<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8 - K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act
Date of Report (Date of earliest event reported): February 2, 1998
----------------------------
CFX CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Hampshire 1-10633 0-15079
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (I.R.S. employer
of incorporation) file number) Identification no.)
102 Main Street, Keene, New Hampshire 03431
- --------------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code (603) 352-2502
-----------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events.
On January 30, 1998, CFX Corporation reported its results of operations
for the fourth quarter and year ended December 31, 1997. A copy of CFX
Corporation's press release is filed herewith as Exhibit 99.1 and is
incorporated herein by reference.
As described in the press release, CFX Corporation recorded an after-tax
charge of $4.4 million for the quarter ended December 31, 1997, in connection
with the resolution of a dispute with American Credit Indemnity Company ("ACI"),
a credit insurer, regarding the origination and servicing by CFX Funding,
L.L.C., a 51% subsidiary of CFX Corporation, of certain leases held in four
lease pools insured by ACI, and the discontinuance of future operations of CFX
Funding with respect to its securitization business. CFX Funding engaged in the
origination, securitization, sale and servicing of small-ticket equipment
leases obtained through a national network of lessors.
The settlement agreement with ACI (the "Settlement Agreement") provides
for the payment by CFX Corporation of $2.5 million to ACI and the obligation of
CFX Corporation to pay to ACI the amount of all claims made after December 18,
1997, under the credit insurance policies issued by ACI in connection with the
four pools. The settlement also entitles CFX Corporation to retain all
recoveries on defaulted leases, lease residuals and servicing fees after
December 18, 1997. The settlement provides mutual releases by ACI of CFX
Corporation and CFX Funding, and by CFX Corporation and CFX Funding of ACI, of
all claims and liabilities, other than those contained in the Settlement
Agreement, in connection with the four equipment lease pooling transactions
pursuant to which ACI issued its credit insurance policies. Leases with an
aggregate remaining principal balance of approximately $19.2 million remains in
the four securitized lease pools that are the subject of the Settlement
Agreement. CFX Corporation has established a reserve of $2.8 million to cover
the risk of collection of such leases.
The foregoing description of the Settlement Agreement is qualified by
reference to the terms of the Settlement Agreement filed herewith as Exhibit
99.2 and incorporated herein by reference.
Item 7. Financial Statements and Exhibits
(c) Exhibits.
The exhibits listed in the Exhibit Index are filed herewith.
<PAGE> 3
EXHIBIT INDEX
99.1 CFX Corporation press release dated January 30, 1998.
99.2 Settlement Agreement dated January 30, 1998, among American
Credit Indemnity Company, CFX Corporation and CFX Funding, L.L.C.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
CFX CORPORATION
Dated: February 2, 1998 By: /s/
--------------------------
Gregg R. Tewksbury
Chief Financial Officer
<PAGE> 1
CFX CORPORATION
ANNOUNCES FOURTH QUARTER EARNINGS
Keene, N.H., January 30, 1998 -- CFX CORPORATION (AMEX: CFX) today announced,
exclusive of charges related to CFX Funding L.L.C. which are discussed below,
earnings of $8,367,000, or $.35 per share, for the quarter ended December 31,
1997, compared to earnings of $7,519,000, or $.32 per share, for the
corresponding period a year ago, an earnings increase of 11%. Exclusive of
charges for mergers and those related to CFX Funding, the Company's earnings
for the year ended December 31, 1997, amounted to $31,729,000, or $1.33 per
share, compared to earnings of $27,275,000 or $1.17 per share, for the
corresponding period a year ago, an earnings increase of 16%.
After charges for mergers and those related to CFX Funding, earnings
were $3,944,000, or $.16 per share, and $18,934,000, or $.79 per share, for the
quarter and year ended December 31, 1997, respectively, compared to earnings of
$7,519,000, or $.32 per share, and $23,553,000, or $1.01 per share, for the
corresponding periods a year ago, respectively.
A reconciliation of net income available to common stock to net income
available to common stock before charges for mergers and charges related to CFX
Funding for the quarters and the years ended December 31, 1997 and 1996 is
summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS RECONCILIATION
- --------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, THREE MONTHS ENDED YEAR ENDED
(Dollars in thousands, except per share data) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME AVAILABLE TO COMMON STOCK $ 3,944 $ 7,519 $ 18,934 $ 23,553
Add Back After-Tax Charges:
Merger Costs (1) - - 8,372 3,722
Charges related to CFX Funding 4,423 - 4,423 -
-------- -------- -------- --------
4,423 - 12,795 3,722
-------- -------- -------- --------
NET INCOME AVAILABLE TO COMMON STOCK
BEFORE MERGER AND OTHER CHARGES $ 8,367 $ 7,519 $ 31,729 $ 27,275
======== ======== ======== ========
BASIC EARNINGS PER COMMON SHARE:
Net Income Available to Common Stock $ .16 $ .32 $ .79 $ 1.01
======== ======== ======== ========
Net Income Available to Common Stock
Exclusive of Merger and Other Charges $ .35 $ .32 $ 1.33 $ 1.17
======== ======== ======== ========
</TABLE>
(1) Merger-related charges associated with the acquisitions of Community
Bankshares, Inc. and Portsmouth Bank Shares, Inc. completed August 29,
1997 and The Safety Fund Corporation and Milord Co/operative Bank
completed on July 1, 1996.
The $4.4 million after-tax charge recorded by the Company for the
quarter ended December 31, 1997, covers the cost of resolving a dispute between
the Company and American Credit Indemnity Company ("ACI"), a credit insurer,
regarding the origination and servicing by CFX Funding, a 51% subsidiary of the
Company, of certain equipment leases held in four securitized lease pools
insured by ACI, as well as the discontinuance of future operations of CFX
Funding with respect to its securitization business.
Company spokesman and Chief Operating Officer, Mark A. Gavin, said,
"The Company continues its strong operating performance, exclusive of charges
for mergers and other matters. The annual loan growth of 28% and a continued
strong efficiency ratio were the driving factors behind the 11% increase in
earnings."
- More -
Page 1 of 4
<PAGE> 2
The financial highlights for the fourth quarter of 1997 before
merger costs and other matters are as follows:
- The Company's overall performance ratios remained strong with
return on assets, return on equity, and the efficiency ratio
of 1.17%, 13.29% and 59.83%, respectively.
- Other income, including trust revenues and mortgage banking
fees, increased by 30% over the prior year's quarter.
- Core earnings (net interest and dividend and other income)
increased by $3.9 million during the fourth quarter of 1997
over the year ago quarter. The lower net interest margin is
primarily the result of increased balance sheet leverage
employed to utilize the excess capital acquired with the
Portsmouth Bankshares, Inc. acquisition.
- Total loans and leases grew by $440 million, or 28%, in 1997
to $2.0 billion as of December 31, 1997.
CFX previously announced that it signed a definitive agreement to
merge with Peoples Heritage Financial Group, Inc. (NASDAQ: PHBK). Peoples
Heritage is a bank holding company headquartered in Portland, Maine. The merger
is expected to occur in March or April of 1998 and is subject to regulatory and
shareholder approvals. The charges related to CFX Funding will not affect the
terms, timing or consummation of the merger.
CFX Corporation is a multi-bank holding company with total assets
of $2.9 billion as of December 31, 1997. The Company's three banking
subsidiaries are CFX Bank, headquartered in Keene, New Hampshire, Orange
Savings Bank, headquartered in Orange, Massachusetts, and The Safety Fund
National Bank, headquartered in Fitchburg, Massachusetts. CFX Bank's mortgage
banking division, services approximately $1.4 billion in mortgage loans for
others. The Company operates 56 full service offices, 3 loan production
offices, and 100 automated teller and remote service banking locations in New
Hampshire and central Massachusetts, and operates a trust division with $506
million in assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
AT OR FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 1996 1997
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars and shares in thousands, except per share data) AS REPORTED EXCLUDING ADJUSTMENT (2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING AND PERFORMANCE RATIOS:
Return on average assets (1) .55% 1.26% 1.17%
Return on average common equity (1) 6.26 12.47 13.29
Other income/average assets (1) 1.11 1.03 1.11
Other expense/average assets (1) 3.78 2.90 2.77
Efficiency ratio 81.47 59.37 59.83
Tier 1 leverage capital 8.32 9.70 8.48
ASSET QUALITY:
Nonperforming assets/total assets .59% .60%
Nonperforming loans as a percent of total loans and leases .69 .68
Allowance for loan and lease losses/nonperforming loans 156.56 188.56
Allowance for loan and lease losses/total loans and leases 1.08 1.28
Net charge offs/average loans and leases (1) .13 .24
STOCK PERFORMANCE INDICATORS:
Common shares outstanding 24,071 23,581 24,071
Basic weighted average shares outstanding 24,024 23,505 24,024
Diluted weighted average shares outstanding 24,518 24,012 24,518
Closing price $30.63 $15.50 $30.63
Basic earnings per common share $.16 $.32 $.35
Diluted earnings per common share $.16 $.31 $.34
Dividends declared per common share $.22 $.21 $.22
Dividend yield per common share (1) 2.87% 5.42% 2.87%
Book value per common share $10.21 $10.17 N/A
Tangible book value per common shares $9.85 $9.78 N/A
Price/book value per common share 300.00% 152.41% N/A
Price/tangible book value per common share 310.96% 158.49% N/A
Price/earnings ratio (1) 48 12 22
Market capitalization $737,295 $365,506 $737,295
</TABLE>
(1) Annualized
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings per share, cost savings related to
acquisitions, credit quality and other financial business matters for 1998 and,
in certain instances, subsequent periods. The Company cautions that these
forward-looking statements are subject to numerous assumptions, risks, and
uncertainties, and that statements for periods subsequent to 1998 are subject
to greater uncertainty because of the increased likelihood of changes in
underlying factors and assumptions. Actual results could differ materially from
forward-looking statements. In addition to those factors previously disclosed
by the Company and those factors identified elsewhere herein, the following
factors could cause actual results to differ materially from such
forward-looking statements: continued pricing pressure on loans and deposit
products, actions of competitors, changes in economic conditions, the extent
and timing of actions of the Federal Reserve, customers' acceptance of the
Company's products and services and the extent and timing of legislative and
regulatory actions and reforms. The Company's forward-looking statements speak
only as of the date on which such statements are made. By making any
forward-looking statements, the Company assumes no duty to update them to
reflect new, changing or unanticipated events or circumstances.
- More -
Page 2 of 4
<PAGE> 3
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS YEAR ENDED
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS AND SHARES OUTSTANDING IN THOUSANDS) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and federal funds sold $ 94,672 $ 131,393
Trading and investment securities 562,735 519,578
Mortgage loans held for sale 37,737 16,967
Nonperforming loans 13,987 10,783
Other loans and leases 2,020,868 1,583,616
Allowance for loan and lease losses (21,898) (20,332)
Premises and equipment 38,761 38,195
Mortgage servicing rights 9,142 7,644
Goodwill and deposit base intangibles 8,698 9,235
Foreclosed assets 2,996 3,349
Bank-owned life insurance 63,226 30,975
Other assets 42,843 37,854
----------- -----------
TOTAL ASSETS $ 2,873,767 $ 2,369,257
=========== ===========
LIABILITIES
Deposits $ 1,941,996 $ 1,751,141
Borrowed funds 652,365 351,343
Other liabilities 33,689 26,936
----------- -----------
TOTAL LIABILITIES 2,628,050 2,129,420
----------- -----------
SHAREHOLDERS' EQUITY
Common stock 16,077 15,740
Paid-in capital 149,107 142,829
Retained earnings 79,080 81,198
Net unrealized gains on securities available for sale, after tax effects 2,240 489
Cost of common stock in treasury (787) (419)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 245,717 239,837
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,873,767 $ 2,369,257
=========== ===========
Common shares outstanding 24,071 23,581
=========== ===========
Common shareholders' equity per share $ 10.21 $ 10.17
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENTS THREE MONTHS ENDED YEAR ENDED
- ---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS AND SHARES OUTSTANDING IN THOUSANDS) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest and dividend income $ 53,043 $ 44,183 $199,539 $168,305
Interest expense 28,020 21,189 101,252 79,583
-------- -------- -------- --------
NET INTEREST AND DIVIDEND INCOME 25,023 22,994 98,287 88,722
Provision for loan and lease losses 1,163 1,075 4,548 4,285
-------- -------- -------- --------
NET INTEREST AND DIVIDEND INCOME AFTER
PROVISION FOR LOAN AND LEASE LOSSES 23,860 21,919 93,739 84,437
-------- -------- -------- --------
Other income:
Service charges on deposit accounts 1,306 1,155 5,113 4,952
Mortgage Banking activities 2,336 1,390 6,996 4,716
Net gains on trading and investment securities 1,126 957 2,547 2,780
Leasing activities 220 667 1,663 2,487
Trust fees 1,117 634 3,015 2,351
Pension settlement gain - - - 877
Bank-owned life insurance 879 417 2,251 975
Other 1,015 939 3,957 3,124
-------- -------- -------- --------
7,999 6,159 25,542 22,262
-------- -------- -------- --------
Other expense:
Salaries and employee benefits 9,852 8,772 38,730 34,076
Occupancy expense and equipment expense 3,214 3,021 12,127 10,306
Professional fees 859 1,459 2,761 3,030
Advertising and marketing expense 554 574 2,322 2,366
Goodwill and deposit base intangible amortization 158 151 623 653
Operation of foreclosed real estate 221 71 648 508
Merger expenses - - 11,031 4,522
Charges related to CFX Funding 7,206 - 7,206 -
SAIF special assessment - (217) - 691
Other 5,067 3,427 17,102 15,118
-------- -------- -------- --------
27,131 17,258 92,550 71,270
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 4,728 10,820 26,731 35,429
Income taxes 784 3,301 7,797 11,876
-------- -------- -------- --------
NET INCOME $ 3,944 $ 7,519 $ 18,934 $ 23,553
======== ======== ======== ========
Basic weighted average common shares outstanding 24,024 23,505 23,866 23,383
======== ======== ======== ========
Basic earnings per common share $ .16 $ .32 $ .79 $ 1.01
======== ======== ======== ========
Diluted earnings per common share $ .16 $ .31 $ .78 $ .99
======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- More -
Page 3 of 4
<PAGE> 4
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE (1) RATE BALANCE EXPENSE (1) RATE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS
Loans and leases $ 1,999,851 $ 42,112 8.35% $ 1,564,588 $ 34,033 8.65%
Tax-exempt loans and leases 13,343 349 10.38 9,250 257 11.05
Taxable securities 602,618 10,291 6.78 545,555 9,020 6.58
Tax-exempt securities 21,803 415 7.55 21,785 371 6.78
Other 9,955 155 6.18 60,332 736 4.85
----------- -------- ----------- --------
Total interest earning assets 2,647,570 53,322 7.99 2,201,510 44,417 8.03
-------- --------
Noninterest earning assets 201,200 167,362
----------- -----------
TOTAL $ 2,848,770 $ 2,368,872
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $ 672,719 3,998 2.36 $ 697,441 4,066 2.32
Time deposits 1,026,591 14,705 5.68 876,555 12,291 5.58
Advances from Federal Home Loan Bank of Boston 438,275 6,654 6.02 248,208 3,513 5.63
Other borrowed funds 201,960 2,663 5.23 113,134 1,319 4.64
----------- -------- ----------- --------
Total interest bearing liabilities 2,339,545 28,020 4.75 1,935,338 21,189 4.36
-------- --------
Noninterest bearing liabilities:
Demand deposits 235,286 180,706
Other 24,150 12,959
Shareholders' equity 249,789 239,870
----------- -----------
TOTAL $ 2,848,770 $ 2,368,873
=========== ===========
Net interest and dividend income $ 25,302 $ 23,228
========= ========
Interest rate spread 3.24% 3.67%
Net interest margin 3.79% 4.20%
</TABLE>
(1) Income from tax-exempt securities and tax-exempt loans and leases
has been restated to a tax equivalent basis using a 38.62% and
34.00% tax rate, respectively.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE (1) RATE BALANCE EXPENSE (1) RATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS
Loans and leases $1,814,156 $154,730 8.53% $ 1,458,970 $127,860 8.76%
Tax-exempt loans and leases 10,984 1,136 10.34 8,925 1,019 11.42
Taxable securities 594,193 40,787 6.86 535,450 34,665 6.47
Tax-exempt securities 21,791 1,615 7.41 30,228 1,780 5.89
Other 49,608 2,281 4.60 76,468 3,930 5.14
----------- --------- ----------- --------
Total interest earning assets 2,490,732 200,549 8.05 2,110,041 169,254 8.02
--------- --------
Noninterest earning assets 194,390 156,998
----------- -----------
TOTAL $ 2,685,122 $ 2,267,039
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Savings deposits $ 668,218 15,758 2.36 $ 684,801 16,323 2.38
Time deposits 984,071 55,251 5.61 849,926 47,311 5.57
Advances from Federal Home Loan Bank of Boston 374,620 21,915 5.85 197,312 11,196 5.67
Other borrowed funds 163,554 8,328 5.09 99,863 4,753 4.76
----------- --------- ----------- --------
Total interest bearing liabilities 2,190,463 101,252 4.62 1,831,902 79,583 4.34
----------- -----------
Noninterest bearing liabilities:
Demand deposits 214,661 176,423
Other 31,740 23,952
Shareholders' equity 248,258 234,762
----------- -----------
TOTAL $ 2,685,122 $ 2,267,039
=========== ===========
Net interest and dividend income $ 99,297 $ 89,671
========= ========
Interest rate spread 3.43% 3.68%
Net interest margin 3.99% 4.25%
</TABLE>
(1) Income from tax-exempt securities and tax-exempt loans and leases
has been restated to a tax equivalent basis using a 38.62% and
34.00% tax rate, respectively.
- END -
Page 4 of 4
<PAGE> 1
EXHIBIT 99.2
SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is made and entered into
as of this day of January, 1998, by and among American Credit Indemnity Company,
a New York Corporation ("ACI"), CFX Funding, L.L.C., a New Hampshire limited
liability company ("CFX Funding"), and CFX Corporation, a New Hampshire
corporation ("CFX Corp.").
INTRODUCTORY STATEMENT
ACI, CFX Funding, and CFX Corp. (CFX Funding and CFX Corp. are
hereinafter sometimes collectively referred to as "CFX") were parties to a
series of equipment lease pooling transactions (the "Transactions"), pursuant to
which ACI issued credit insurance policies, such policies being described on
Exhibit A attached hereto and made a part hereof. The aforesaid credit insurance
policies are hereinafter collectively referred to as the "Insurance Policies".
Among the documents executed in connection with the Transactions were Operating
Agreements between ACI and CFX dated as of January 1, 1995, September 29, 1995,
March 28, 1996 and June 28, 1996 (collectively called the "Operating
Agreements").
By letter dated August 8, 1997, ACI alleged that CFX was in default
in its obligations to ACI under the Operating Agreements, and threatened to take
legal action to protect its
<PAGE> 2
interests. CFX has disputed the allegations contained in such letter. In an
effort to avoid litigation, the parties have agreed to resolve the dispute
between them in the manner hereinafter provided.
NOW THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Cash Payment. Concurrently with the execution hereof, CFX shall
pay to ACI the sum of two-million five hundred thousand dollars ($2,500,000), by
wire transfer to the account designated on Exhibit B attached hereto and made a
part hereof.
2. Claims.
(a) ACI and CFX hereby acknowledge and agree that
notwithstanding the settlement being entered into between ACI and CFX pursuant
to this Agreement, ACI is and shall remain responsible for paying claims under
the Insurance Policies in accordance with the terms and conditions of such
Insurance Policies. ACI hereby represents and warrants that it has paid all
claims under the Insurance Policies presented to it prior to December 18, 1997
and acknowledges that it was reimbursed for a portion of the amounts paid on
such claims from available reserves created in connection with the Transactions
(hereinafter called "Reserves"); and CFX hereby acknowledges that ACI has paid
all claims under the Insurance Policies presented to ACI prior to December 18,
1997, and that ACI was reimbursed for a portion of
- 2 -
<PAGE> 3
the amounts paid on such claims from Reserves. ACI and CFX hereby agree that
there is to be no adjustment between them with respect to any amounts paid or
reimbursed on claims made prior to December 18, 1997.
(b) CFX, on behalf of itself and its successors and assigns,
hereby covenants and agrees to indemnify ACI, and its successors and assigns and
hold them harmless from and against any and all amounts claimed under the
Insurance Policies after December 18, 1997, and in furtherance of such
indemnity, CFX hereby agrees that it shall remit to ACI all of the funds
required to enable ACI to pay the full amount of any and all claims made under
the Insurance Policies after December 18, 1997, including claims made between
December 18, 1997 and the date hereof which have not yet been paid by ACI.
Accordingly, to the extent that any claims are made under the Insurance Policies
after December 18, 1997, such claims shall be presented to ACI for payment in
the manner set forth in the Operating Agreements and the Insurance Policies, and
not more than twenty-five (25) days after the date on which such claims have
been presented to ACI, CFX shall remit to ACI, by wire transfer in the manner
set forth on Exhibit B hereto, the full amount of such claims. ACI shall
thereafter be responsible for paying, and hereby agrees to pay such claims, in
the manner required under the Insurance Policies.
(c) CFX hereby agrees to remit to ACI on or before January 30,
1998, the sum of $1,903,494.48, by wire transfer in
- 3 -
<PAGE> 4
the manner set forth on Exhibit B, being the full amount of claims made under
the Insurance Policies between December 18, 1997 and the date hereof, and ACI
hereby agrees to pay such claims within five (5) business days after the receipt
of such amount from CFX.
3. Recoveries. Notwithstanding anything to the contrary set forth in
the Operating Agreements, each of the Master Pooling and Servicing Agreements
relating to the Transactions, and any other agreements relating to the
Transactions, the parties agree that from and after December 18, 1997, CFX shall
be entitled to retain, and ACI hereby assigns to CFX, any and all Recoveries (as
hereinafter defined). For purposes of this Paragraph 3, Recoveries shall mean
(a) any amounts received by CFX in connection with defaulted leases, including
amounts received from collection efforts, and amounts received from Reserves,
(b) residuals and other amounts received in connection with terminated leases,
and (c) service fees from lessors.
4. Indemnity. CFX, on behalf of itself and its successors and
assigns, hereby agrees to indemnify ACI, and its successors and assigns, and
defend and hold them harmless from and against any and all claims, costs,
expenses or liabilities incurred by or made against ACI from and after the date
hereof (including reasonable legal fees) in connection with (a) CFX's (or its
agents') servicing leases pursuant to the Transactions, (b) any and all actions
of CFX in connection with Recoveries, or
- 4 -
<PAGE> 5
(c) any matters relating to the Transactions arising after the date hereof,
including but not limited to matters arising as a result of the sale by CFX of
certain non-banking, lease related assets and the assignment by CFX of certain
of its obligations as referred to in paragraph 13 (h) below (other than with
regard to ACI's obligations under the Insurance Policies); provided, however,
that nothing contained in this Section 4 shall apply to a breach by ACI of any
of its obligations under this Agreement.
5. Joint and Several Liability. It is hereby agreed that any and all
indemnities, obligations and agreements of CFX contained in this Agreement are
and shall be the joint and several indemnities, obligations and agreements of
CFX Funding and CFX Corp.
6. Non-Disparagement. ACI and CFX each covenant and agree to refrain
from uttering, writing, or otherwise communicating negative or disparaging
comments or remarks about the other to any person, firm or corporation.
7. Representations and Warranties. Each party to this Agreement
represents and warrants that: (i) this Agreement constitutes the valid and
binding obligation enforceable against each party in accordance with its terms;
and (ii) each party has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
8. Mutual Releases.
(a) Subject to and conditioned upon the due and proper
performance by CFX of all representations, warranties,
- 5 -
<PAGE> 6
covenants and agreements made or required to be performed by CFX under this
Agreement, (i) ACI, on behalf of itself and its successors and assigns hereby
releases, discharges and acquits CFX Funding and CFX Corp. and their respective
representatives, including, without limitation, their officers, directors,
shareholders, employees, agents, affiliates, predecessors, successors,
subsidiaries, assigns, and attorneys of and from all claims, actions, causes of
action, debts, liabilities, losses, damages, costs and expenses, of any kind or
nature whatsoever, whether known or unknown, fixed or contingent, asserted or
unasserted, including attorney fees, which ACI ever had, now has or hereafter
may have whatsoever in law or in equity against CFX Funding or CFX Corp. arising
out of or in connection with any matter, cause or thing whatsoever through the
date hereof, related to, based on, or connected in any way to the Transactions.
(b) Subject to and conditioned upon the due and proper
performance by ACI of all representations, warranties, covenants and agreements
made or required to be performed by ACI under this Agreement, (i) CFX Funding
and CFX Corp., jointly and severally, on their respective behalfs and on behalf
of their respective successors and assigns do hereby release, discharge and
acquit ACI, and its agents, assigns, attorneys, officers, directors,
shareholders, employees, affiliates, predecessors, and successors, of and from
all claims, actions, causes of action, debts, liabilities, losses, damages,
costs and expenses, of any
- 6-
<PAGE> 7
kind or nature whatsoever, whether known or unknown, fixed or contingent,
asserted or unasserted, including attorney fees, which CFX Funding or CFX Corp.
ever had, now has or hereafter may have whatsoever in law or in equity against
ACI arising out of or in connection with any cause or thing whatsoever through
the date hereof, related to, based on or connected in any way to the
Transactions.
(c) The releases contained in this Section shall not operate as
a release of any claims or rights of any party hereto arising under this
Agreement, shall not affect the rights and obligations of the parties under this
Agreement or relieve any party from the performance of any provision hereof, and
shall not affect the right of any party to enforce or make any claim or
institute any action for the due and proper performance of any provision of this
Agreement.
9. No Admission of Liability. The parties agree that the execution of
this Agreement is not to be construed as an admission of liability by any of the
parties.
10. Adequacy. The parties agree that this Agreement represents a full
and complete settlement between the parties regardless of the adequacy of
compensation and that the parties have no obligation to make any payment or do
any act other than as set forth herein.
11. No Reliance. Each party to this Agreement represents and warrants
that it has read and entered into this Agreement and has agreed to all terms and
conditions set forth
- 7 -
<PAGE> 8
herein knowingly and voluntarily, after consultation with, or opportunity for
consultation with, counsel and/or other professional advisers, and that none of
the parties or their directors, officers, employees, or agents has made any
representation or offered any inducement therefor except as expressly provided
herein.
12. CFX Corp. Merger.
People's Heritage Financial Group, Inc. ("PHF") has joined in as a
signatory to this Agreement for the purpose of representing and warranting to
ACI that (i) it has entered into a definitive agreement with CFX Corp. pursuant
to which CFX Corp. has agreed to merge into PHF; and (ii) it is aware of this
Agreement and the terms and conditions hereof. By executing this Agreement, PHF
hereby acknowledges and agrees that upon consummation of the aforesaid merger
with CFX Corp., PHF shall assume and shall be and become responsible for all of
CFX Corp.'s obligations and agreements under this Agreement without the
necessity of any further act or deed on the part of ACI, CFX or PHF.
13. Miscellaneous.
(a) Expenses. Each party shall pay the expenses incurred on its
behalf in connection with this Agreement and the underlying dispute between the
parties being resolved herein.
(b) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by and against the parties hereto
and their successors and assigns,
- 8 -
<PAGE> 9
including, but not limited to the survivor of any merger entered into by any
party hereto.
(c) Survival of Covenants and Agreements. All covenants and
agreements made herein shall survive the execution and delivery of this
Agreement and the performance of any obligations hereunder.
(d) Entire Agreement. This Agreement and the Schedules hereto
constitute the entire agreement of the parties with respect to the subject
matter hereof. No oral understandings, promises or inducements contrary to the
terms of this Agreement exist.
(e) Amendments. This Agreement may not be modified or amended
except upon the execution and delivery of a written agreement executed by the
parties.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive law of the State of Maryland
without giving effect to the principles of conflict of laws thereof. Each party
hereto consents to the personal jurisdiction of the federal courts in the State
of Maryland in any matter arising under this Agreement.
(g) Counterparts. This Agreement may be executed in several
counterparts. Each such executed counterpart shall be, and shall be deemed to
be, an original instrument, but all of which together shall constitute one and
the same agreement. A facsimile of this Agreement with a facsimile signature
shall be deemed to be an original instrument.
- 9 -
<PAGE> 10
(h) ACI hereby consents to the sale by CFX to LINC Capital, Inc.
("LINC") of certain non-banking, lease related assets, and the assignment to
LINC of CFX's servicing requirements as are set forth in the Operating
Agreements. Nothing herein shall affect CFX's obligations under the support
agreements executed by it in connection with the Transactions, or under this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal, with the intention that it be a sealed instrument, as of the date
set forth above.
AMERICAN CREDIT INDEMNITY COMPANY
By: [sig] (SEAL)
--------------------------
CFX FUNDING, L.L.C.
By: (SEAL)
---------------------------
CFX CORPORATION
By: (SEAL)
---------------------------
PEOPLE'S HERITAGE FINANCIAL GROUP, INC.
By: (SEAL)
---------------------------
- 10 -
<PAGE> 11
Exhibit A
WAREHOUSE POLICIES
- ------------------
I-262,068-3
I-285,403-9
I-288,622-7
I-335,224-4
I-340,653-1
POOL POLICIES
- -------------
CFX 1995-A D-267,877-7
CFX 1995-B D-332,277-4
CFX 1996-A D-335,386-7
CFX 1996-B D-336,618-1
<PAGE> 12
EXHIBIT B
Wire instructions to send a wire to ACI via First National Bank of Maryland
American Credit Indemnity
First National Bank of Maryland
Account number: #050-8150-4
Routing number: #052000113
Reference: CFX
