) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of so
reporting such information. Executive shall promptly notify the Holding Company
in writing whenever the Executive receives notice of the Bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental
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Agreement is being reviewed or is in dispute. The Holding Company shall assume
control at its expense over all legal and accounting matters pertaining to such
federal tax treatment (except to the extent necessary or appropriate for
Executive to resolve any such proceeding with respect to any matter unrelated to
amounts paid or payable pursuant to this contract) and Executive shall cooperate
fully with the Holding Company in any such proceeding. Executive shall not enter
into any compromise or settlement or otherwise prejudice any rights the Holding
Company may have in connection therewith without prior consent to the Holding
Company.
6. DISABILITY BENEFITS.
In the event of the disability of Executive, the Holding Company shall
continue to pay Executive the compensation provided by this Agreement during the
period of his disability. In the event Executive is disabled for a continuous
period exceeding 12 calendar months, the Holding Company may, at its election,
terminate this Agreement; provided, however, the last 6 months of such 12-month
period shall constitute the "elimination period" for benefit determination under
the Holding Company's or the Bank's Long-Term Disability Plan. As used in this
Agreement, the term "disability" shall mean the complete and permanent inability
of Executive to perform his duties under this Agreement as determined by an
independent physician selected with the approval of the Holding Company or the
Bank and Executive. If, in the opinion of said physician, there is a reasonable
prognosis of recovery, this Agreement may not be terminated by the Holding
Company pursuant to this paragraph 6.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: (1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Bank or the Holding
Company, or (2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Bank or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. During the period beginning on the date of the Notice of
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Termination for Cause pursuant to Section 8 hereof through the Date of
Termination, stock options and related limited rights granted to Executive under
any stock option plan shall not be exercisable nor shall any unvested awards
granted to Executive under any stock benefit plan of the Bank, the Holding
Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination, such stock options and related limited rights and any such unvested
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Holding
Company will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
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9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or
11
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economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Holding Company. Further,
Executive may disclose information regarding the business activities of the Bank
or Holding Company to the Superintendent of Banks of the State of Connecticut,
the Connecticut Banking Department, OTS and the FDIC pursuant to a formal
regulatory request. In the event of a breach or threatened breach by the
Executive of the provisions of this Section, the Holding Company will be
entitled to an injunction restraining Executive from disclosing, in whole or in
part, the knowledge of the past, present, planned or considered business
activities of the Holding Company or its Subsidiaries or from rendering any
services to any person, firm, corporation, other entity to whom such knowledge,
in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Holding Company from
pursuing any other remedies available to the Holding Company for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Holding Company subject to Section 13
hereof.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated____________, 1999,
between Executive and the Bank, such compensation payments and benefits paid by
the Bank will be subtracted from any amount due simultaneously to Executive
under similar provisions of this Agreement.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement 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 any such action shall be null,
void, and of no effect.
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(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of____________,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Bank, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
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19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
20. INDEMNIFICATION.
During the term of this Agreement and for an additional period of seven
years thereafter, the Holding Company shall provide Executive (including his
heirs, executors and administrators) with coverage under a standard directors'
and officers' liability insurance policy at its expense, and shall indemnify,
hold harmless and defend Executive (and his heirs, executors and administrators)
to the fullest extent permitted under Delaware law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his having
been a director or officer of the Holding Company (whether or not he continues
to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company 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 or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, has caused this Agreement to be executed and its seal
to be affixed hereunto by its duly authorized officer and its directors, and
Executive has signed this Agreement, on the _____ day of
__________________________________, 1999.
ATTEST: AMERICAN FINANCIAL HOLDINGS, INC.
_____________________________ By:___________________________
Secretary For the Board of Directors
[SEAL]
WITNESS: EXECUTIVE
_____________________________ _____________________________
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EXHIBIT 10.4
FORM OF
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 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.
(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 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
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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) "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.
(e) "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.
(f) "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.
(g) "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.
(h) "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.
(i) "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.
(j) "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 authorized under the policies of the
Bank. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
(k) "Payment" means the payment of severance compensation as provided in
Article IV hereof.
(l) "Participant" means an Employee who meets the eligibility requirements
of Article III.
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(m) "Plan" means American Savings Bank Employee Severance Compensation
Plan.
(n) "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 a 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
-------------
The term "Participant" shall include all Employees of the Bank who have
completed at least ___ Year(s) of Service with the Bank at the time of any
termination pursuant to Section 4.2 herein. In addition, the term "Participant"
shall include, 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.
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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 ______ (__) 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.
(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.
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<PAGE>
4.3 Amount of Payment
-----------------
(a) Each Participant (other than a Participant who is a Designated
Officer) 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 ___% of Annual Compensation. 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) ___ times the average of their Annual Compensation for the last
five completed taxable years preceding the effective date of the Change in
Control.
(b) 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 _________ (__) 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.
(c) 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 be reduced by any compensation earned by the Participant
as a result of employment after termination of employment hereunder.
(d) 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 ___-month period beginning on the __
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
____________ Severance Plan 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.
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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
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
7
<PAGE>
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 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
8
<PAGE>
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.
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
9
<PAGE>
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.
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.
10
<PAGE>
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.
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.
11
<PAGE>
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 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.
12
<PAGE>
(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
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]
13
<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
14
<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
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............................. 10
Article VII - Claims Procedures........................................ 12
Article VIII - Amendment and Termination............................... 14
Article IX - General Provisions........................................ 15
Article X - Required Regulatory Provisions............................. 18
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
2
<PAGE>
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.
(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.
3
<PAGE>
(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.
(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.
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
6
<PAGE>
(B) The last day of the Participant's employment with the Employer.
(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.
7
<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.
8
<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.
9
<PAGE>
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.
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.
10
<PAGE>
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 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.
11
<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.
12
<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.
13
<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.
14
<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 ________________________.
15
<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:______________________________
16
<PAGE>
Exhibit 23.1
Consent of Independent Certified Public Accountants
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 for
American Financial Holdings, Inc. and a part of the application for conversion
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
August 4, 1999
<PAGE>
EXHIBIT 23.2
CONSENT
We hereby consent to the references to this firm and our opinions in: the
Registration Statement on Form S-1 filed by American Financial Holdings, Inc.,
and all amendments thereto; in the Form H-(e)1-S for American Financial
Holdings, Inc., and all amendments thereto; and in the Application for
Conversion filed by American Savings Bank, and all amendments thereto, relating
to the conversion of American Savings Bank, from a Connecticut-chartered mutual
savings bank to a Connecticut-chartered stock savings bank, the concurrent
issuance of the Bank's outstanding capital stock to American Financial Holdings,
Inc., a holding company formed for such purpose, and the offering of American
Financial Holdings, Inc.'s common stock. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
MULDOON, MURPHY & FAUCETTE LLP
/s/ Muldoon, Murphy & Faucette LLP
Dated this 4th day of
August, 1999
<PAGE>
Exhibit 23.3
[Letterhead of FinPro, Inc.]
August 4, 1999
Boards of Directors
American Financial Holdings, Inc.
American Savings Bank
178 Main Street
New Britain, CT 06051
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro"), in the
Application for Conversion of American Savings Bank, and any amendments thereto,
and in the Registration Statement on Form S-1, and any amendments thereto, filed
by American Financial Holdings, Inc. and references to the Conversion Valuation
Appraisal Report ("Report") and the valuation of American Savings Bank provided
by FinPro, and our opinion regarding subscription rights filed as an exhibit to
the applications referred to above. We also consent to the use of our firm's
name and the inclusion of, summary of and references to our Report in the Form
S-1 Registration Statement filed by American Financial Holdings, Inc. and any
amendments thereto, and the Application for Conversion filed by American Savings
Bank, and any amendments thereto.
Very Truly Yours,
/s/ FinPro, Inc.
FinPro, Inc.
<PAGE>
[Letterhead of FinPro, Inc.]
August 4, 1999
Boards of Directors
American Financial Holdings, Inc.
American Savings Bank
178 Main Street
New Britain, CT 06051
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion, as amended (the "Plan") adopted by
the Board of Directors of American Savings Bank (the "Bank"), whereby the Bank
will convert from a Connecticut State-chartered mutual savings bank to a
Connecticut State-chartered stock savings bank and issue all of the Bank's
outstanding capital stock to American Financial Holdings, Inc. (the
"Company"). Simultaneously, the Company will issue shares of common stock.
We understand that in accordance with the Plan, subscription rights to purchase
shares of the Conversion Stock are to be issued to (i) Eligible Account Holders;
(ii) Employee Plans; and (iii) if required by the Federal Deposit Insurance
Corporation, Supplemental Eligible Account Holders, (iv) directors, officers and
employees of the Bank who do not otherwise qualify as Eligible or Supplemental
Account Holders, and (v) corporators of the Bank who do not otherwise qualify as
Eligible or Supplemental Account Holders together collectively referred to as
the "Recipients". Based solely on our observation that the subscription rights
will be available to such Recipients without cost, will be legally non-
transferable and of short duration, and will afford the Recipients the right
only to purchase shares of Conversion Stock at the same price as will be paid by
members of the general public in the Direct Community Offering, if any, but
without undertaking any independent investigation of state or federal law or the
position of the Internal Revenue Service with respect to this issue, we are of
the belief that:
(1) the subscription rights will have no ascertainable market value; and
(2) the price at which the subscription rights are exercisable will not be
more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Company's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Conversion Stock in the Conversion
will thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
/s/ FinPro, Inc.
FinPro, Inc.
<PAGE>
EXHIBIT 24.1
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Robert T. Kenney and Charles J. Boulier III as
the true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution, for them and in their name, place and stead, in any and all
capacities to sign any or all amendments to the Application for Conversion of
American Savings Bank and the Form S-1 Registration Statement by American
Financial Holdings, Inc., and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the State of Connecticut
Department of Banks or the U.S. Securities and Exchange Commission,
respectively, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Connecticut General Statutes and the
Securities Act of 1933, as amended, and any rules and regulations promulgated
thereunder, the foregoing Powers of Attorney prepared in conjunction with the
Application for Conversion and the Form S-1 Registration Statement have been
duly signed by the following persons in the capacities and on the dates
indicated.
NAME DATE
---- ----
/s/ Robert T. Kenney August 4, 1999
- --------------------
Robert T. Kenney
President, Chief Executive Officer
and Director
(principal executive officer)
American Financial Holdings, Inc.
Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
American Savings Bank
/s/ Charles J. Boulier III August 4, 1999
- --------------------------
Charles J. Boulier III
Executive Vice President, Treasurer and
Chief Financial Officer
(principal accounting and financial officer)
American Financial Holdings, Inc.
Executive Vice President and Chief Financial Officer
(principal accounting and financial officer)
American Savings Bank
<PAGE>
/s/ Adolf G. Carlson August 4, 1999
- --------------------
Adolf G. Carlson
Director
American Financial Holdings, Inc.
Director
American Savings Bank
/s/ Marie S. Gustin August 4, 1999
- --------------------
Marie S. Gustin
Director
American Financial Holdings, Inc.
Director
American Savings Bank
/s/ Fred M. Hollfelder August 4, 1999
- ----------------------
Fred M. Hollfelder
Director
American Financial Holdings, Inc.
Director
American Savings Bank
/s/ Mark E. Karp August 4, 1999
- --------------------
Mark E. Karp
Director
American Financial Holdings, Inc.
Director
American Savings Bank
/s/ Steven T. Martin August 4, 1999
- --------------------
Steven T. Martin
Director
American Financial Holdings, Inc.
Director
American Savings Bank
<PAGE>
/s/ Harry N. Mazadoorian August 4, 1999
- ------------------------
Harry N. Mazadoorian
Director
American Financial Holdings, Inc.
Director
American Savings Bank
/s/ Jeffrey T. Witherwax August 4, 1999
- ------------------------
Jeffrey T. Witherwax
Director
American Financial Holdings, Inc.
Director
American Savings Bank
/s/ Charles S. Beach August 4, 1999
- --------------------
Charles S. Beach
Director
American Savings Bank
/s/ Donald Davidson August 4, 1999
- --------------------
Donald Davidson
Director
American Savings Bank
/s/ Norman E.W. Erickson August 4, 1999
- ------------------------
Norman E.W. Erickson
Director
American Savings Bank
/s/ Joseph T. Hughes August 4, 1999
- --------------------
Joseph T. Hughes
Director
American Savings Bank
<PAGE>
/s/ Geddes Parsons August 4, 1999
- -------------------------
Geddes Parsons
Director
American Savings Bank
/s/ Stanley W. Shepard August 4, 1999
- ----------------------
Stanley W. Shepard
Director
American Savings Bank
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of the American Savings Bank at and for the year ended
December 31, 1998 and at and for the five months ended May 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 5-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAY-31-1999 DEC-31-1998
<CASH> 17,474,392 20,119,389
<INT-BEARING-DEPOSITS> 5,289,975 5,002,554
<FED-FUNDS-SOLD> 31,600,000 30,700,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 576,257,894 590,528,492
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 946,804,785 913,345,885
<ALLOWANCE> 7,972,660 7,625,659
<TOTAL-ASSETS> 1,609,709,438 1,159,450,565
<DEPOSITS> 1,151,648,094 1,143,753,883
<SHORT-TERM> 6,800,000 5,300,000
<LIABILITIES-OTHER> 42,289,230 45,469,262
<LONG-TERM> 122,943,750 114,943,750
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 286,028,364 280,983,670
<TOTAL-LIABILITIES-AND-EQUITY> 1,609,709,438 1,590,450,565
<INTEREST-LOAN> 27,835,359 66,753,837
<INTEREST-INVEST> 12,755,203 30,685,415
<INTEREST-OTHER> 723,509 1,599,613
<INTEREST-TOTAL> 41,314,071 98,988,865
<INTEREST-DEPOSIT> 19,398,423 48,822,600
<INTEREST-EXPENSE> 22,393,732 54,066,637
<INTEREST-INCOME-NET> 18,920,339 44,922,228
<LOAN-LOSSES> 800,000 2,400,000
<SECURITIES-GAINS> 2,797,133 6,695,933
<EXPENSE-OTHER> 10,872,810 26,705,014
<INCOME-PRETAX> 12,096,733 27,080,642
<INCOME-PRE-EXTRAORDINARY> 12,096,733 27,080,642
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,898,733 18,014,642
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 6.72 7.17
<LOANS-NON> 2,872,335 3,986,104
<LOANS-PAST> 2,872,335 3,986,104
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 7,625,659 6,276,984
<CHARGE-OFFS> 538,579 1,154,113
<RECOVERIES> 85,580 102,788
<ALLOWANCE-CLOSE> 7,972,660 7,625,659
<ALLOWANCE-DOMESTIC> 7,972,660 7,625,659
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
<PAGE>
Exhibit 99.2
GIFT INSTRUMENT
CHARITABLE GIFT TO AMERICAN SAVINGS CHARITABLE FOUNDATION
American Financial Holdings, Inc., 102 West Main Street, New Britain, CT
06051 (the" Company"), desires to make a gift of its common stock, par value
$.01 per share to American Savings Charitable Foundation (the "Foundation"), a
nonprofit corporation organized under the laws of the State of Delaware. The
purpose of the donation is to establish a bond between American Financial
Holdings, Inc. and the community in which it and its affiliates operate to
enable the community to share in the potential growth and success of the Company
and its affiliates over the long term. To that end, American Financial Holdings,
Inc. now gives, transfers, and delivers to the Foundation _________ shares of
its common stock, par value $.01 per share, for total consideration of $0.01 per
share, or $_________, subject to the following conditions:
1. The Foundation shall use the donation solely for charitable purposes,
including community development, in the communities in which American Savings
Bank, New Britain, Connecticut operates, in accordance with the provisions of
the Foundation's Certificate of Incorporation; and
2. Consistent with the Company's intent to form a long-term bond between
the Company and the community, the amount of Common Stock that may be sold by
the Foundation in any one year shall not exceed 5% of the market value of the
assets held by the Foundation, except that this restriction shall not prohibit
the board of directors of the Foundation from selling a greater amount of Common
Stock in any one year if the board of directors of the Foundation determines
that the failure to sell a greater amount of the Common Stock held by the
Foundation would: (a) result in a long-term reduction of the value of the
Foundation's assets relative to their then current value that would jeopardize
the Foundation's capacity to carry out its charitable purposes; or (b) otherwise
jeopardize the Foundation's tax-exempt status.
3. The Common Stock contributed to the Foundation by the Company shall,
for so long as such shares are held by the Foundation, be considered by the
Company to be voted in the same ratio as all other shares of Common Stock of the
Company which are voted on each and every proposal considered by stockholders of
the Company, provided, however that this voting restriction shall have no force
and effect in the event that such restriction is waived by the Federal Deposit
Insurance Corporation.
Dated:_________, 1999 American Financial Holdings, Inc.
By: _______________________
Robert T. Kenney
Chairman, President & Chief
Executive Officer
