As filed with the Securities and Exchange Commission on October 8, 1996
Registration No. 333-_________
========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TeleBanc Financial Corporation
(Exact name of Registrant as specified in its charter)
Delaware
(State of incorporation)
6712
(Primary Standard Industrial Classification Code Number)
13-3759196
(I.R.S. Employer Identification Number)
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1111 North Highland Street
Arlington, Virginia 22201
(703) 247-3700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------
Aileen Lopez Pugh
TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
(703) 247-3700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------
Copies of communications to:
Stuart G. Stein, Esq.
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
(202) 637-8575
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Title of each class of Proposed maximum
securities to be Amount to be Proposed maximum aggregate offering Amount of
registered registered offering price per unit price registration fee
- ----------------------- ---------------------- ---------------------- ----------------------- ----------------------
Common Stock, par 2,482,330
value $.01 per share shares * $740.21** $15,804,999.00 $4,789.39
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
- ----------
* Based upon the maximum number of shares of TeleBanc Financial Corporation Common Stock, par value $.01 per share, to be
issued in connection with the transactions described in this Registration Statement.
** Amount calculated pursuant to Rule 457(f)(2) under the Securities Act of 1933.
</TABLE>
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 said Section 8(a),
may determine.
Page 1 of ____ pages. Exhibit Index is located at page II-11.
<PAGE>
TELEBANC FINANCIAL CORPORATION
Cross Reference Sheet pursuant to Item 501 of Regulation S-K between
Items in Part I of Form S-4 and Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Location in Proxy
Items of Form S-4 Statement/Prospectus
----------------- --------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................... Forepart of Registration Statement and
Outside Front Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Available Information, Incorporation of
Certain Documents by Reference, Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................. Outside Front Cover Page of Proxy
Statement/Prospectus, Risk Factors,
Selected Consolidated Financial and Other
Data
4. Terms of the Transaction.......................... Proposed Merger of MET Holdings into
TeleBanc, Description of TeleBanc Stock
5. Pro Forma Financial Information................... Unaudited Pro Forma Combined Financial
Information
6. Material Contracts with the Company Being Acquired
Not applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters..... Not applicable
8. Interests of Named Experts and Counsel............ Not applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Not applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants....... Incorporation of Certain Documents by
Reference, Risk Factors, Proposed Merger of
MET Holdings into TeleBanc
11. Incorporation of Certain Information by Reference. Incorporation of Certain Documents by
Reference
<PAGE>
Location in Proxy
Items of Form S-4 Statement/Prospectus
----------------- --------------------
12. Information with Respect to S-2 or S-3
Registrants....................................... Not applicable
13. Incorporation of Certain Information by
Reference......................................... Not applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants....................... Not applicable
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3 Companies......... Not applicable
16. Information with Respect to S-2 or S-3
Companies......................................... Not applicable
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies.............................. Proposed Merger of MET Holdings into
TeleBanc, Description of MET Holdings
Corporation, MET Holdings Management's
Discussion and Analysis of Financial
Condition and Results of Operations
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited................ Outside Front Cover Page of Proxy
Statement/Prospectus, Incorporation of Certain
Documents by Reference, Proposed Merger of MET
Holdings into TeleBanc, The MET Holdings Special
Meeting, The TeleBanc Special Meeting, Security
Ownership of Certain Beneficial Owners and
Management of MET Holdings
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer.................................... Not applicable
</TABLE>
<PAGE>
MET HOLDINGS CORPORATION
405 Park Avenue, Suite 1104
New York, New York 10022
(212) 758-5100
_____________ __, 1996
To Our Stockholders:
You are cordially invited to attend the Special Meeting of Stockholders
of MET Holdings Corporation ("MET Holdings") to be held at 405 Park Avenue,
Suite 1104, New York, New York 10022, on _____, _____________ __, 1996 at 11:00
a.m.
At the Special Meeting, holders of Class A Common Stock and Class B
Serial Preferred Stock of MET Holdings will be asked to consider and to vote on
the approval and adoption of the Agreement and Plan of Merger, dated as of May
10, 1996, as amended (the "Agreement"), by and among TeleBanc Financial
Corporation ("TeleBanc") and MET Holdings and the merger provided for therein
pursuant to which MET Holdings will merge with and into TeleBanc (the "Merger").
Based in Arlington, Virginia, TeleBanc is a Delaware corporation which had total
assets of $599.8 million at June 30, 1996.
Details of the proposed transaction are set forth in the accompanying
Proxy Statement/Prospectus. You are urged to read it carefully in its entirety.
Approval of the Agreement and the Merger provided for therein requires the
affirmative vote, in person or by proxy, of the holders of at least
three-fourths of the outstanding shares of Class A Common Stock of MET Holdings
and the holders of at least two-thirds of the outstanding shares of Class B
Serial Preferred Stock of MET Holdings, voting as separate classes. The
directors of MET Holdings, David A. Smilow and Mitchell H. Caplan, beneficially
own, respectively, 3,968 shares (39.9%) and 987 shares (9.9%) of Class A Common
Stock and 2,091 shares (41.8%) and 1,079 shares (21.6%) of Class B Serial
Preferred Stock. Each share of Class A Common Stock and each share of Class B
Serial Preferred Stock will entitle its holder to one vote. The holders of Class
B Common Stock of MET Holdings are not entitled to vote at the MET Holdings
Special Meeting.
Your Board of Directors unanimously approved the Merger and believes
that it is in the best interests of MET Holdings and our stockholders.
Accordingly, the Board of Directors unanimously recommends that you vote TO
APPROVE AND ADOPT the Agreement and the Merger provided for therein.
We hope you can attend the Special Meeting. Whether or not you plan to
attend, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed envelope. Your vote is important regardless of the
number of shares you own.
We look forward to seeing you at the Special Meeting.
Sincerely,
David A. Smilow
Chairman of the Board
and Chief Executive Officer
<PAGE>
MET HOLDINGS CORPORATION
405 Park Avenue, Suite 1104
New York, New York 10022
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to be held on _____________ __, 1996
------------------------
A Special Meeting of the Stockholders (the "Special Meeting") of MET
Holdings Corporation ("MET Holdings") will be held on _____, _____________ __,
1996 at 11:00 a.m. local time at 405 Park Avenue, Suite 1104, New York, New York
10022, for the following purposes:
(a) To consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Merger, dated as of
May 10, 1996, as amended (the "Agreement"), by and
among TeleBanc Financial Corporation ("TeleBanc") and
MET Holdings, and the merger provided for therein
(the "Merger"). A copy of the Agreement is included
as Annex A to the accompanying Proxy
Statement/Prospectus.
(b) To vote on such other business as may properly come
before the Special Meeting.
If the Agreement and Merger are approved, adopted and consummated, each
stockholder of MET Holdings will have the right to dissent and demand payment of
the fair value of his shares. This right is contingent upon strict compliance
with the procedures set forth in the applicable statute. The full text of this
statute is included as Annex B to the accompanying Proxy Statement/Prospectus.
The Board of Directors has fixed _____________ __, 1996 as the record
date for the Special Meeting. All of the holders of any class of MET Holdings
stock, whether voting or nonvoting, at the close of business on that day are
entitled to receive notice of the Special Meeting. The holders of the Class A
Common Stock and the holders of the Class B Serial Preferred Stock of MET
Holdings are entitled to vote at the Special Meeting or at any adjournments or
postponements thereof. Each share of Class A Common Stock and each share of
Class B Serial Preferred Stock of MET Holdings will entitle its holder to one
vote. Holders of shares of Class B Common Stock of MET Holdings are not entitled
to vote at the Special Meeting. There are no issued and outstanding shares of
Class A Serial Preferred Stock of MET Holdings.
All stockholders are urged to attend the Special Meeting in person.
WHETHER OR NOT YOU NOW PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE ASKED TO
COMPLETE, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY CARD FOR WHICH A
POSTAGE PAID ENVELOPE IS PROVIDED. If you decide to attend the Special Meeting,
you may revoke your proxy and vote your shares in person.
By order of the Board of Directors of
MET Holdings Corporation
Jane H. Gelman
Secretary
New York, New York
_____________ __, 1996
THE BOARD OF DIRECTORS OF MET HOLDINGS UNANIMOUSLY RECOMMENDS THAT ITS
STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE AGREEMENT AND THE MERGER PROVIDED FOR
THEREIN.
<PAGE>
TELEBANC FINANCIAL CORPORATION
1111 North Highland Street
Arlington, Virginia 22201
(703) 247-3700
_____________ __, 1996
To Our Stockholders:
You are cordially invited to attend the Special Meeting of Stockholders
of TeleBanc Financial Corporation ("TeleBanc") to be held at TeleBanc's
principal executive office at 1111 North Highland Street, Arlington, Virginia
22201 on _____, _____________ __, 1996 at 11:00 a.m.
At the Special Meeting, holders of the common stock of TeleBanc (the
"TeleBanc Stock") will be asked to consider and to vote on the approval and
adoption of the Agreement and Plan of Merger, dated as of May 10, 1996, as
amended (the "Agreement"), by and among TeleBanc and MET Holdings Corporation
("MET Holdings") and the merger provided for therein pursuant to which MET
Holdings will merge with and into TeleBanc (the "Merger"), and to amend
TeleBanc's Amended and Restated Certificate of Incorporation (the "Certificate
of Incorporation") to increase the number of authorized shares of common stock,
par value $.01 per share (the "TeleBanc Stock"), from 3,500,000 to 5,000,000 and
preferred stock, par value $.01 per share, from 500,000 to 5,000,000.
MET Holdings presently owns approximately 63.4% of the issued and
outstanding TeleBanc Stock. As a result of the Merger, current MET Holdings
stockholders would own 76.8% of the issued and outstanding shares of TeleBanc
Stock, assuming all shares placed in escrow upon the Merger are distributed as
contemplated. Details of the proposed transaction are set forth in the
accompanying Proxy Statement/Prospectus. You are urged to read it carefully in
its entirety.
Approval of the Agreement and the Merger provided for therein requires
the affirmative vote, in person or by proxy, of at least (i) the holders of 80%
of the total number of outstanding shares of TeleBanc Stock and (ii) the holders
of at least two-thirds of the voting power of the outstanding shares of TeleBanc
Stock, excluding for such purposes the total number of outstanding shares of
TeleBanc Stock owned by MET Holdings and its affiliates and associates.
Adoption of the amendment to TeleBanc's Certificate of Incorporation
requires the affirmative vote, in person or by proxy, of the holders of at least
a majority of the shares of TeleBanc Stock entitled to vote at the TeleBanc
Special Meeting. Such amendment is necessary to have enough authorized stock to
effect the Merger, but also authorizes significant additional capital stock for
future issuance.
Each share of TeleBanc Stock will entitle its holder to one vote. The
directors of TeleBanc have indicated that they intend to vote the shares of
TeleBanc Stock that they beneficially own in favor of the Agreement and the
Merger and the adoption of the amendment to the Certificate of Incorporation.
The directors of MET Holdings have indicated that they intend to vote the
TeleBanc Stock held by MET Holdings and the shares of TeleBanc Stock
beneficially owned by such directors in favor of the Agreement and the Merger
and the amendment to the Certificate of Incorporation. Therefore, the amendment
to TeleBanc's Certificate of Incorporation will be approved, notwithstanding the
vote of other TeleBanc stockholders.
The independent members of your Board of Directors unanimously approved
the Agreement and the Merger provided for therein and the amendment to the
Certificate of Incorporation and believe that they are in the best interests of
TeleBanc and our stockholders. Accordingly, the Board of Directors unanimously
recommends that you vote TO APPROVE AND ADOPT the Agreement and the Merger
provided for therein and the amendment to the Certificate of Incorporation to
increase the authorized number of shares of TeleBanc capital stock.
We hope you can attend the Special Meeting. Whether or not you plan to
attend, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed envelope. Your vote is important regardless of the
number of shares you own.
We look forward to seeing you at the Special Meeting.
Sincerely,
David A. Smilow
Chairman of the Board and
Chief Executive Officer
<PAGE>
TELEBANC FINANCIAL CORPORATION
1111 North Highland Street
Arlington, Virginia 22201
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to be held on _____________ __ 1996
------------------------
A Special Meeting of the Stockholders (the "Special Meeting") of
TeleBanc Financial Corporation ("TeleBanc") will be held on _____, _____________
__, 1996 at 11:00 a.m. local time at TeleBanc's principal executive office at
1111 North Highland Street, Arlington, Virginia 22201, for the following
purposes:
(a) To consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Merger, dated as of May
10, 1996, as amended (the "Agreement"), by and among
TeleBanc and MET Holdings Corporation ("MET Holdings")
and the merger provided for therein (the "Merger"). A
copy of the Agreement is included as Annex A to the
accompanying Proxy Statement/Prospectus.
(b) To amend TeleBanc's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") to
increase the number of authorized shares of common
stock, par value $.01 per share, of TeleBanc ("TeleBanc
Stock") from 3,500,000 to 5,000,000 and preferred
stock, par value $.01 per share, of TeleBanc ("TeleBanc
Preferred Stock") from 500,000 to 5,000,000.
c) If necessary, to adjourn the Special Meeting to solicit
further votes in favor of the Agreement and the Merger.
(d) To vote on such other business as may properly come
before the Special Meeting.
If the Agreement and Merger are approved, adopted and consummated, each
stockholder of TeleBanc will have the right to dissent and demand payment of the
fair value of his shares. This right is contingent upon strict compliance with
the procedures set forth in the applicable statute. The full text of this
statute is included as Annex B to the accompanying Proxy Statement/Prospectus.
The Board of Directors has fixed _____________ __, 1996 as the record
date for the Special Meeting. All holders of TeleBanc Stock at the close of
business on that day are entitled to receive notice of the Special Meeting and
to vote at the Special Meeting or at any adjournments or postponements thereof.
Each share of TeleBanc Stock will entitle its holder to one vote.
All stockholders are urged to attend the Special Meeting in person.
WHETHER OR NOT YOU NOW PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE ASKED TO
COMPLETE, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY CARD FOR WHICH A
POSTAGE PAID ENVELOPE IS PROVIDED. If you decide to attend the Special Meeting,
you may revoke your proxy and vote your shares in person.
By order of the Board of Directors of
TeleBanc Financial Corporation
David A. Smilow
Chairman of the Board and Chief
Executive Officer
Arlington, Virginia
_____________ __, 1996
THE BOARD OF DIRECTORS OF TELEBANC UNANIMOUSLY RECOMMENDS THAT ITS
STOCKHOLDERS VOTE TO APPROVE AND ADOPT THE AGREEMENT AND THE MERGER PROVIDED FOR
THEREIN AND THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF TELEBANC STOCK AND TELEBANC PREFERRED STOCK.
<PAGE>
TELEBANC FINANCIAL CORPORATION
PROXY STATEMENT/PROSPECTUS
2,482,330 Shares
Common Stock
-------------------------
MET HOLDINGS CORPORATION
PROXY STATEMENT
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
being furnished to the holders of the common stock, par value $0.01 per share
("TeleBanc Stock"), of TeleBanc Financial Corporation ("TeleBanc"), in
connection with the solicitation of proxies by the Board of Directors of
TeleBanc for use at the Special Meeting of Stockholders of TeleBanc to be held
at TeleBanc's principal executive office at 1111 North Highland Street,
Arlington, Virginia, 22201 on _____, _____________ __, 1996 at 11:00 a.m., and
at any and all adjournments or postponements thereof (the "TeleBanc Special
Meeting").
This Proxy Statement/Prospectus also is being furnished to the holders
of the Class A Common Stock, par value $0.10 per share (the "Class A Common
Stock"), the Class B Common Stock, par value $0.10 per share (the "Class B
Common Stock"), and the Class B Serial Preferred Stock, par value $0.10 per
share (the "Class B Serial Preferred Stock") of MET Holdings Corporation ("MET
Holdings") in connection with the solicitation of proxies by the Board of
Directors of MET Holdings for use at the Special Meeting of Stockholders of MET
Holdings to be held at 405 Park Avenue, Suite 1104, New York, New York 10022, on
_____, _____________ __, 1996 at 11:00 a.m., and at any and all adjournments or
postponements thereof (the "MET Holdings Special Meeting"). No shares of Class A
Serial Preferred Stock, par value $0.10 per share (the "Class A Serial Preferred
Stock") of MET Holdings are issued and outstanding. The Class A Common Stock,
Class B Common Stock, Class A Serial Preferred Stock and Class B Serial
Preferred Stock are sometimes hereinafter collectively referred to as "MET
Holdings Stock."
The directors of TeleBanc have indicated that they intend to vote their
shares of TeleBanc Stock in favor of the Agreement and the Merger provided for
therein (as these terms are defined below) and the amendment to TeleBanc's
Amended and Restated Certificate of Incorporation (TeleBanc's "Certificate of
Incorporation") to increase the number of authorized shares of TeleBanc capital
stock from 4,000,000 to 10,000,000 (the "Amendment").
MET Holdings is the holder of approximately 63.4% of the issued and
outstanding TeleBanc Stock. The directors of MET Holdings have indicated that
they intend to vote the shares of TeleBanc Stock owned by MET Holdings in favor
of the Agreement and the Merger provided for therein and the Amendment.
The directors of MET Holdings, each of whom is also a director of
TeleBanc, have agreed to vote their shares of Class A Common Stock and Class B
Serial Preferred Stock of MET Holdings in favor of the Agreement and the Merger
provided for therein. The directors of MET Holdings, David A. Smilow and
Mitchell H. Caplan, beneficially own, respectively, 3,968 shares (39.9%) and 987
shares (9.9%) of the Class A Common Stock and 2,091 shares (41.8%) and 1,079
shares (21.6%) of the Class B Serial Preferred Stock.
A TeleBanc stockholder who votes to approve the Agreement and the
Merger provided for therein may be deemed to have ratified the terms (including
the fairness) thereof and may be precluded from challenging the Merger in a
subsequent legal proceeding.
A MET Holdings stockholder who votes to approve the Agreement and the
Merger provided for therein may be deemed to have ratified the terms (including
the fairness) thereof and may be precluded from challenging the Merger in a
subsequent legal proceeding.
<PAGE>
THE TELEBANC STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. MET
HOLDINGS STOCKHOLDERS SHOULD CONSIDER CAREFULLY THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING AT PAGE 2 RELATING TO CERTAIN FACTORS RELEVANT TO AN
ASSESSMENT OF TELEBANC AND THE TELEBANC STOCK.
---------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS, AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION (THE "FDIC"),
OR ANY OTHER GOVERNMENTAL AGENCY.
---------------------
THE TELEBANC STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), ANY
STATE SECURITIES COMMISSION, THE OFFICE OF THRIFT SUPER-
VISION (THE "OTS") OR THE FDIC, NOR HAS THE COMMISSION,
ANY STATE SECURITIES COMMISSION, THE OTS OR THE
FDIC PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------------
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of TeleBanc and MET Holdings on or about
_____________ __, 1996.
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
ANY PERSON TO EXCHANGE OR SELL, OR A SOLICITATION FROM ANY PERSON OF AN OFFER TO
EXCHANGE OR PURCHASE, THE TELEBANC STOCK OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY FROM ANY PERSON, IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
The date of this Proxy Statement/Prospectus is _____________ __, 1996
---------------------
<PAGE>
This Proxy Statement/Prospectus relates to TeleBanc's proposed
acquisition of MET Holdings, to be effected by a merger of MET Holdings with and
into TeleBanc (the "Merger"), pursuant to an Agreement and Plan of Merger, dated
as of May 10, 1996, by and among TeleBanc and MET Holdings, as amended (the
"Agreement"), which is attached hereto as Annex A and incorporated herein by
reference. MET Holdings currently owns approximately 63.4% of the issued and
outstanding TeleBanc Stock. In connection with the Merger and general corporate
governance, TeleBanc also proposes to amend the TeleBanc Certificate of
Incorporation to increase the number of authorized shares of TeleBanc capital
stock from 4,000,000 to 10,000,000 (the Amendment).
MET Holdings currently owns 1,299,500 shares of TeleBanc Stock. In the
Merger, these shares will be canceled and returned to the treasury of TeleBanc.
Such shares effectively will be reissued to the MET Holdings stockholders as
part of the conversion of the MET Holdings Stock to TeleBanc Stock. Also as part
of the Merger, an additional 840,226 shares of TeleBanc Stock will be issued to
holders of MET Holdings capital stock, including William M. Daugherty.
Furthermore, upon the Merger, TeleBanc also will issue 342,604 shares of
TeleBanc Stock to Mr. Daugherty to acquire from Mr. Daugherty all of the shares
of Arbor Capital Partners, Inc. ("Arbor") not owned by MET Holdings.
As described more fully below, at the Effective Time, (i) certain
shares of TeleBanc Stock will be issued to holders of MET Holdings Stock and to
Mr. Daugherty, as a holder of MET Holdings Stock and as the holder of the
Remaining Arbor Stock (as defined below), and (ii) certain shares of TeleBanc
Stock will be issued and deposited into four separate escrow accounts. An
individual stockholder of MET Holdings may have shares of TeleBanc Stock held in
more than one of these escrow accounts.
The specific terms of the Merger are summarized as follows: (i) all
shares of TeleBanc Stock owned by MET Holdings shall be canceled and returned to
the treasury of TeleBanc; (ii) each issued and outstanding share of Class A
Common Stock and Class B Common Stock of MET Holdings (other than the shares
held by MET Holdings stockholders that have timely and properly perfected their
dissenters' rights pursuant to Section 262 of the Delaware General Corporation
Law (respectively, the "Dissenting Shares" and the "DGCL")) automatically shall
be converted into the right to receive 102.2797 shares of TeleBanc Stock, and
each issued and outstanding share of Class B Serial Preferred Stock of MET
Holdings (other than Dissenting Shares) automatically shall be converted into
the right to receive 94.5550 shares of TeleBanc Stock; (iii) in connection with
the $2.5 million investment of Arbor, a MET Holdings subsidiary, in AG Spruce
Fund, L.P. and AGEA Partners, L.P. (individually, "Spruce" and "AGEA," and
collectively, the "Funds"), TeleBanc shall issue and deposit in escrow
approximately 500,000 shares of TeleBanc Stock (the "Stockholder Escrow
Shares"), which shares shall be released on a pro rata basis to MET Holdings'
stockholders as of the Merger if Arbor has received from the Funds $1,875,000 of
cumulative return of capital as measured from the closing date of the Merger
(the "Closing Date") to the final liquidation, dissolution or termination of the
Funds (the "Escrow Termination Date"), such that for each $15.46 of additional
cumulative net income of Arbor earned prior to the Escrow Termination Date, one
share of TeleBanc Stock shall be released from escrow; (iv) the issued and
outstanding shares of the common stock of Arbor not held by MET Holdings at the
Effective Time (as defined below) of the Merger shall be exchanged for 342,604
shares of TeleBanc Stock (at an exchange ratio of 6,464.2264 shares of TeleBanc
Stock per share) of which (x) 46,302 shares (the "First Daugherty Escrow
Shares") shall be immediately issued to Mr. Daugherty, (y) 46,302 shares shall
be issued and deposited in escrow, which shares shall be reissued to the
proportion, if any, that Arbor receives a return of its capital investment in
the funds of $2.5 million as of the Escrow Termination Date, and (z) 250,000
shares shall be issued and deposited in escrow (the "Second Daugherty Escrow
Shares"), which shares shall be released to Mr. Daugherty if Arbor has received
from the Funds $1,875,000 of cumulative return of capital as measured from the
Closing Date to the Escrow Termination Date such that for each $30.93 of
additional cumulative net income of Arbor, one share of TeleBanc Stock shall be
released from escrow; and (v) all options or any other rights to purchase or
acquire shares of MET Holdings Stock, including, without limitation, options,
warrants, stock appreciation rights or similar rights to acquire MET Holdings
Stock or equity capital stock of any MET Holdings subsidiary ("MET Holdings
Options") shall terminate and TeleBanc shall pay to each holder of outstanding
unexpired and unexercised MET Holdings Options $82,219.59, or issue to such
holder 9,640 shares of TeleBanc Stock, or compensate such holder part in cash
and part in TeleBanc Stock. Other than with respect to certain escrow shares,
cash will be paid in lieu of fractional shares of TeleBanc Stock. As a result of
the Merger, current MET Holdings stockholders would own 76.8% of the issued and
outstanding shares of TeleBanc Stock (assuming all shares placed in escrow upon
the Merger are distributed as contemplated).
In the Merger, 235,990 shares of TeleBanc Stock which otherwise would
be issued (as described in clauses (ii) or (v) above) or attributed (by virtue
of family relationships) to the common MET Holdings and TeleBanc directors,
<PAGE>
Mitchell H. Caplan and David A. Smilow, and certain of their family relations
and affiliates (the "Caplan/Smilow Escrow Shares") will be placed into escrow,
and released on a pro rata basis to such persons to the proportion, if any, that
Arbor receives net return of capital from the Funds of $2.5 million as of the
Escrow Termination Date. To the extent any Stockholder Escrow Shares, First
Daugherty Escrow Shares, Second Daugherty Escrow Shares or Caplan/Smilow Escrow
Shares are not released from escrow on the basis of Arbor's cumulative net
income or return of capital as of the Escrow Termination Date, they will be
canceled and returned to the treasury of TeleBanc.
Consummation of the Merger is subject to various conditions, including
the approval of the Agreement by the requisite vote of the stockholders of MET
Holdings and TeleBanc and approval of the Amendment by the stockholders of
TeleBanc. In the event that the Merger is consummated, MET Holdings stockholders
will become stockholders of TeleBanc, whose rights will be governed by the
TeleBanc Certificate of Incorporation and Bylaws, rather than the MET Holdings
Amended and Restated Certificate of Incorporation, as amended (MET Holdings'
"Certificate of Incorporation") and Bylaws, and whose rights will continue to be
governed by the DGCL. Consequently, MET Holdings stockholders may relinquish
certain rights in the Merger. See "Proposed Merger of MET Holdings into
TeleBanc--Certain Differences in Rights of Stockholders of MET Holdings and
TeleBanc."
Each share of Class A Common Stock and Class B Serial Preferred Stock
of MET Holdings will entitle its holder to one vote. Holders of shares of Class
B Common Stock of MET Holdings are not entitled to vote on the Agreement or the
Merger provided for therein. The affirmative vote, in person or by proxy, of the
holders of at least three-fourths of the outstanding shares of Class A Common
Stock of MET Holdings and the holders of at least two-thirds of the outstanding
shares of Class B Serial Preferred Stock of MET Holdings, voting as separate
classes, is necessary to approve the Agreement and the Merger provided for
therein. Directors and executive officers of MET Holdings and their affiliates
beneficially own 6,966.5 shares (70.2%) of the Class A Common Stock of MET
Holdings and 4,504 shares (90.1%) of the Class B Serial Preferred Stock of MET
Holdings outstanding and entitled to vote at the MET Holdings Special Meeting.
Each share of TeleBanc Stock will entitle its holder to one vote. The
affirmative vote, in person or by proxy, of at least (i) the holders of 80% of
the total number of outstanding shares of TeleBanc Stock and (ii) the holders of
at least two-thirds of the voting power of the outstanding shares of TeleBanc
Stock, excluding for such purposes all outstanding shares of TeleBanc Stock
owned by MET Holdings and its affiliates and associates, is necessary to approve
the Agreement and the Merger provided for therein. MET Holdings currently owns
approximately 63.4% of the issued and outstanding TeleBanc Stock. Directors and
executive officers of TeleBanc and their affiliates (which includes MET
Holdings) beneficially own 1,381,973 shares (67.4%) of the TeleBanc Stock
outstanding and entitled to vote at the TeleBanc Special Meeting.
Adoption of the amendment to TeleBanc's Certificate of Incorporation
requires the affirmative vote, in person or by proxy, of the holders of at least
a majority of the shares of TeleBanc Stock entitled to vote at the TeleBanc
Special Meeting. Such amendment is necessary to have enough authorized stock to
effect the Merger, but also authorizes significant additional capital stock for
future issuance.
The affirmative vote, in person or by proxy, of at least the holders of
a majority of the votes cast is necessary to approve an adjournment of the
TeleBanc Special Meeting if necessary to solicit additional votes in favor of
the Merger and the Agreement.
The presence of a stockholder at the MET Holdings Special Meeting will
not automatically revoke the stockholder's proxy. However, stockholders may
revoke a proxy at any time prior to its exercise by filing with the Secretary of
MET Holdings a written notice of revocation, by delivering to Met Holdings a
duly executed proxy bearing a later date, or by attending the MET Holdings
Special Meeting and voting in person.
The presence of a stockholder at the TeleBanc Special Meeting will not
automatically revoke the stockholder's proxy. However, stockholders may revoke a
proxy at any time prior to its exercise by filing with the Secretary of TeleBanc
a written notice of revocation, by delivering to TeleBanc a
<PAGE>
duly executed proxy bearing a later date, or by attending the TeleBanc Special
Meeting and voting in person.
If the Agreement and the Merger are approved, adopted and consummated,
each stockholder of MET Holdings will have the right to dissent and demand
payment of the fair value of his shares, and each stockholder of TeleBanc will
have the right to dissent and demand payment of the fair value of his shares.
This right is conditioned on strict compliance with the procedures set forth in
the applicable statute. See "Proposed Merger of MET Holdings into
TeleBanc--Rights of Dissenting Stockholders."
For a discussion of the federal income tax consequences of the Merger,
see "Proposed Merger of MET Holdings into TeleBanc -- Federal Income Tax
Consequences."
TeleBanc's principal executive office is located at 1111 North Highland
Street, Arlington, Virginia 22201, telephone number (703) 247-3700. MET
Holdings' principal executive office is located at 405 Park Avenue, Suite 1104,
New York, New York 10022, telephone number (212) 758-5100. The information
presented in this Proxy Statement/Prospectus concerning TeleBanc and its
subsidiaries has been provided by TeleBanc, and the information concerning MET
Holdings and its subsidiaries has been provided by MET Holdings.
<PAGE>
AVAILABLE INFORMATION
TeleBanc is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. Such periodic reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048, and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60611. Copies of such materials may be
obtained, at prescribed rates, by delivering a request to the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
TeleBanc Stock is not listed on a national securities exchange. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is (http://www.sec.gov).
TeleBanc has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the securities to which this Proxy
Statement/Prospectus relates. This Proxy Statement/Prospectus does not contain
all the information set forth in the Registration Statement. For further
information, reference is made to the Registration Statement. Statements
contained herein concerning provisions of documents filed as exhibits to the
Registration Statement are necessarily summaries of such documents, and while
such summaries reflect all material terms of the documents, each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. TeleBanc will provide a
copy of any information that has been incorporated by reference in this Proxy
Statement/Prospectus but not delivered herewith (not including exhibits to the
information incorporated by reference), without charge, to each person,
including any beneficial owner, to whom a Proxy Statement/Prospectus is
delivered, who makes a written or oral request. These documents are available
upon request, without charge, from Aileen Lopez Pugh, Executive Vice President -
Chief Financial Officer - Treasurer, TeleBanc Financial Corporation, 1111 North
Highland Street, Arlington, Virginia 22201, telephone number (703) 247-3700. In
order to ensure timely delivery of the documents, any request should be made by
_____________ ___, 1996. [5 business days prior to date of meeting]
TeleBanc's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, Current Report on Form 8-K as filed with the SEC on May 20, 1996,
Definitive Proxy Statement for the Annual Meeting of Shareholders held on May
29, 1996, and Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
all as filed by TeleBanc with the Commission pursuant to the Exchange Act, and
TeleBanc's Post-Effective Amendment No. 1 to Form S-1 on Form S-3 Registration
Statement, as filed by TeleBanc with the Commission pursuant to the Securities
Act, are incorporated by reference herein. Furthermore, all documents filed by
TeleBanc pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Proxy Statement/Prospectus and prior to the date of the
MET Holdings Special Meeting and the TeleBanc Special Meeting are hereby
incorporated by reference into this Proxy Statement/Prospectus and shall be
deemed a part hereof from the date of filing of each such document. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which is also incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Proxy Statement/Prospectus.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
RECENT DEVELOPMENTS...........................................................................
RISK FACTORS..................................................................................
Interests of Certain Persons in the Merger...........................................
Future Sales of TeleBanc Stock by TeleBanc...........................................
Restrictions on Availability of Funds for Dividends on TeleBanc Stock................
Non-Traditional Operating Plan.......................................................
Adverse Impact of Interest Rate Changes..............................................
Government Regulation................................................................
No Public Market.....................................................................
THE MET HOLDINGS SPECIAL MEETING..............................................................
Purpose of the MET Holdings Special Meeting..........................................
Record Date; Voting Rights; Proxies..................................................
Solicitation of Proxies..............................................................
Quorum...............................................................................
Required Vote........................................................................
THE TELEBANC SPECIAL MEETING..................................................................
Purpose of the TeleBanc Special Meeting..............................................
Record Date; Voting Rights; Proxies..................................................
Solicitation of Proxies..............................................................
Quorum...............................................................................
Required Vote........................................................................
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA................................................
TeleBanc.............................................................................
MET Holdings.........................................................................
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION..................................
PROPOSED MERGER OF MET HOLDINGS INTO TELEBANC.................................................
General Description of the Transaction...............................................
Termination..........................................................................
Background of the Merger.............................................................
Recommendation of the Board of Directors of MET Holdings; Reasons for the Merger.....
Interests of Certain Persons in the Merger...........................................
Recommendation of the Independent Directors of TeleBanc; Reasons for the Merger......
Opinion of Financial Advisor.........................................................
Conditions to the Merger.............................................................
Intentions and Undertakings..........................................................
Federal Income Tax Consequences......................................................
Accounting Treatment.................................................................
Federal Securities Law Consequences..................................................
Certain Differences in Rights of Stockholders of MET Holdings and TeleBanc...........
Rights of Dissenting Stockholders....................................................
AMENDMENT OF TELEBANC'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF TELEBANC CAPITAL STOCK.......................
DESCRIPTION OF TELEBANC STOCK.................................................................
Capital Stock........................................................................
Delaware Law and Certain Charter and Bylaw Provisions................................
Other Restrictions on the Acquisition of Stock.......................................
Limitation on Liability..............................................................
Transfer Agent and Registrar.........................................................
DESCRIPTION OF MET HOLDINGS CORPORATION.......................................................
General..............................................................................
Market for MET Holdings Stock; Dividends.............................................
MET HOLDINGS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................................
Results of Operations for the Years Ended December 31, 1995, 1994 and 1993...........
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<PAGE>
Results of Operations for the Six Months Ended June 30, 1996 and 1995................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF MET HOLDINGS...............................................................
ADJOURNMENT OF TELEBANC SPECIAL MEETING.......................................................
STOCKHOLDER PROPOSALS.........................................................................
OTHER MATTERS.................................................................................
EXPERTS.......................................................................................
ANNEX A....................................................................................A-1
Agreement and Plan of Merger, dated as of May 10, 1996, by and among TeleBanc
Financial Corporation and MET Holdings Corporation...........................A-1
First Amendment to Agreement and Plan of Merger, dated as of October 7, 1996, by and
among TeleBanc Financial Corporation and MET Holdings Corporation...........A-36
ANNEX B................................................................................... B-1
Delaware General Corporation Law, Section 262.....................................B-1
ANNEX C....................................................................................C-1
Opinion of Corporate Finance of Washington, Inc...................................C-1
ANNEX D....................................................................................D-1
Stock Exchange Agreement, dated as of ___________, 1996, by and among TeleBanc
Financial Corporation, MET Holdings Corporation and William M. Daugherty.....D-1
INDEX TO FINANCIALS........................................................................F-1
ANNEX F....................................................................................F-2
</TABLE>
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<PAGE>
RECENT DEVELOPMENTS
On September 30, 1996, legislation was enacted that authorizes the
Federal Deposit Insurance Corporation (the FDIC) to impose a special assessment
on deposits insured by the Savings Association Insurance Fund (the "SAIF") as of
March 31, 1995 (the "Legislation"). Subsequently, the FDIC announced that it
expects that the special assessment will be .657% of a bank's SAIF deposits as
of March 31, 1995, and that the banks must pay the special assessment no later
than November 29, 1996. Based upon on its level of SAIF deposits as of March 31,
1995, TeleBanc's wholly owned subsidiary, TeleBank, a federally chartered
savings bank which has its principal offices in Arlington, Virginia ("the
Bank"), expects to accrue an expense of approximately $1.7 million to pay for
the special assessment. As a result of the recapitalization of the SAIF, the
Bank expects that its future deposit insurance premiums to the SAIF will be
significantly reduced.
The Legislation also authorizes the merger of the SAIF with the Bank
Insurance Fund (the "BIF"), which currently insures deposits in national and
state-chartered banks. The combined deposit insurance fund, to formally be known
as the Depository Insurance Fund (the "DIF"), will be formed no earlier than
January 1, 1999 and will insure deposits at all FDIC insured depository
institutions. As a condition to the formation of the DIF, however, no insured
depository institution can be chartered as a savings association. To facilitate
the abolition of the savings association charter, the Secretary of the Treasury
is required to report to the Congress no later than March 31, 1997 with respect
to the development of a common charter for all insured depository institutions
and the abolition of separate and distinct charters between banks and savings
associations. At this time, neither the Bank nor TeleBanc can predict the effect
of such comtemplated legislation.
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<PAGE>
RISK FACTORS
The TeleBanc Stock offered hereby involves a high degree of risk. In
addition to the other information set forth in this Proxy Statement/Prospectus,
the following factors should be considered carefully in evaluating an investment
in the TeleBanc Stock offered by this Proxy Statement/Prospectus.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the date of this Proxy Statement/Prospectus, MET Holdings owns
approximately 63.4% of the issued and outstanding TeleBanc Stock. The two
directors of MET Holdings serve as the Chairman of the Board, President and
Chief Executive Officer of MET Holdings, and also serve as Directors of TeleBanc
and as TeleBanc's Chairman of the Board, President and Chief Executive Officer.
In addition, there are approximately 22 other holders of MET Holdings capital
stock. Following the Merger, all such persons will collectively own
approximately 76.8 % of the issued and outstanding TeleBanc Stock (assuming all
shares placed in escrow upon the Merger are distributed as contemplated).
Also as a result of the Merger, assuming all shares of TeleBanc Stock
are distributed from escrow, the Chairman of the Board of TeleBanc, David A.
Smilow, who also serves as Chairman of the Board of MET Holdings, and Mr.
Smilow's affiliates, will beneficially own 34.0% of the issued and outstanding
shares of TeleBanc Stock; and Mitchell H. Caplan, President of MET Holdings and
of TeleBanc, and his affiliates, will beneficially own 9.6% of the issued and
outstanding shares of TeleBanc Stock (in each case, assuming that all shares of
TeleBanc Stock placed into escrow are distributed as contemplated). Although no
employment contracts or other severance or change of control agreements are
being entered into in connection with the Merger or otherwise presently exist,
Messrs. Smilow and Caplan, including their affiliates, will continue to exert
substantial control over the policies and voting stock of TeleBanc.
In addition to the foregoing, William M. Daugherty, presently a
stockholder of MET Holdings, is also presently the beneficial owner of 26 shares
(19.7%) of the common stock of Arbor. Following the exercise in full of Mr.
Daugherty's right to acquire 27 additional shares of Arbor and the issuance of
TeleBanc Stock to Mr. Daugherty as a stockholder of MET Holdings, following the
Merger, Mr. Daugherty and his affiliates will beneficially own 12.1% of the
issued and outstanding shares of TeleBanc Stock (assuming that all shares of
TeleBanc Stock placed in escrow are distributed as contemplated). It is expected
that following the Merger, Mr. Daugherty will continue as co-chairman and
portfolio manager for AG Arbor Management L.L.C. ("AG Arbor") and a director of
Arbor. As a result of such positions, to the extent consistent with applicable
laws, Mr. Daugherty also will be eligible for all benefit plans of TeleBanc. The
Board of Directors of TeleBanc is expected to consider a grant of an option to
Mr. Daugherty to acquire TeleBanc Stock after the Effective Time, with terms and
conditions as determined by the Board of Directors and consistent with the terms
of options granted pursuant to the TeleBanc Employee Stock Option Plan (the
"TeleBanc ESOP").
FUTURE SALES OF TELEBANC STOCK BY TELEBANC
In connection with and as a condition of the proposed Merger, the
holders of TeleBanc Stock will consider whether to adopt an amendment to
TeleBanc's Certificate of Incorporation to increase the number of authorized
shares of TeleBanc Stock from 3,500,000 to 5,000,000. The amendment is necessary
to have enough shares of TeleBanc Stock to issue in the Merger, as well as meet
potential obligations pursuant to outstanding options and warrants. All such
potential issuances, when combined with the presently issued and outstanding
TeleBanc Stock, aggregate to 3,929,580 shares. Thus, if the amendment to
TeleBanc's Certificate of Incorporation is approved, upon filing of a
certificate of amendment with the Office of the Secretary of State of the State
of Delaware (the "Secretary of State"), TeleBanc will be authorized under its
Certificate of Incorporation to issue up to an additional 3,179,580 shares of
TeleBanc Stock without stockholder approval.
The proposed amendment to TeleBanc's Certificate of Incorporation also
will increase the number of authorized shares of the preferred stock, par value
$.01 per share of TeleBanc ("TeleBanc
-2-
<PAGE>
Preferred Stock") from 500,000 to 5,000,000. No shares of TeleBanc Preferred
Stock are presently outstanding. Unrelated to the Merger, TeleBanc presently is
exploring alternatives to raise capital, including possibly the sale of
additional TeleBanc Stock or TeleBanc Preferred Stock. Although no definitive
plans have been made, TeleBanc may seek to raise up to $50.0 million or more,
primarily for investment in the operations of the Bank.
At September 30, 1996, there were 2,049,500 shares of TeleBanc Stock
issued and outstanding, 1,299,500 of which are held by MET Holdings. An
additional 699,875 shares are reserved for issuance pursuant to stock options
(the "TeleBanc Stock Options") and outstanding warrants (the "Warrants"), and
1,182,830 shares are reserved for issuance pursuant to the Merger. Any
additional sales of TeleBanc Stock by TeleBanc to non-affiliates of TeleBanc
will have a dilutive effect on the ownership of TeleBanc by current
stockholders, and may have a dilutive effect on the value of TeleBanc Stock then
outstanding if such additional TeleBanc Stock is sold below the book value of
the TeleBanc Stock. At June 30, 1996, the book value of the TeleBanc Stock was
$10.53 per share. As of September 30, 1996, the last reported sale of TeleBanc
Stock to a non-affiliate of TeleBanc was on September 24, 1996 at a price of
$10.00 per share.
RESTRICTIONS ON AVAILABILITY OF FUNDS FOR DIVIDENDS ON TELEBANC STOCK
The principal sources of funds for TeleBanc's payments of any cash
dividends on the TeleBanc Stock is dividends from TeleBanc's wholly-owned
subsidiary, the Bank, as well as liquid investments of funds which are not
invested in the Bank or otherwise required to be maintained by TeleBanc pursuant
to the terms of the outstanding Notes (as defined below). After the Merger,
dividends from Arbor, if any, will also be available as a source of funds.
TeleBanc presently incurs an annual expense to service TeleBanc's
outstanding subordinated debt of approximately $2.0 million. In addition, one of
the conditions to TeleBanc's obligation to consummate the transactions
contemplated by the Agreement is that MET Holdings shall have obtained from each
of the holders of the Promissory Notes (as defined below) a waiver of the right
of repayment set forth in Section 6 of its respective Promissory Note. The
"Promissory Notes" are the four promissory notes, each dated May 10, 1993, made
by MET Holdings in the aggregate original principal amount of $2,494,560.
Applicable rules and regulations of the OTS impose limitations on
capital distributions by savings institutions such as the Bank. Within these
limitations, certain "safe harbor" capital distributions are permitted, subject
to providing OTS at least 30 days' advance notice. Savings institutions which
have capital in excess of all fully phased-in capital requirements before and
after the proposed capital distribution and that have not been notified that
they are in need of more than normal supervision may make capital distributions
during a calendar year up to the greater of (i) 100% of net income to date
during the calendar year, plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year, or (ii) 75% of its net
income over the most recent four-quarter period.
The OTS may prohibit a proposed capital distribution by any institution
if the OTS determines that such distribution would constitute an unsafe or
unsound practice. In addition, effective December 19, 1992, the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") prohibits an insured
depository institution from declaring any dividend or making any other capital
distribution if, following the distribution or payment, the institution would be
classified as "undercapitalized" or lower. At June 30, 1996, the Bank qualified
as a well capitalized institution. Based on applicable capital requirements, the
Bank would have been able to pay $6.4 million in dividends in the aggregate to
TeleBanc as of June 30, 1996. TeleBanc does not presently anticipate any
difficulties in obtaining regulatory approval for the payment of dividends by
the Bank to TeleBanc in order to permit TeleBanc to service its outstanding
subordinated debt.
-3-
<PAGE>
TeleBanc also may be required by the OTS to maintain the capital of the
Bank at a level consistent with regulatory capital requirements. This may reduce
the amount of funds that would otherwise be available to TeleBanc for the
payment of dividends, if any, on the TeleBanc Stock.
TeleBanc's capital distributions are also restricted by the terms of
the indenture ("Indenture") between TeleBanc and Wilmington Trust Company, as
trustee, pursuant to which TeleBanc issued $17.3 million in aggregate principal
amount of notes in connection with an offering in May 1994 (respectively, the
"Notes" and the "Offering"). The Indenture imposes certain limitations on the
payment of dividends and other capital distributions by TeleBanc and requires
TeleBanc initially to maintain liquid assets in an amount equal to 150% of the
annual debt service on all indebtedness of TeleBanc until certain income targets
are achieved and the reserve requirement is reduced to 100% of annual debt
service, which occurred earlier in 1996.
NON-TRADITIONAL OPERATING PLAN
The Bank's business plan differs from that of most banks and thrifts.
The Bank principally raises funds through the telemarketing of certificates of
deposit and Federal Home Loan Bank of Atlanta ("FHLB") advances and other
borrowings, rather than through a branch network. In addition, the Bank
maintains a much higher percentage of its interest-earning assets in
mortgage-backed and other investment securities than a traditional thrift. The
Bank tends to pay relatively high rates of interest on its deposit accounts,
while its mortgage-backed and investment securities portfolios, as well as its
purchased loan portfolio, generally have higher yields than the residential
mortgage loans which thrifts traditionally originate. For example, for the
quarter ended June 30, 1996, according to the Office of Thrift Supervision's
Uniform Thrift Performance Report, the average yield on interest earning assets
and the average cost of funds for savings institutions in the southeast region
was 7.90% and 4.90%, respectively, resulting in an interest rate spread of
3.00%. For the same period, the Bank's average yield on interest earning assets
and average cost of funds was 8.17 % and 6.14 %, respectively, resulting in an
interest rate spread of 2.03 %. Management believes, however, that the level of
general and administrative expenses resulting from the Bank's branchless banking
strategy enables the Bank to operate profitably notwithstanding the relatively
narrower spread between the rate earned on its interest-earning assets and the
cost of its interest-bearing liabilities. For example, for the quarter ended
June 30, 1996, according to the latest available Federal Home Loan Bank of
Atlanta's Comparative Performance Report, general and administrative expenses as
a percentage of total assets for savings institutions in the Bank's district was
2.94%, as compared with 1.05% for the Bank. Although the Bank has operated
profitably during the past several years, until 1994 this period was
characterized by generally declining interest rates and less competition for
deposits because of lower loan demand. Net income was adversely impacted by
increased market interest rates during 1994, but it improved by $2.2 million, or
407%, in 1995, reflecting the repricing of adjustable interest-earning assets
and an improvement in the ratio of interest earning assets to interest-bearing
liabilities. Management cannot predict the impact of sustained increased
interest rates or renewed competition for deposits. The Bank's net income may
also be adversely affected by unanticipated increases in operating expenses
which may result from a variety of circumstances beyond the control of
management.
The Bank's non-traditional operating plan also may subject it to
increased regulatory scrutiny in the future. In that regard, TeleBanc has grown
the Bank significantly over the past two years in order to leverage the
significant additional working capital raised in its 1994 Offering. Total assets
increased from $220.3 million at December 31, 1993 to $599.8 million at June 30,
1996. This growth was in accordance with the Bank's OTS approved business plan.
Management does not expect such growth to continue at similar rates in the
foreseeable future.
ADVERSE IMPACT OF INTEREST RATE CHANGES
TeleBanc's results of operations depend to a large extent on the level
of the Bank's net interest income, which is the difference between interest
income from interest-earning assets (such as loans and mortgage-backed and
related securities) and interest expense on interest-bearing
-4-
<PAGE>
liabilities (such as deposits and borrowings). If interest-rate fluctuations
cause the Bank's cost of funds to increase faster than the yield of its
interest-bearing assets, its net interest income will be reduced. For example,
during each of 1993 and 1994, the Bank's net interest income decreased from the
prior comparable period, primarily due to the fact that interest expense on
interest-bearing liabilities rose more quickly than interest income on
interest-earning assets. In 1995, the Bank's net interest income increased by
$3.9 million, or 82.4%, from 1994. In reaction to the changing interest rate
environment, TeleBanc has taken steps to reduce its one-year interest rate
sensitivity "gap" (giving effect to hedging activities). At December 31, 1994
and 1995 and June 30, 1996, such gap was 2.85%, (4.49%) and (3.55)%,
respectively. Management believes that the Bank's interest-rate risk position at
June 30, 1996 represents a reasonable amount of interest-rate risk. TeleBanc is
unable to predict future fluctuations in interest rates. The market value of
most of the Bank's financial assets are sensitive to fluctuations in market
interest rates. Fixed-rate investments, mortgage-backed and related securities
and mortgage loans generally decline in value as interest rates rise. Management
classifies certain securities as available for sale and mortgage loans
classified as held-for-sale to provide flexibility for liquidity purposes as
well as to control asset levels for regulatory purposes. If the need to sell an
asset for liquidity or other purposes arises, management believes that there are
adequate securities classified as available for sale and mortgage loans
classified as held-for-sale with a positive mark-to-market and that such sale
would not have a material impact on results of operations. As of June 30, 1996,
TeleBanc maintained satisfactory liquidity levels requiring no sale of assets
classified as available for sale. TeleBanc's asset liability management strategy
is to maintain an evenly matched one-to-five year gap, which allows TeleBanc to
maintain a relatively stable interest rate spread and minimize the potential
negative impact of changing interest rates. The extent to which borrowers prepay
loans also is affected by prevailing interest rates. When interest rates
increase, borrowers are less likely to prepay their loans; whereas, when
interest rates decrease, borrowers are more likely to prepay loans. Funds
generated by prepayments may be invested at a lower rate. Prepayments may
adversely affect the value of mortgage loans, the levels of such assets that are
retained in the Bank's portfolio, net interest income and loan servicing income.
Similarly, prepayments on mortgage-backed and related securities also may affect
adversely the value of such securities and related income.
GOVERNMENT REGULATION
TeleBanc is subject to regulation as a savings and loan holding company
and the Bank, as a federally chartered savings bank, is subject to extensive
regulation by the OTS and the FDIC. The OTS and FDIC have adopted numerous
regulations and undertaken other regulatory initiatives, and further regulations
and initiatives are anticipated. In addition, among other significant effects,
FDICIA provides for regulatory seizure in the event of certain declines in the
tangible capital levels of insured institutions, requires risk-based deposit
insurance premiums based on assessment of the risks posed by an institution's
assets, and imposes liability on holding companies for regulatory capital
deficiencies of insured institution subsidiaries under certain circumstances.
This legislation, or any future legislation, could have an adverse effect on
TeleBanc.
As a federally chartered, FDIC-insured savings association, the Bank is
also subject to numerous statutory and regulatory requirements, including among
other things, the Community Reinvestment Act of 1977 ("CRA"). Under the CRA and
the OTS's implementing regulations, the Bank has a continuing and affirmative
obligation to help meet the credit needs of its local communities, including
low- and moderate-income neighborhoods, consistent with the safe and sound
operation of the institution. In addition, the OTS is required to take into
account the Bank's record of meeting the credit needs of its community in
determining whether to grant approval for certain types of applications. The
Bank's current CRA record is rated by the OTS as "satisfactory."
In 1995, the federal financial regulatory agencies promulgated a final
rule revising the regulations that implement the CRA. The revised regulations
outline special evaluations for wholesale institutions. The Bank believes that
it meets the definition of a wholesale institution and that it serves the credit
needs of the entire nation. The Bank intends to submit a request to the OTS to
be designated as a wholesale institution.
-5-
<PAGE>
The Bank also is subject to OTS assessments to fund operations. The OTS
has adopted the following fees: (i) asset-based assessments for all savings
institutions; (ii) examination fees for certain affiliates of savings
associations; (iii) application fees; (iv) securities filing fees; and (v)
publication fees. Of these fees, the asset-based assessments are the most
significant. Such assessments, which are paid semi-annually every January 31 and
July 31, incorporate a "general assessment" which varies depending on the asset
size of the institution and an additional "premium assessment" for certain
institutions requiring increased supervision. The semi-annual assessment paid by
the Bank on June 30, 1996 for the six-month period ending December 31, 1996 was
comprised solely of a general assessment of approximately $63,856.
NO PUBLIC MARKET
There is no established market for the TeleBanc Stock. The TeleBanc
Stock does not presently qualify for listing on any securities exchange or
inclusion for quotation by any quotation system. Therefore, the market for, and
liquidity of, the TeleBanc Stock is limited, and is likely to continue to be
limited. Friedman, Billings, Ramsay & Co., Inc. ("FBR") presently makes a market
in the TeleBanc Stock. FBR is not obligated, however, to make a market in the
TeleBanc Stock, and any market making may be discontinued at any time at the
sole discretion of FBR.
The liquidity of the TeleBanc Stock depends upon the presence in the
marketplace of willing buyers and sellers, a fact over which neither TeleBanc
nor any market maker has control, and may be limited by other factors, including
the beneficial ownership limitations imposed on the TeleBanc Stock.
-6-
<PAGE>
THE MET HOLDINGS SPECIAL MEETING
PURPOSE OF THE MET HOLDINGS SPECIAL MEETING
At the MET Holdings Special Meeting, holders of Class A Common Stock
and Class B Serial Preferred Stock of MET Holdings will consider and vote upon a
proposal to approve and adopt the Agreement and the Merger provided for therein
and such other business as may properly come before the Special Meeting.
THE BOARD OF DIRECTORS OF MET HOLDINGS HAS UNANIMOUSLY APPROVED THE
AGREEMENT AND THE MERGER PROVIDED FOR THEREIN AND RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE AGREEMENT AND THE MERGER.
RECORD DATE; VOTING RIGHTS; PROXIES
The MET Holdings Board of Directors has fixed the close of business on
___________ __, 1996 as the record date for determining the holders of MET
Holdings Stock entitled to notice of and to vote at the MET Holdings Special
Meeting (the "MET Holdings Record Date").
As of the MET Holdings Record Date, there were 9,924 shares of Class A
Common Stock of MET Holdings issued and outstanding and 5,000 shares of Class B
Serial Preferred Stock of MET Holdings issued and outstanding. Each share of
Class A Common Stock and Class B Serial Preferred Stock of MET Holdings will
entitle its holder to one vote at the MET Holdings Special Meeting. All shares
of MET Holdings Class A Common Stock and Class B Serial Preferred Stock
represented by properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated in
such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF MET HOLDINGS
CLASS A COMMON STOCK AND CLASS B SERIAL PREFERRED STOCK WILL BE VOTED FOR
APPROVAL AND ADOPTION OF THE AGREEMENT AND THE MERGER PROVIDED FOR THEREIN. MET
Holdings does not know of any matters other than as described in the Notice of
Special Meeting that are to come before the MET Holdings Special Meeting. If any
other matter or matters are properly presented for action at the MET Holdings
Special Meeting, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment, unless such authorization is withheld. A MET Holdings
stockholder who has given a proxy may revoke it at any time prior to its
exercise by filing with the Secretary of MET Holdings a written revocation
thereof, by delivering to MET Holdings a duly executed proxy bearing a later
date or by attending the MET Holdings Special Meeting and voting in person. Mere
attendance at the MET Holdings Special Meeting will not in and of itself have
the effect of revoking a previously granted proxy.
Votes cast by proxy or in person at the MET Holdings Special Meeting
will be tabulated by the election inspectors appointed for the meeting, who will
determine whether or not a quorum is present. Where, as to any matter submitted
to a vote of the MET Holdings stockholders, proxies are marked as abstentions
(or stockholders appear in person but abstain from voting) or a broker indicates
on a proxy that it does not have discretionary authority with respect to certain
shares, such abstentions and "broker non-votes" will be treated as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum.
Holders of shares of Class B Common Stock of MET Holdings are not
entitled to vote. No shares of Class A Serial Preferred Stock of MET Holdings
are issued and outstanding.
TeleBanc has adopted and is the sponsor of a combined stock bonus and
money purchase pension plan, which was originally established by MET Holdings,
that constitutes an "employee stock ownership plan" under applicable law (the
TeleBanc ESOP). For the purposes of this Proxy Statement/Prospectus, with
respect to the TeleBanc ESOP, the term "participant" shall be deemed to include
the beneficiary of a deceased participant. The TeleBanc ESOP holds shares of
TeleBanc Stock as well as shares of the Class A Common Stock, Class B Common
Stock and Class B Serial
-7-
<PAGE>
Preferred Stock of MET Holdings. Each participant in the TeleBanc ESOP will
receive a form to be used to instruct the trustees of the TeleBanc ESOP how to
vote the MET Holdings Stock held by the TeleBanc ESOP that is allocated to such
participant. The TeleBanc ESOP provides that on major corporate issues,
participants in the TeleBanc ESOP are permitted to direct the trustees as to the
voting of the shares of MET Holdings Stock allocated to their accounts;
otherwise the trustees of the TeleBanc ESOP have sole discretion as to the
voting of such stock held by the TeleBanc ESOP, so long as such stock is not
required to be registered under Section 12 of the Exchange Act. The TeleBanc
ESOP provides that the trustees will vote such shares as instructed. The
TeleBanc ESOP also provides that the trustees of the TeleBanc ESOP shall vote
all unallocated shares and allocated shares for which the trustees have not
received directions from the applicable participant in their sole discretion.
The trustees of the TeleBanc ESOP are David A. Smilow, the Chairman of the Board
and Chief Executive Officer of TeleBanc and MET Holdings; Mitchell H. Caplan,
the President, Chief Operating Officer and a Director of TeleBanc and the
President and a Director of MET Holdings; and Emidio Morizio, the Senior Vice
President/Treasurer of MET Holdings.
The directions of participants regarding the voting of the shares
allocated to them will not be disclosed to TeleBanc, MET Holdings or the
trustees of the TeleBanc ESOP, and will be tabulated by Blue Ridge ESOP
Associates, Inc., which is the recordkeeper for the TeleBanc ESOP.
To be effective, directions to the trustees of the TeleBanc ESOP must
be received by the recordkeeper at Blue Ridge ESOP Associates, Inc., 600 E.
Water Street, Suite C, Charlottesville, Virginia 22902, ATTN.: TeleBanc ESOP
Vote, by the close of business (5:00 p.m. E.D.T.) on ___________ __, 1996.
Directions to the trustees received after the close of business on ___________
__, 1996, or received at a different address, will not be effective. A
participant in the TeleBanc ESOP who is otherwise a MET Holdings stockholder
should (i) complete and return directions to the TeleBanc ESOP trustees with
respect to shares of MET Holdings Stock held by the TeleBanc ESOP that are
allocated to such participant and (ii) complete and return the enclosed proxy
with respect to such other shares of MET Holdings Stock.
SOLICITATION OF PROXIES
MET Holdings will bear its own cost of solicitation of proxies. In
addition to the use of the mails, proxies may be solicited by the directors and
officers of MET Holdings by personal interview, telephone or telegram. Such
directors and officers will not receive additional compensation for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Arrangements may also be made with brokerage firms and
other custodians, nominees and fiduciaries to forward solicitation materials to
the beneficial owners of shares of Class A Common Stock or Class B Serial
Preferred Stock of MET Holdings held of record by such persons, in which case
MET Holdings will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
QUORUM
The presence, in person or by proxy, of (i) the holders of the majority
of the shares of Class A Common Stock of MET Holdings entitled to vote at the
Special Meeting and (ii) the holders of a majority of the shares of Class B
Serial Preferred Stock of MET Holdings entitled to vote at the Special Meeting
are necessary to constitute a quorum for the separate votes of the Class A
Common Stock and the Class B Serial Preferred Stock at the MET Holdings Special
Meeting.
REQUIRED VOTE
Each share of Class A Common Stock and Class B Serial Preferred Stock
of MET Holdings will entitle its holder to one vote at the MET Holdings Special
Meeting. Holders of Class B Common Stock are not entitled to vote. The
affirmative vote, in person or by properly executed proxy, of the holders of at
least three-fourths of the outstanding shares of the Class A Common Stock of MET
Holdings and the affirmative vote of the holders of at least two-thirds of the
outstanding shares of
-8-
<PAGE>
Class B Serial Preferred Stock of MET Holdings, voting as separate classes, is
necessary to approve the Agreement and the Merger provided for therein.
Because the required vote of MET Holdings stockholders on the Agreement
and the Merger is based upon the total number of votes attributable to the
outstanding shares of the Class A Common Stock and Class B Serial Preferred
Stock of MET Holdings, failure to submit a proxy card (or failure to vote in
person at the MET Holdings Special Meeting), abstention from voting and any
broker non-vote will have the same effect as a vote against the Agreement and
the Merger.
As of the MET Holdings Record Date, directors and executive officers of
MET Holdings and their affiliates beneficially owned an aggregate of 6,966.5
shares (70.2%) of Class A Common Stock of MET Holdings and an aggregate of 4,504
shares (90.1%) of Class B Serial Preferred Stock of MET Holdings outstanding and
entitled to vote at the MET Holdings Special Meeting, including an aggregate of
368 shares of MET Holdings Class A Common Stock and 310 shares of MET Holdings
Class B Serial Preferred Stock held in the executive officers' accounts in the
TeleBanc ESOP. The directors of MET Holdings have indicated that they intend to
vote their shares of Class A Common Stock and Class B Serial Preferred Stock in
favor of the Agreement and the Merger provided for therein.
The TeleBanc ESOP owns 368 shares (3.7%) of the Class A Common Stock
and 310 shares (6.2%) of the Class B Serial Preferred Stock of MET Holdings
outstanding and entitled to vote at the MET Holdings Special Meeting. All of the
shares of Class A Common Stock and all of the shares of Class B Serial Preferred
Stock of MET Holdings held by the TeleBanc ESOP have been allocated to the
accounts of participants as of the MET Holdings Record Date. The TeleBanc ESOP
provides that on major corporate issues, participants in the TeleBanc ESOP are
permitted to direct the trustees as to the voting of the shares of MET Holdings
Stock allocated to their accounts; otherwise the trustees of the TeleBanc ESOP
have sole discretion as to the voting of such stock held by the TeleBanc ESOP,
so long as such stock is not required to be registered under Section 12 of the
Exchange Act. The trustees have discretion to vote unallocated shares and
allocated shares for which no instructions are received.
See "--Record Date; Voting Rights; Proxies."
THE MATTERS TO BE CONSIDERED AT THE MET HOLDINGS SPECIAL MEETING ARE OF
GREAT IMPORTANCE TO THE STOCKHOLDERS OF MET HOLDINGS. ACCORDINGLY, STOCKHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/ PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
-9-
<PAGE>
THE TELEBANC SPECIAL MEETING
PURPOSE OF THE TELEBANC SPECIAL MEETING
At the TeleBanc Special Meeting, holders of TeleBanc Stock will
consider and vote upon a proposal to approve and adopt the Agreement and the
Merger provided for therein, the amendment to TeleBanc's Certificate of
Incorporation (the Amendment), and such other business as may properly come
before the meeting.
THE INDEPENDENT MEMBERS OF THE BOARD OF DIRECTORS OF TELEBANC (THE
"INDEPENDENT DIRECTORS") HAVE UNANIMOUSLY APPROVED THE AGREEMENT AND THE MERGER
PROVIDED FOR THEREIN AND THE AMENDMENT AND RECOMMEND A VOTE FOR APPROVAL AND
ADOPTION OF THE AGREEMENT AND MERGER AND A VOTE FOR THE AMENDMENT.
RECORD DATE; VOTING RIGHTS; PROXIES
The TeleBanc Board of Directors has fixed the close of business on
___________ __, 1996 as the record date for determining the holders of TeleBanc
Stock entitled to notice of and to vote at the TeleBanc Special Meeting (the
"TeleBanc Record Date").
As of the TeleBanc Record Date, there were 2,049,500 shares of TeleBanc
Stock issued and outstanding, each of which entitles its holder to one vote at
the TeleBanc Special Meeting. All shares of TeleBanc Stock represented by
properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated in such proxies.
IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF TELEBANC STOCK WILL BE VOTED
FOR APPROVAL AND ADOPTION OF THE AGREEMENT AND THE MERGER PROVIDED FOR THEREIN
AND FOR THE AMENDMENT. TeleBanc does not know of any matters other than as
described in the Notice of Annual Meeting that are to come before the TeleBanc
Special Meeting. If any other matter or matters are properly presented for
action at the TeleBanc Special Meeting, the persons named in the enclosed form
of proxy and acting thereunder will have the discretion to vote on such matters
in accordance with their best judgment, unless such authorization is withheld. A
TeleBanc stockholder who has given a proxy may revoke it at any time prior to
its exercise by filing with the Secretary of TeleBanc a written revocation
thereof, by delivering to TeleBanc a duly executed proxy bearing a later date or
by attending the TeleBanc Special Meeting and voting in person. Mere attendance
at the TeleBanc Special Meeting will not in and of itself have the effect of
revoking a previously granted proxy.
Votes cast by proxy or in person at the TeleBanc Special Meeting will
be tabulated by the election inspectors appointed for the meeting, who will
determine whether or not a quorum is present. Where, as to any matter submitted
to a vote of the TeleBanc stockholders, proxies are marked as abstentions (or
stockholders appear in person but abstain from voting) or a broker indicates on
a proxy that it does not have discretionary authority with respect to certain
shares, such abstentions and "broker non-votes" will be treated as shares that
are present and entitled to vote for purposes of determining the presence of
quorum.
No shares of TeleBanc Preferred Stock are issued and outstanding.
Each participant in the TeleBanc ESOP will receive a form to be used to
instruct the trustees of the TeleBanc ESOP how to vote the TeleBanc Stock held
by the TeleBanc ESOP that is allocated to such participant. The TeleBanc ESOP
provides that each participant shall direct the trustees of the TeleBanc ESOP as
to the manner in which shares allocated to such participant are to be voted. The
TeleBanc ESOP provides that the trustees will vote such shares as instructed.
The TeleBanc ESOP also provides that the trustees of the TeleBanc ESOP shall
vote all unallocated shares and allocated shares for which the trustees have not
received directions from the applicable participant in their sole discretion.
The trustees of the TeleBanc ESOP are David A. Smilow, the Chairman of the Board
and Chief Executive Officer of TeleBanc and MET Holdings; Mitchell H. Caplan,
the
-10-
<PAGE>
President, Chief Operating Officer and a Director of TeleBanc and the President
and a Director of MET Holdings; and Emidio Morizio, the Senior Vice
President/Treasurer of MET Holdings.
The directions of participants regarding the voting of the shares
allocated to them will not be disclosed to TeleBanc, MET Holdings or the
trustees of the TeleBanc ESOP, and will be tabulated by Blue Ridge ESOP
Associates, Inc., which is the recordkeeper for the TeleBanc ESOP.
To be effective, directions to the trustees of the TeleBanc ESOP must
be received by the recordkeeper at Blue Ridge ESOP Associates, Inc., 600 E.
Water Street, Charlottesville, Virginia 22902, ATTN.: TeleBanc ESOP Vote, by the
close of business (5:00 p.m. E.D.T.) on ___________ __, 1996. Directions to the
trustees received after the close of business on ___________ __, 1996, or
received at a different address, will not be effective. A participant or
beneficiary in the TeleBanc ESOP who is otherwise a TeleBanc stockholder should
(i) complete and return directions to the TeleBanc ESOP trustees with respect to
shares of TeleBanc Stock held by the TeleBanc ESOP that are allocated to such
participant and (ii) complete and return the enclosed proxy with respect to such
other shares of TeleBanc Stock.
SOLICITATION OF PROXIES
TeleBanc will bear its own cost of solicitation of proxies. In addition
to the use of the mails, proxies may be solicited by the directors and officers
of TeleBanc by personal interview, telephone or telegram. Such directors and
officers will not receive additional compensation for such solicitation but may
be reimbursed for out-of-pocket expenses incurred in connection therewith.
Arrangements may also be made with brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of shares of TeleBanc Stock held of record by such persons, in which case
TeleBanc will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
QUORUM
The presence, in person or by proxy, of (i) the holders of a majority
of the TeleBanc Stock issued and outstanding and entitled to vote at the Special
Meeting and (ii) the holders of a majority of the voting power of the
outstanding shares of TeleBanc Stock, excluding for such purposes the total
number of outstanding shares of TeleBanc Stock owned by MET Holdings and its
affiliates or associates are necessary to constitute a quorum for the separate
votes described in "Required Vote" below.
REQUIRED VOTE
Each share of TeleBanc Stock will entitle its holder to one vote at the
TeleBanc Special Meeting. Holders of TeleBanc Preferred Stock are not entitled
to vote.
The affirmative vote, in person or by properly executed proxy, of at
least (i) the holders of 80% of the total number of outstanding shares of
TeleBanc Stock and (ii) the holders of at least two-thirds of the voting power
of the outstanding shares of TeleBanc Stock, excluding for the purposes of
calculating the affirmative vote and the total number of outstanding shares of
TeleBanc Stock under this clause (ii) all outstanding shares of TeleBanc Stock
of which the beneficial owner is an Interested Shareholder involved in the
Merger or any affiliate or associate of such Interested Shareholder (as such
terms are defined in the Certificate of Incorporation of TeleBanc), is necessary
to approve the Agreement and the Merger provided for therein. Under TeleBanc's
Certificate of Incorporation, the term "Interested Shareholder" includes any
person that is the beneficial owner, directly or indirectly, of ten percent or
more of the voting power of the then outstanding shares of capital stock of
TeleBanc entitled to vote generally in the election of directors. Because MET
Holdings is an Interested Shareholder with respect to the Merger, the shares of
TeleBanc Stock owned by MET Holdings and its affiliates and associates will be
excluded from the vote required under clause (ii) above.
-11-
<PAGE>
Adoption of the Amendment requires the affirmative vote, in person or
by properly executed proxy, of the holders of at least a majority of the shares
of TeleBanc Stock entitled to vote at the TeleBanc Special Meeting.
Because the required vote of TeleBanc stockholders on the Agreement and
the Merger provided for therein and the Amendment is based on the total number
of votes attributable to the outstanding shares of TeleBanc Stock, failure to
submit a proxy card (or failure to vote in person at the TeleBanc Special
Meeting), abstention from voting and any broker non-vote will have the same
effect as voting against the Agreement and the Merger and the Amendment.
As of the TeleBanc Record Date, excluding the 1,299,500 shares of
TeleBanc Stock owned by MET Holdings, the directors and executive officers of
TeleBanc and their affiliates beneficially owned an aggregate of 257,411 shares
(12.56%) of the TeleBanc Stock, including 67,273 shares of TeleBanc Stock held
in the executive officers' accounts in the TeleBanc ESOP. The directors of
TeleBanc have indicated that they intend to vote their shares of TeleBanc Stock
in favor of the Agreement and the Merger provided for therein and the Amendment.
MET Holdings is the holder of approximately 63.4% of the issued and outstanding
TeleBanc Stock. The directors of MET Holdings have indicated that they intend to
vote the shares of TeleBanc Stock owned by MET Holdings and the shares of
TeleBanc Stock beneficially owned by such directors in favor of the Agreement
and the Merger provided for therein and the Amendment. Therefore, the Amendment
will be approved, notwithstanding the vote of other TeleBanc stockholders.
The TeleBanc ESOP owns 67,273 shares (3.3%) of the TeleBanc Stock
outstanding and entitled to vote at the TeleBanc Special Meeting. All of the
shares of TeleBanc Stock held by the TeleBanc ESOP have been allocated to the
accounts of participants as of the TeleBanc Record Date. The TeleBanc ESOP
provides that each participant shall direct the trustees of the TeleBanc ESOP as
to the manner in which shares allocated to such participant are to be voted. The
trustees have discretion to vote unallocated shares and allocated shares for
which no instructions are received. See "--Record Date; Voting Rights; Proxies."
THE MATTERS TO BE CONSIDERED AT THE TELEBANC SPECIAL MEETING ARE OF
GREAT IMPORTANCE TO THE STOCKHOLDERS OF TELEBANC. ACCORDINGLY, STOCKHOLDERS ARE
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
-12-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
TELEBANC
<TABLE>
<CAPTION>
(Dollars in Thousands)
------------------------------------ --------------------------------
Selected Balance Sheet Data: Year ended December 31, Six Months ended June 30,
------------------------------------ --------------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment securities .................. $ 18,110 $ 12,444 $ 40,058 $ 26,363 $ 60,897
Mortgage backed and related securities . 80,782 236,464 234,210 267,997 216,206
Loans receivable, net .................. 100,859 154,742 248,667 192,969 292,072
Total Assets ........................... 220,301 427,292 553,943 513,668 599,822
Deposits ............................... 113,132 212,411 306,500 268,948 346,257
Advances from FHLB ..................... 61,000 96,000 105,000 105,500 120,500
Securities sold under agreement
to repurchase ................... 29,642 79,613 93,905 96,775 79,944
Total Liabilities ...................... 207,923 410,264 532,378 495,520 576,842
Total Stockholders' Equity ............. 12,378 17,028 21,565 18,148 22,980
Return on average total assets (a) ..... 0.61 0.17 0.53 0.40 0.49
Return on average stockholders' equity.. 11.79 3.17 14.10 11.38 13.06
------------------------------------ --------------------------------
Selected Operating Data: Year ended December 31, Six Months ended June 30,
------------------------------------ --------------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Interest income (a) .................... $ 16,667 $ 22,208 $ 40,511 $ 19,067 $ 22,495
Interest expense ....................... 11,828 16,286 29,857 14,269 15,769
Subordinated debt interest expense ...... -- 1,227 2,089 1,037 1,037
------- ------- ------- ------- -------
Net Interest Income ..................... 4,839 4,695 8,565 3,761 5,689
Provision for loan losses ............... 211 492 1,722 661 619
------- ------- ------- ------- -------
Net interest income after provision
for loan losses ................. 4,628 4,203 6,843 3,100 5,070
Non-interest income ..................... 1,157 175 3,777 1,042 896
General and administrative expenses ..... 2,997 3,503 5,561 2,721 3,428
Other non-interest operating expenses ... 739 153 679 166 383
------- ------- ------- ------- -------
Income before income taxes and
cumulative effect of change
in accounting principle ............. 2,049 722 4,380 1,255 2,155
Income tax expense ...................... 842 182 1,660 429 748
Cumulative effect of changes in
accounting principle .............. 170 -- -- -- --
------- ------- ------- ------- -------
Net income .............................. $1,377 $ 540 $2,720 $ 826 $1,407
------- ------- ------- ------- -------
- ----------
<FN>
(a) Returns have been annualized for the six month reporting periods of June 30,
1995 and June 30, 1996.
</FN>
</TABLE>
-13-
<PAGE>
MET HOLDINGS
<TABLE>
<CAPTION>
(Dollars in Thousands)
----------------------------- -----------------------------------
Selected Operating Data: Year ended December 31, Six Months ended June 30,
----------------------------- -----------------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest Income $ 6 $ 83 $ 207 $ 98 $ 77
Interest Expense 96 154 150 77 147
-- --- --- -- ---
Net Interest Income (90) (71) 57 21 (70)
Non-Interest income: 6 622 776 558 161
General and administrative expenses 344 628 1,096 569 352
Other non-interest operating expenses 28 22 9 -- --
-- -- - --- ---
Net Income before income taxes (456) (99) (272) 10 (261)
Income tax expense (179) (53) (84) - (80)
Net Income attributed to Minority
Interest Holders - 9 (40) (2) (23)
Equity in undistributed earnings of
Bank subsidiary 1,377 553 1,733 524 893
----- --- ----- --- ---
Net Income (Loss) $1,100 $ 498 $1,585 $ 536 $ (735)
====== ==== ===== === ====
----------------------------- -----------------------------------
Selected Balance Sheet Data: Year ended December 31, Six Months ended June 30,
----------------------------- -----------------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Investment securities $ 365 $ 100 $ - $ 287 $ 298
Mortgage backed and related securities -- 63 - - -
Loans receivable, net -- 89 - - -
Equity investment in Bank subsidiary 11,692 10,360 13,672 11,506 14,569
Equity investment in other subsidiary 233 - 2 27 1,884
Total Assets 12,543 11,491 14,732 11,500 18,179
Note payable 2,727 2,495 2,595 2,494 2,495
Total Liabilities 2,434 2,268 2,670 2,459 2,440
Minority interest - - 62 - 39
Total Stockholder's Equity 10,109 9,223 12,000 9,041 15,739
Additional financial data
Return on Assets -2.21% -0.27% -0.87% 0.08% -1.36% *.***
Return on Equity -2.82% -0.35% -1.07% 0.10% -1.58% **.***
</TABLE>
* Based on month end June 30, 1996 assets
** Based on month end June 30, 1996 equity
*** Six month income at June 30, 1996 annualized
-14-
<PAGE>
UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
The following pro forma financial information reflects:
o the consummation of the Merger
o the increase in the minority ownership of Arbor
o the acquisition of the Arbor minority interest by
TeleBanc
o the assumption of $42.0 million in deposits from an
unrelated savings institution
o the impact of the one-time assessment on savings
institutions such as TeleBanc to recapitalize the SAIF
fund.
The pro forma financial information has been prepared using the
historical consolidated financial statements appearing in TeleBanc's Annual
Report on Form 10-K for the year ended December 31, 1995. The historical
consolidated financial statements of MET Holdings included herein have also been
used as the basis for the MET Holdings column in the pro forma information.
However for the purpose of illustrating the impact of the above transactions,
MET Holding's interest in TeleBanc has been presented on the equity method of
accounting instead of on a consolidated basis. Furthermore, the pro forma
combined balance sheet gives effect to the transactions described above as if
they had occurred as of June 30, 1996. The pro forma combined statements of
income include the impact of the above transactions as if they had occurred on
January 1, 1996 and 1995 for the pro forma statements of income for the six
months ending June 30, 1996 and the year ending December 31, 1995.
The pro forma financial data of TeleBanc has been derived from and
should be read in conjunction with TeleBanc's consolidated financial statements
incorporated herein and MET Holdings' financial statements included herein. The
pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the financial position that would have occurred had
the transactions described above been effected on the dates assumed nor is the
pro forma financial information intended to be indicative of TeleBanc's future
financial position or results of operations.
-15-
<PAGE>
Pro Forma Consolidated Balance Sheet
As of June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
MET
TeleBanc, Holdings, TeleBanc,
historical historical Adjustments as Adjusted
---------- ---------- ----------- -----------
Assets:
<S> <C> <C> <C> <C>
Cash & equivalents ............................... $ 5,005,193 $ 1,041,393 $ (2,105,098) (a)(f)(h) $ 3,941,488
AFS investment securities ........................ 60,896,787 298,370 -- 61,195,157
AFS mortgage-backed securities ................... 216,206,337 -- -- 216,206,337
Loans receivable, net ............................ 185,509,163 -- -- 185,509,163
Loans receivable held for sale ................... 106,563,000 -- -- 106,563,000
Equity investments ............................... 924,829 16,453,585 (14,569,270) (c) 2,809,144
Real estate acquired through foreclosure ......... 1,127,001 -- -- (c) 1,127,001
Other Assets ..................................... 23,589,750 451,919 (1,147,402) (a)(b)(d) 22,894,267
----------- ----------- ----------- -----------
TOTAL ASSETS .................................. $599,822,060 $18,245,267 $(17,821,770) $600,245,557
=========== =========== =========== ==========
Liabilities and Stockholders' Equity:
Liabilities:
Deposits ........................................... $346,257,138 $ -- $42,226,352 (a)(b) $ 388,483,490
FHLB Advances ...................................... 120,500,000 -- -- 120,500,000
Rev repo's & other borrowings ...................... 79,943,825 -- (42,000,000) (e) 37,943,825
Note payable ....................................... -- 2,494,560 -- 2,494,560
Subordinated debt .................................. 16,541,090 -- -- 16,541,090
Mortgage escrows ................................... 627,703 -- -- 627,703
Income taxes payable ............................... 2,018,507 (79,935) (583,753) (f) 1,354,819
Accrued interest payable ........................... 2,399,827 -- -- (a) 2,399,827
Other liabilities................................... 8,554,049 (13,477) 8,402 (a) 8,548,974
--------- ------- ----- ---------
TOTAL LIABILITIES ............................... 576,842,139 2,401,148 (348,999) 578,894,288
----------- --------- -------- -----------
MINORITY INTEREST ............................... -- 39,120 (39,120) (d)(h) --
Stockholders Equity:
Preferred stock .................................. -- 3,000,000 (3,000,000) (c) --
Common stock, Class A ............................ -- 1,126 (1,126) (c) --
Common stock, Class B ............................ -- 694 (694) (c) --
Common stock ..................................... 20,495 -- 1,968 (c)(d) 22,463
Additional paid-in capital ....................... 14,636,433 7,205,355 (7,789,213) (b)(c)(d) 14,052,575
Retained earnings ................................ 6,759,582 5,437,823 (6,484,585) (c)(f)(h) 5,712,820
Treasury stock at cost ........................... -- (831,200) 831,200 (c) --
Unrealized gain/losses mkt sec ................... 1,563,411 991,201 (991,201) (c) 1,563,411
--------- ------- -------- ---------
TOTAL STOCKHOLDERS' EQUITY .................... 22,979,921 15,804,999 (17,433,651) 21,351,269
---------- ---------- ----------- ----------
TOTAL LIABILITIES AND EQUITY .................. $599,822,060 $ 18,245,267 $(17,821,770) $600,245,557
=========== ========== =========== ===========
</TABLE>
See Notes to Pro Forma Financial information on page 19.
-16-
<PAGE>
Pro Forma Consolidated Statement of Operations
As of June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
MET
TeleBanc, Holdings, TeleBanc,
historical historical Adjustments as Adjusted
---------- - --------- ----------- -----------
Interest Income:
<S> <C> <C> <C>
Mortgage Loans ................................. $10,865,991 $ -- $ -- $ 10,865,991
Mort backed and related securities ............. 215,583 -- -- 215,583
Inv Sec and int bearing deposits ............... 423,195 76,819 -- 500,014
MB rel securities avail for sale ............... 9,418,267 -- -- 9,418,267
Inv securities avail for sale .................. 1,547,998 -- -- 1,547,998
Repurchase agreements .......................... 2,229 -- -- 2,229
Federal funds sold ............................. 22,191 -- -- 22,191
------ ------
TOTAL INTEREST INCOME ..................... 22,495,454 76,819 -- 22,572,273
Interest Expense:
Deposits ....................................... 9,783,303 -- 1,238,870 (e) 11,022,173
Advances from FHLB ............................. 3,078,290 -- -- 3,078,290
Reverse repurchase agreements .................. 2,663,459 -- (1,223,434) (e) 1,440,025
Other borrowed money ........................... 243,891 -- -- 243,891
Subordinated debt .............................. 1,037,167 -- -- 1,037,167
Note payable ................................... -- 103,309 -- 103,309
- ------- - -------
TOTAL INTEREST EXPENSE .................... 16,806,110 103,309 15,436 16,924,855
NET INTEREST INCOME (LOSS) ................ 5,689,344 (26,490) (15,436) 5,647,418
Provision for loan & lease losses .............. 618,620 -- -- 618,620
------- ------ ------ -------
NET INCOME (LOSS) AFTER PROVISION ......... 5,070,724 (26,490) (15,436) 5,028,798
Non-interest income:
Loan fees and service charges .................... 457,207 -- -- 457,207
Gain/loss loans held for sale .................... 316,220 -- -- 316,220
Gain/loss on sale of MBS ......................... (131,802) -- -- (131,802)
Gain/loss sale of inv securities ................. 214,219 -- -- 214,219
Commissions ...................................... -- 160,717 -- 160,717
Other ............................................ 40,475 -- -- 40,475
------ ------ ------ ------
TOTAL NON INTEREST INCOME ................. 896,319 160,717 -- 1,057,036
Non-interest expense:
General and administrative expenses:
Compensation and employee benefits ............. 1,788,205 166,291 -- 1,954,496
Office occupancy and equipment ................. 229,156 40,553 -- 269,709
Federal insurance premiums ..................... 343,517 -- 48,300(e) 391,817
Professional services .......................... 629,293 74,303 -- 703,596
Other .......................................... 437,364 70,649 -- 508,013
------- ------ ------ -------
TOTAL G & A EXPENSES ...................... 3,427,535 351,796 48,300 3,827,631
REO expenses, net .............................. 47,121 -- -- 47,121
Amortization of deferred charges ............... 63,339 -- -- 63,339
Amortization intangibles ....................... 272,786 -- 15,860(d) 288,646
------- -- ------ -------
TOTAL NON-INTEREST EXPENSES ............... 3,810,781 351,796 64,160 4,226,737
NET INCOME (LOSS) BEFORE INCOME TAXES ............ 2,156,262 (217,569) (79,596) 1,859,097
Income tax expense (benefit) ................... 748,289 (79,935) (407,298)(g) 261,056
------- ------- -------- -------
NET INCOME (LOSS) BEFORE PREFERRED DIVIDENDS 1,407,973 (137,634) 327,702 1,598,041
Preferred stock dividends ...................... -- 43,613 -- 43,613
------ ------
NET INCOME (LOSS) AVAILABLE TO COMMON $1,407,973 $(181,247) $327,702 $1,554,428
STOCKHOLDERS............................... ========= ======== ======= =========
Net Income (Loss) per Common Stock .................... $ 0.65 ($ 11.12) $ 0.63
========= ======== =========
Weighted average Common Stock Outstanding ............. 2,171,354 16,298 2,482,341
========= ======== =========
</TABLE>
See Notes to Pro Forma Financial information on page 19.
-17-
<PAGE>
Pro Forma Consolidated Statement of Operations
As of December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
MET
TeleBanc, Holdings, TeleBanc,
historical historical Adjustments as Adjusted
---------- ---------- ----------- -----------
Interest Income:
<S> <C> <C> <C> <C>
Mortgage Loans ................................. $17,726,308 $ -- $ -- $ 17,726,308
Mort backed and related securities ............. 18,613,802 -- -- 18,613,802
Inv Sec and int bearing deposits ............... 943,069 41,242 -- 984,311
MB rel securities avail for sale ............... 1,590,580 164,728 -- 1,755,308
Inv securities avail for sale .................. 1,403,635 1,458 -- 1,405,093
Trading account ................................ 167,195 -- -- 167,195
Repurchase agreements .......................... 16,546 -- -- 16,546
Federal funds sold ............................. 49,453 -- -- 49,453
------ ------- ---- ----------
TOTAL INTEREST INCOME ..................... 40,510,588 207,428 -- 40,718,016
Interest Expense:
Deposits ....................................... 17,033,420 -- 2,477,740 (e) 19,511,160
Advances from FHLB ............................. 5,985,070 -- -- 5,985,070
Reverse repurchase agreements .................. 6,252,456 -- (2,446,868)(e) 3,805,588
Other borrowed money ........................... 585,435 -- -- 585,435
Subordinated debt .............................. 2,089,333 -- -- 2,089,333
Note payable ................................... -- 149,674 -- 149,674
---------- ------- --------- ----------
TOTAL INTEREST EXPENSE .................... 31,945,714 149,674 30,872 32,126,260
NET INTEREST INCOME (LOSS) ................ 8,564,874 57,754 (30,872) 8,591,756
Provision for loan & lease losses .............. 1,721,834 -- -- 1,721,834
--------- --------- --------- ---------
NET INCOME (LOSS) AFTER PROVISION ......... 6,843,040 57,754 (30,872) 6,869,922
Non-interest income:
Loan fees and service charges .................... 182,907 -- -- 182,907
Gain/loss loans held for sale .................... 231,712 -- -- 231,712
Gain/loss on sale of MBS ......................... 1,594,054 -- -- 1,594,054
Gain/loss sale of inv securities ................. 1,141,430 (2,934) -- 1,138,496
Profit trading activity .......................... 677,084 -- -- 677,084
Commissions ...................................... -- 747,408 -- 747,408
Other ............................................ (50,203) 31,358 -- (18,845)
------- ------ --------- ---------
TOTAL NON INTEREST INCOME ................. 3,776,984 775,832 -- 4,552,816
Non-interest expense:
General and administrative expenses:
Compensation and employee benefits ............. 3,030,546 802,299 -- 3,832,845
Office occupancy and equipment ................. 425,753 80,022 -- 505,775
Federal insurance premiums ..................... 526,315 -- 96,600 (e) 622,915
Professional services .......................... 1,008,743 67,550 -- 1,076,293
Other .......................................... 570,028 146,573 -- 716,601
------- ------- ------ ---------
TOTAL G & A EXPENSES ...................... 5,561,385 1,096,444 96,600 6,754,429
REO expenses, net .............................. 430,218 -- -- 430,218
Amortization of deferred charges ............... 126,679 -- -- 126,679
Amortization intangibles ....................... 121,717 9,000 29,572 (d) 160,289
------- ----- ------ -------
TOTAL NON-INTEREST EXPENSES ............... 6,239,999 1,105,444 126,172 7,471,615
NET INCOME (LOSS) BEFORE INCOME TAXES ............ 4,380,025 (271,858) (157,044) 3,951,123
Income tax expense (benefit) ................... 1,660,150 (95,871) (435,157)(g) 1,129,122
--------- ------- -------- ---------
NET INCOME (LOSS) ......................... $2,719,875 $(175,987) 278,113 $2,822,001
========= ======== ======= =========
Net Income (Loss) per Common Stock .................... $ 1.33 ($ 10.80) $ 1.14
========= ====== =========
Weighted average Common Stock Outstanding ............. 2,045,019 16,298 2,482,341
========= ====== =========
See Notes to Pro Forma Financial information on page 19.
</TABLE>
-18-
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(a) Reflects the elimination of $501,549 of Met Holdings deposits held by
TeleBanc and $8,402 of other intercompany receivables and payables between
MET Holdings and TeleBanc.
(b) Reflects the downstream merger whereby TeleBanc acquires all the 1,299,500
TeleBanc shares held by its parent MET Holdings. This transaction is
treated as a purchase whereby the portion of TeleBanc's assets and
liabilities allocable to the minority interests are recorded at fair
value. The recorded amount of such assets and liabilities exceeded their
fair values by $2,201,000 which is reflected as a reduction of additional
paid-in capital. In addition, $728,000 of the $2,201,000 was recorded as
an increase to deposits. The remaining $1,473,000 which represents
negative goodwill was reflected as a decrease to long term assets included
in other assets.
(c) Reflects the elimination of MET Holdings' approximately 63.4% equity
investment in TeleBanc and the related equity accounts pursuant to the
downstream merger transaction. TeleBanc's acquisition of MET Holding's
interests in TeleBanc and Arbor is reflected at the carrying amounts of
such interests in MET Holdings financial statements.
(d) Reflects the acquisition of the 33% minority interest in Arbor through the
issuance of 46,302 shares of TeleBanc Stock (excluding any escrow shares).
This was recorded as a purchase transaction, therefore common stock of
$463 and additional paid-in capital of $382,918 was recorded to reflect
the purchase price of $383,381. Furthermore, the minority interest
obligation of $66,186 was eliminated and goodwill of $317,195 was recorded
to reflect the purchased interests. Amortization of the goodwill of
$15,860 and $31,720 was recorded in the pro forma statements of income for
the six months ending June 30, 1996 and the year ending December 31, 1995,
respectively.
(e) Reflects the assumption of $42,000,000 of deposits from an unaffiliated
savings institution that is intended to replace other borrowings.
(f) Reflects the one-time assessment on deposits held by SAIF-insured
institutions such as TeleBank to recapitalize the SAIF fund payable on
November 29, 1996. The estimated assessment of $1,667,867 was recorded as
a reduction of retained earnings of $1,084,114 which was net of expected
tax benefits of $583,753.
(g) Reflects the impact of the tax benefits attributable to the pro forma
adjustments. The reduction in the provision for income taxes amounted to
$611,612 and $639,471 for the six months ended June 30, 1996 and the year
ended December 31, 1995, respectively.
(h) Reflects the increase in the percentage ownership of Arbor by the minority
shareholder from 19.7% to 33.3%. This was accomplished through the
issuance of additional common stock pursuant to the exercise of stock
options held by the minority shareholder. The purchase price of the
additional interests was estimated to be $64,418 which is recorded as an
increase in cash and equivalents. Additionally, because the price paid per
share is less than the carrying amount of the net equity of Arbor, $27,066
was recorded as an additional obligation to the minority interests with
the remaining $37,352 recorded as an increase to retained earinings.
-19-
<PAGE>
PROPOSED MERGER OF MET HOLDINGS INTO TELEBANC
The holders of the Class A Common Stock and the Class B Serial
Preferred Stock of MET Holdings and the holders of TeleBanc Stock are being
asked to approve and adopt the Agreement and the Merger provided for therein.
While the following description reflects all material terms of the Agreement, it
is a summary only and is qualified in its entirety by reference to the full text
of the Agreement. A copy of the Agreement is included as Annex A to this Proxy
Statement/Prospectus and is incorporated by reference. TELEBANC AND MET HOLDINGS
STOCKHOLDERS ARE URGED TO READ THE AGREEMENT IN ITS ENTIRETY.
GENERAL DESCRIPTION OF THE TRANSACTION
Under the Agreement, at the Effective Time (as defined below), MET
Holdings shall be merged with and into TeleBanc. Upon the effectiveness of the
Merger, (a) the separate existence of MET Holdings shall cease, and (b)
TeleBanc, as the surviving corporation of the Merger (the "Surviving
Corporation"), shall continue to exist under and be governed by the DGCL. At the
Effective Time, the certificate of incorporation and bylaws of the Surviving
Corporation shall be in the form of the Certificate of Incorporation and Bylaws
of TeleBanc immediately preceding the Merger. At the Effective Time, the board
of directors and executive officers of TeleBanc shall be the directors and
executive officers of the Surviving Corporation. The time at which the Merger
becomes effective shall be the later of (a) the date and time set forth in the
certificate of merger or (b) the date and time at which the certificate of
merger is accepted for filing by the Secretary of State (the "Effective Time").
As described more fully below, at the Effective Time, (i) certain
shares of TeleBanc Stock will be issued to holders of MET Holdings Stock and to
Mr. Daugherty, as a holder of MET Holdings Stock and as the holder of the
Remaining Arbor Stock (as defined below), and (ii) certain shares of TeleBanc
Stock will be issued and deposited into four separate escrow accounts. An
individual stockholder of MET Holdings may have shares of TeleBanc Stock held in
more than one of these accounts.
At the Effective Time, all of the shares of TeleBanc Stock owned by MET
Holdings shall be canceled and returned to the treasury of TeleBanc. Also at the
Effective Time, each issued and outstanding share of Class A Common Stock and
Class B Common Stock (other than Dissenting Shares) shall, by virtue of the
Merger, automatically and without any action on the part of the holder thereof,
be converted into the right to receive 102.2797 shares of TeleBanc Stock (the
"Common Stock Exchange Ratio"). Also at the Effective Time, each issued and
outstanding share of Class B Serial Preferred Stock (other than Dissenting
Shares) shall, by virtue of the Merger, automatically and without any action on
the part of the holder thereof, be converted into the right to receive 94.5550
shares of TeleBanc Stock (the "Preferred Stock Exchange Ratio"). All other
shares of MET Holdings Stock shall be canceled. No payment shall be made in
respect of authorized but unissued shares of MET Holdings Stock or treasury
shares of MET Holdings Stock, and such shares shall be canceled upon the
consummation of the Merger and any other transactions contemplated by the
Agreement on the closing date thereof (the "Closing").
In the Merger, 235,990 shares of TeleBanc Stock (the Caplan/Smilow
Escrow Shares) which otherwise would be issued (as described in the preceding
paragraph or for MET Holdings Options as described below) or attributed (by
virtue of family relationships) to the common MET Holdings and TeleBanc
directors, Mitchell H. Caplan and David A. Smilow, and certain of their family
relations and affiliates (collectively, the "Caplan/Smilow Group"), will be
placed into escrow, and released on a pro rata basis to the members of the
Caplan/Smilow Group to the proportion, if any, that Arbor receives net return of
its capital investment in the Funds of $2.5 million as of the Escrow Termination
Date. To the extent that such shares are not paid out of escrow to the members
of the Caplan/Smilow Group, they will be canceled and returned to the treasury
of TeleBanc. Prior to the Escrow Termination Date, the Caplan/Smilow Escrow
Shares shall be voted on a pro rata basis by the members of the Caplan/Smilow
Group. Any dividends or other earnings on the Caplan/Smilow Escrow Shares will
be held in escrow and distributed with the Caplan/Smilow Escrow Shares to which
such dividends or earnings relate. If any Caplan/Smilow Escrow Shares are
returned to TeleBanc from escrow, any dividends or earnings on such shares also
will be returned to TeleBanc.
Also at the Effective Time, TeleBanc shall issue and deposit into
escrow approximately 500,000 shares of TeleBanc Stock (the Stockholder Escrow
Shares), which shares will be released on a pro rata basis to the MET Holdings'
stockholders as of the Merger if Arbor has received from the Funds $1,875,000 of
-20-
<PAGE>
cumulative return of capital, determined in accordance with generally accepted
accounting principles, as measured from the Closing Date to the Escrow
Termination Date (the "Stockholder Initial Arbor Earnings Goal"), such that for
each $15.46 of additional cumulative net income (determined in accordance with
generally accepted accounting principles) of Arbor earned as of the Escrow
Termination Date, one share of the TeleBanc Stock shall be released from escrow.
If the Stockholder Initial Arbor Earnings Goal has not been met as of the Escrow
Termination Date and if any of the Stockholder Escrow Shares remain in the
escrow account after the Escrow Termination Date, any remaining Stockholder
Escrow Shares in the escrow account shall be canceled and returned to TeleBanc's
treasury. Prior to the Escrow Termination Date, Stockholder Escrow Shares shall
be voted by the Escrow Agent in the same pro rata proportion as the other issued
and outstanding shares of TeleBanc Stock are voted. Any dividends or other
earnings on the Stockholder Escrow Shares will be held in escrow and distributed
with the Stockholder Escrow Shares to which such dividends or earnings relate.
If any Stockholder Escrow Shares are returned to TeleBanc from the escrow
account, any dividends or other earnings thereon will be distributed to
TeleBanc. For so long as any of the Stockholder Escrow Shares or any dividends
or other earnings thereon are held in escrow pursuant to the Stockholder Escrow
Agreement, such shares and any dividends or other earnings thereon shall be
available to satisfy any claims for indemnification by TeleBanc for the
applicable period set forth in the Agreement.
Under the Agreement, pursuant to a stock exchange agreement to be
entered into by and among TeleBanc, MET Holdings and William M. Daugherty (the
"Stock Exchange Agreement"), attached hereto as Annex D immediately prior to the
Effective Time, Mr. Daugherty will exercise his right, to acquire 27 additional
shares of Arbor common stock (the "Daugherty Option"), and at the Effective
Time, such shares along with the 26 shares presently owned by Mr. Daugherty
(collectively, such shares constitute all of the capital stock of Arbor not
owned by MET Holdings and are hereinafter referred to as the "Remaining Arbor
Stock") shall be exchanged for 342,604 shares of TeleBanc Stock at an exchange
ratio of 6,464.2264 shares of TeleBanc Stock for each of the 53 shares of
Remaining Arbor Stock. Of such 342,604 shares, (i) 46,302 shares shall be issued
to Mr. Daugherty at the Effective Time, (ii) 250,000 shares shall be placed in
escrow as described below, and (iii) 46,302 shares (the First Daugherty Escrow
Shares) will be placed in escrow and released to the proportion, if any, that
Arbor receives net return of capital from the Funds of $2.5 million as of the
Escrow Termination Date. To the extent such First Daugherty Escrow Shares are
not paid out of escrow to Mr. Daugherty, they will be canceled and returned to
the treasury of TeleBanc. Prior to the Escrow Termination Date, the First
Daugherty Escrow Shares shall be voted by Mr. Daugherty. Any dividends or other
earnings on the First Daugherty Escrow Shares will be held in escrow and
distributed with the First Daugherty Escrow Shares to which such dividends or
earnings relate.
Also at the Effective Time, of the 342,604 shares of TeleBanc Stock
issued to Mr. Daugherty, 250,000 of such shares (the Second Daugherty Escrow
Shares) shall be deposited in escrow. If Arbor has received from the Funds
$1,875,000 of cumulative return of capital, determined in accordance with
generally accepted accounting principles, as measured from the Closing Date to
the Escrow Termination Date (the "Daugherty Initial Arbor Earnings Goal"), for
each $30.93 of additional cumulative net income (determined in accordance with
generally accepted accounting principles) of Arbor earned as of the Escrow
Termination Date, one share of TeleBanc Stock shall be released from escrow. If
the Daugherty Initial Arbor Earnings Goal has not been met as of the Escrow
Termination Date and if any Second Daugherty Escrow Shares remain in the escrow
account as of the Escrow Termination Date, such shares shall be returned to
TeleBanc's treasury. Prior to the Escrow Termination Date, the Second Daugherty
Escrow Shares shall be voted by Mr. Daugherty. Any dividends or other earnings
on the Second Daugherty Escrow Shares will be held in escrow and distributed
with the Second Daugherty Escrow Shares to which such dividends or earnings
relate.
The 342,604 shares of TeleBanc Stock that will be issued to Mr.
Daugherty for the Remaining Arbor Stock are in addition to the shares of
TeleBanc Stock that will be issued to Mr. Daugherty as a MET Holdings
stockholder (some of which will be Stockholder Escrow Shares). It is expected
that following the Merger, Mr. Daugherty will continue as co-chairman and
portfolio manager for AG Arbor and a director of Arbor. As a result of such
positions, to the extent consistent with applicable laws, Mr. Daugherty also
will be eligible for all benefit plans of TeleBanc. The Board of Directors of
TeleBanc is expected to consider a grant of an option to Mr. Daugherty to
-21-
<PAGE>
acquire TeleBanc Stock after the Effective Time, pursuant to which Mr. Daugherty
would have the option to purchase 30,000 shares of TeleBanc Stock at a per-share
exercise price equal to the then fair market value of the TeleBanc Stock (as
determined by the TeleBanc Board of Directors with reference to the trading
price of TeleBanc Stock on the over-the-counter markets), with terms and
conditions as determined by the Board of Directors and consistent with the terms
of options granted pursuant to the TeleBanc ESOP.
At the Effective Time, all MET Holdings Options shall terminate. At the
election of the holder, as may be determined by any holder by providing written
instructions to TeleBanc no less than 10 calendar days before the Effective
Time, TeleBanc shall either (i) pay to each holder of outstanding unexpired and
unexercised MET Holdings Options $82,219.59 in cash, or (ii) issue to each
holder of outstanding unexpired and unexercised MET Holdings Options 9,640
shares of TeleBanc Stock which equals the Common Stock Exchange Ratio times the
number of shares of MET Holdings Stock into which such MET Holdings Options are
exercisable less the strike price of such options, or (iii) pay to the holder
part cash and part shares of TeleBanc Stock, with the amount of cash and the
number of shares of TeleBanc Stock to be determined, respectively, as set forth
in clauses (i) and (ii) of this paragraph.
Certificates for fractions of shares of TeleBanc Stock will not be
issued, other than with respect to certain escrow shares. In lieu of a fraction
of a share of TeleBanc Stock, each holder of MET Holdings Stock otherwise
entitled to a fraction of a share of TeleBanc Stock shall be entitled to receive
an amount of cash equal to (i) the fraction of a share of TeleBanc Stock to
which such holder would otherwise be entitled, multiplied by (ii) the average
prices for trades of TeleBanc Stock for the 30 days proceeding the Closing Date
as reported in the over-the-counter markets.
A diagram of the current corporate structure of TeleBanc is as follows:
[Diagram and related notes appear here]
A diagram of the corporate structure of TeleBanc giving effect to the
Merger is as follows:
[Diagram and related notes appear here]
-22-
<PAGE>
PROCEDURES FOR EXCHANGE OF CERTIFICATES. At and after the Effective
Time, certificates for shares of MET Holdings Stock shall represent the right to
receive certificates representing the number of shares of TeleBanc Stock and,
except with respect to certain escrow shares, cash in lieu of fractional shares
represented thereby, as described above. As promptly as practicable after the
Effective Time, TeleBanc shall cause Wilmington Trust Company, acting as the
exchange agent (the "Exchange Agent"), to send to each holder of record of MET
Holdings Stock immediately prior to the Effective Time transmittal materials and
instructions for use in exchanging such certificates of MET Holdings Stock
(other than Dissenting Shares) for new certificates representing shares of
TeleBanc Stock. Certificates of TeleBanc Stock, any checks for amounts due in
respect of fractional shares and any dividends that a holder may be entitled to
receive after the Effective Time shall be paid by the Exchange Agent only after
the delivery to the Exchange Agent of such holder's certificates representing
all of such holder's shares of MET Holdings Stock. No interest shall be paid on
any amounts due in respect of fractional shares or dividends.
Until surrendered, certificates formerly representing shares of MET
Holdings Stock (other than Dissenting Shares) will be deemed for all corporate
purposes to evidence the number of whole shares of TeleBanc Stock that a holder
would be entitled to receive upon surrender and the amount to paid in respect of
fractional shares.
MET HOLDINGS STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES UNTIL
THEY HAVE RECEIVED TRANSMITTAL MATERIALS AND INSTRUCTIONS FROM THE EXCHANGE
AGENT. MET HOLDINGS STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE
ENCLOSED PROXY.
Termination
The Agreement may be terminated:
(1) By mutual written agreement of TeleBanc and MET Holdings;
(2) By any party under any one or more of the following
circumstances, provided that there does not then exist any
default under the Agreement (a "Default") by the party giving
such notice:
(a) at any time after March 31, 1997, if the Closing
shall not have occurred for any reason other than a
Default by the party giving such notice;
(b) this Agreement is not approved by the requisite vote
of the stockholders of MET Holdings or TeleBanc and
the Amendment is not approved by the requisite vote
of the stockholders of TeleBanc;
(c) any application for regulatory approval is denied or
withdrawn and is not modified or supplemented and
resubmitted in a manner that the party giving the
notice believes is responsive to the comments of the
applicable governmental authority within 90 days
after it is so denied or withdrawn; and
(d) a court or other governmental authority of competent
jurisdiction shall have issued an order, writ,
injunction or decree or shall have taken any other
action permanently restraining or otherwise
prohibiting the Merger and such order, writ,
injunction, decree or other action shall have become
final and nonappealable.
(3) By TeleBanc under any one or more of the following
circumstances, provided that there does not then exist any
Default by TeleBanc:
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(a) at any time if there shall have occurred a Default by
MET Holdings;
(b) on the Closing Date, if specified closing conditions
not have been satisfied; and
(c) at any time if a material adverse change in the
business, financial condition, operating results or
prospects of MET Holdings and the MET Holdings
subsidiaries taken as a whole (a "Material Adverse
Change in MET Holdings") has occurred.
(4) By MET Holdings under any one or more of the following
circumstances, provided that there does not then exist any
Default by MET Holdings:
(a) at any time if there shall have occurred a Default by
TeleBanc;
(b) on the Closing Date, if specified closing conditions
have not been satisfied; and
(c) at any time if a material adverse change in the
business, financial condition, operating results or
prospects of TeleBanc and the TeleBanc subsidiaries
taken as a whole (a "Material Adverse Change in
TeleBanc") has occurred.
BACKGROUND OF THE MERGER
In 1989, MET Holdings purchased the Bank. TeleBanc was organized by MET
Holdings, to become, in March 1994, the direct savings and loan holding company
of the Bank and to facilitate the Offering in order to raise capital for
investment in the Bank. The primary business of TeleBanc is the business of the
Bank.
In light of MET Holdings' activities related to the organization of the
Funds, and the expansion of the Bank's activities to include loan servicing for
others, the Independent Directors of TeleBanc believed that there were both a
number of synergies among the operations of MET Holdings and TeleBanc, as well
as various potential conflicts of interest arising out of both the activities of
MET Holdings and its significant ownership and management positions in TeleBanc.
Although the directors of TeleBanc could not necessarily eliminate the potential
conflicts of interest, they felt that TeleBanc would be in a better position to
manage those conflicts, as well as provide for the combined companies to profit
from such opportunities, if MET Holdings and TeleBanc were merged. Commencing in
the third quarter of 1995, management of MET Holdings (which includes the senior
management of TeleBanc and the Bank), began discussing various merger strategies
and valuations with the Independent Directors of TeleBanc. These discussions
included not only valuation issues, but structural and conflict issues as well.
Upon negotiation of definitive documentation with respect to the
Merger, the MET Holdings Board approved by unanimous consent the terms of the
Merger. The MET Holdings Board of Directors concluded that the Merger presented
MET Holdings' stockholders enhanced value for a variety of reasons including
improved liquidity and potential for stock price appreciation. Although MET
Holdings' Board of Directors did not seek independent financial advice as to the
fairness of the Merger, the MET Holdings Board believes, based on its review of
the external financial evaluations, that the Merger is fair.
On May 10, 1996, the MET Holdings Board of Directors approved the
Agreement in its then current form, subject to certain technical changes, all of
which were made prior to execution on May 10, 1996.
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RECOMMENDATION OF THE BOARD OF DIRECTORS OF MET HOLDINGS; REASONS FOR THE MERGER
THE BOARD OF DIRECTORS OF MET HOLDINGS HAS UNANIMOUSLY APPROVED THE
AGREEMENT AND THE MERGER PROVIDED FOR THEREIN AND RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE AGREEMENT AND THE MERGER.
In reaching its decision to approve the Agreement and the Merger
provided for therein and to recommend that the MET Holdings stockholders vote to
approve such Agreement and Merger, and in reaching its conclusion that the
Agreement and the Merger are fair to and in the best interests of MET Holdings
and its stockholders, the MET Holdings Board of Directors considered the
following material factors:
(i) The MET Holdings Board of Directors' familiarity
with, and review of MET Holdings' business, financial
condition, results of operations and prospects,
including, but not limited to, MET Holdings'
potential growth, development, productivity and
profitability and the business risks associated
therewith. Based on its consideration of these
factors, the MET Holdings Board of Directors
concluded that synergies available from a combination
with TeleBanc on the terms contemplated would enhance
MET Holdings'prospects and potential growth by
improving its financial condition and results of
operations, and that, in light of the characteristics
of TeleBanc, the business risks associated with the
transaction and combined operations were outweighed
by the potential benefits therefrom.
(ii) The potential for appreciation and growth in the
market and book value of TeleBanc Stock following the
proposed Merger. Based on its judgment that the
Merger would result in substantial synergies, the MET
Holdings Board of Directors concluded that the
proposed Merger would enhance the potential for
appreciation in the value of TeleBanc Stock and,
therefore, would benefit the former MET Holdings
stockholders.
(iii) The financial and other significant terms of the
proposed Merger, including the terms and conditions
of the Agreement.
The MET Holdings Board of Directors did not find it practicable to, and
did not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination.
For a discussion of the interests of certain directors and executive
officers of MET Holdings in the Merger, see "--Interests of Certain Persons in
the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of MET
Holdings and TeleBanc with respect to the Merger, holders of MET Holdings Stock
and TeleBanc Stock should be aware that certain members of MET Holdings'
management, some of whom are members of the Board of Directors of MET Holdings
and TeleBanc, and the members of the Boards of Directors have certain interests
in the Merger, in addition to those of the MET Holdings and TeleBanc
stockholders generally. The Board of Directors of MET Holdings and the
Independent Directors of TeleBanc were aware of these interests when they
considered and approved the Merger and the Agreement.
As of September 30, 1996, David A. Smilow and his affiliates
beneficially owned (including currently exercisable options) 5,427.5 shares
(54.7%) of the Class A Common Stock, 2,711 shares (42.5%) of the Class B Common
Stock and 2,832 shares (56.6%) of Class B Serial Preferred Stock of MET
Holdings. As of September 30, 1996, Mitchell H. Caplan and his affiliates
beneficially owned (including currently exercisable options) 987 shares (9.9%)
of the Class A Common Stock, 1,051
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shares (16.5%) of the Class B Common Stock and 1,079 shares (21.6%) of Class B
Serial Preferred Stock of MET Holdings.
There are no employment, termination, severance, resignation, change of
control or similar arrangements or payments which will result in benefit to
members of MET Holdings management as a consequence of the Merger.
William M. Daugherty is the co-chairman and portfolio manager of AG
Arbor and a director of Arbor. It is expected that he will continue to hold
those positions following the Merger. For a description of the benefits that Mr.
Daugherty will receive in connection with the Merger, see "-- General
Description of the Transaction."
RECOMMENDATION OF THE INDEPENDENT DIRECTORS OF TELEBANC; REASONS FOR THE MERGER
The Independent Directors have unanimously approved the Agreement and
the Merger provided for therein and recommend a vote FOR approval and adoption
of the Agreement and the Merger.
In reaching their decisions to approve the Agreement and the Merger
provided for therein and to recommend that the TeleBanc stockholders vote to
approve such Agreement and Merger, and in reaching their conclusions that the
Agreement and the Merger are fair to, and in the best interests of, TeleBanc and
its stockholders, the Independent Directors considered materials provided by
their financial advisor, Corporate Finance of Washington, Inc, ("Corporate
Finance"), and the following material factors:
(a) The Board's knowledge of the business, operations,
assets, book value, financial condition, operating
results, including financial characteristics such as
net worth, earnings, deposits, assets and financial
ratios, and prospects of TeleBanc and MET Holdings.
Based on its consideration of these factors, the
Independent Directors concluded that the business and
operations of the two entities are compatible and
present the potential for substantial synergies, and
that combining the expertise and resources would
present greater prospects for growth and success than
TeleBanc alone, absent the Merger. The Board also
believes that within the foregoing context, the
Merger will help TeleBanc manage potential conflicts
of interest.
(b) Presentations by TeleBanc's management with respect
to TeleBanc and MET Holdings. The Independent
Directors concluded that such presentations are
consistent with the Independent Directors'
conclusions relating to the potential synergies
available from the Merger, competitive conditions and
the market niche available to the merged entity.
(c) The terms of the Agreement, which were the product of
arms' length negotiations and which, the Independent
Directors concluded, are fair to TeleBanc and its
stockholders.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Independent Directors did not find it practicable
to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching their determinations.
For a discussion of the interests of certain directors and executive
officers of TeleBanc in the Merger, see "--Interests of Certain Persons in the
Merger."
OPINION OF FINANCIAL ADVISOR
Corporate Finance has been retained by the Independent Directors of the
Board of TeleBanc as its financial advisor to evaluate and opine from a
financial point of view on the fairness of the Agreement. The Independent
Directors of TeleBanc selected Corporate Finance on the basis of its in depth
knowledge of the financial industry, the qualifications and
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experience of its personnel, and its experience in the valuation of financial
service companies in connection with mergers and acquisitions and other
corporate transactions.
On May 10, 1996, the Independent Directors voted to approve the
Agreement and the Merger provided for therein and to execute the Agreement,
after having an opportunity to review the terms and conditions as well as
appraisals from Corporate Finance which supported their conclusion that the
terms of the Agreement were fair to the holders of TeleBanc Stock from a
financial point of view. Corporate Finance delivered its opinion on October 4,
1996, which included consideration of the related acquisition of the Remaining
Arbor Stock. One of the conditions to TeleBanc's obligations to consumate the
transactions contemplated by the Agreement is that TeleBanc shall receive an
update of such opinion dated within 5 business days of the Closing Date.
THE FULL TEXT OF CORPORATE FINANCE'S OPINION IS ATTACHED AS ANNEX C TO
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF THE FAIRNESS OPINION SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO ANNEX C. HOLDERS OF TELEBANC STOCK ARE URGED TO READ
THE OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS OF THE REVIEW UNDERTAKEN
BY CORPORATE FINANCE IN CONNECTION THEREWITH. CORPORATE FINANCE'S OPINION IS
DIRECTED SOLELY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE TERMS OF
THE AGREEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION TO THE BOARD OF DIRECTORS
OR TO THE HOLDERS OF TELEBANC STOCK WITH RESPECT TO ANY VOTE AT THE MEETING.
In connection with providing its opinion, Corporate Finance examined
and relied upon, among other things, the Agreement and related agreements,
schedules and exhibits, annual reports to shareholders, proxy statements and
related audited and unaudited financial data for TeleBanc, MET Holdings, and
Arbor for the three fiscal years ended December 31, 1993, 1994, and 1995,
certain interim financial reports for TeleBanc, MET Holdings, and Arbor for the
quarters ended March 31, 1996 and June 30, 1996, certain other financial
information for TeleBanc, MET Holdings, and Arbor, including pro forma financial
statements and managements' estimates relating to, among other things, earnings,
asset quality and capital. Corporate Finance conducted discussions with
executive management of TeleBanc, MET Holdings, and Arbor concerning historical
financial performance and condition, general economic conditions, and future
business prospects and financial forecasts. Corporate Finance reviewed stock
market prices and trading activity for the TeleBanc Stock. Corporate Finance
also reviewed comparable financial, operating and market data for the banking
and financial services industries and selected peer groups, and considered such
additional financial and other information it deemed relevant.
In preparing its opinion, Corporate Finance relied upon the accuracy,
completeness and fair presentation of all information supplied or otherwise made
available to it by, or on behalf of, TeleBanc, MET Holdings and Arbor. Corporate
Finance did not independently verify such information or undertake an
independent evaluation or appraisal of the assets or liabilities of TeleBanc,
MET Holdings or Arbor, nor were they furnished any such evaluations or
appraisals. Corporate Finance's opinion was based upon the information available
to it and the market, economic and other conditions as they existed, and could
be evaluated, as of the date of its opinion.
In connection with providing its fairness opinion to the Board of
Directors of TeleBanc, Corporate Finance performed a valuation of each of the
companies involved and a variety of analyses. The following is a summary of the
material terms of such analyses but does not purport to be a complete
description of Corporate Finance's analyses or presentations to the Board of
Directors. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analyses or
summary description. Corporate Finance believes that its analyses must be
considered as a whole and that selecting portions of such analyses and the
factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the processes underlying Corporate
Finance's opinion.
In performing its analyses, Corporate Finance made numerous assumptions
with respect to industry performance, business and economic conditions and
various other matters, many of which
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may be more or less favorable than actual results. Estimates of values of
companies do not purport to be appraisals or necessarily reflect the prices at
which companies or their securities may be actually sold. No company or
transaction utilized by Corporate Finance was identical to TeleBanc, MET
Holdings, or Arbor or the terms of the Agreement. Because such estimates are
inherently subject to uncertainty, Corporate Finance assumes no responsibility
for their accuracy.
STOCK TRADING HISTORY
Corporate Finance examined the history of trading prices for TeleBanc
Stock for the period from April 1, 1995 to April 30, 1996. During the twelve
months ending March 31, 1996, a total of 129,600 shares traded on a total of 35
days with trades ranging from $5.00 to $8.00. During March and April 1996, a
total of 26,800 shares traded at $8.00. The infrequency of transactions suggests
in part that the public price reflects market illiquidity.
Given that both MET Holdings and Arbor are privately held, Corporate
Finance did not perform a review of the trading history of the capital stock of
these entities.
COMPARABLE COMPANY ANALYSIS
MET Holdings' primary assets consist of Arbor and TeleBanc. In
preparing its merger fairness analysis, Corporate Finance prepared separate
valuations of each company.
In its analysis of Arbor, Corporate Finance considered both the
broker-dealer activity and the investment management activity of Arbor. The
broker-dealer activity had a stated stockholders' equity of $895,407 at March
31, 1996. In its analysis of Arbor's investment management activity, Corporate
Finance used an unpublished compilation of investment management company
transactions by Bernstein Research, a division of Sanford C. Bernstein & Co.,
Inc. ("Bernstein"). Bernstein had listed the prices paid (payment terms
undefined) to acquire 90 money management companies from 1987 through the first
quarter of 1996. Transaction prices from 1985 through the first quarter of 1996
were compared to available information regarding the assets and revenues of the
acquired companies. Corporate Finance found that the median price to assets
under management was 1.7% and the median price to revenue was 3.9 times. Using
the above median values and approximately $75 million of assets under the
management of AG Arbor, Arbor's imputed value with respect to its investment
management activity was $1.275 million based on assets under management and
$2.925 million based on revenue to be derived from these assets under
management, for an average investment company value of $2.100 million, and a
total enterprise value of $2.995 million.
In its analysis of TeleBanc, Corporate Finance selected twelve Virginia
thrifts listed by Scott and Stringfellow in its then latest Bank and Thrift
Quarterly for December 1995. This study was based on March 13, 1996 quotations
and December 1995 financial reports. These thrifts ranged in assets from $97
million to $1.1 billion with median assets of $569 million compared to $581
million for TeleBanc as of March 31, 1996. The median daily volume was 5,682
shares, which is not dissimilar to the average daily volume of 5,900 shares for
TeleBanc. The median shares outstanding was 2.75 million compared to 2.05
million for TeleBanc.
TeleBanc reported a price/earnings ratio of 8.3, median price/net
assets of 0.80 and a return on equity of 9.56% based on 1996 annualized results;
the Virginia thrifts had a median price/earnings ratio of 12.4, median price/net
assets of 1.48 and a return on equity of 7.98%. The median dividend for the
Virginia thrifts was 1.89% whereas TeleBanc paid no dividends. Using these
market comparisons, Corporate Finance determined that TeleBanc's fully diluted
fair market value was $9.49 per share compared to its actual public trading
price of about $8 per share during the first half of 1996.
In considering the fairness of the $8.28 per share implicit exchange
ratio to be employed in this merger, a discount from enterprise value was noted
because most of the shares of TeleBanc Stock issued in the Merger would be
subject to an approximately four-year escrow period under the terms of the
Agreement. In this case, the $8.28 per
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share implicit exchange ratio represented a discount of only 12.8% from the
enterprise value of $9.49.
IMPACT ANALYSIS
Corporate Finance prepared a dilution analysis showing the percentage
of dilution of both book value per share and earnings per share as of March 31,
1996. Core earnings were estimated for the twelve months ended December 31,
1996. The analysis showed that after the issuance of shares in the Merger
including all escrow shares, that the book value per share would be diluted by
1.1% whereas core earnings per share could increase by 43.7%.
DILUTION AND ENHANCEMENT ANALYSIS
In reaching its opinion of fairness, Corporate Finance analyzed the
effect of the Merger upon net tangible assets and core earnings both with
respect to the shares of TeleBanc Stock to be issued in the Merger which will
not be held in escrow and with respect to the shares of TeleBanc Stock which
will be held in escrow and released in approximately four years' time after all
of the respective requirements with respect to such escrow shares are satisfied.
These calculations showed an initial dilution of TeleBanc's assets per share of
0.79% and an enhancement of core earnings per share of 4.05%. Assuming the
satisfaction of all of the respective requirements with respect to the escrow
shares within approximately four years, tangible assets per share would be
diluted by 1.07% while core earnings per share could be enhanced by as much as
43.7%.
CONDITIONS TO THE MERGER
The Merger will occur only if (A) the Agreement and the Merger provided
for therein are approved by (a) the affirmative vote, in person or by proxy, of
the holders of at least three-fourths of the outstanding shares of the Class A
Common Stock of MET Holdings and the holders of two-thirds of the outstanding
shares of the Class B Serial Preferred Stock of MET Holdings, voting as separate
classes, and (b) the affirmative vote, in person or by proxy, of at least (i)
the holders of 80% of the total number of outstanding shares of TeleBanc Stock
and (ii) the holders of at least two-thirds of the voting power of the
outstanding shares of TeleBanc Stock, excluding for the purposes of calculating
the affirmative vote and the total number of outstanding shares of TeleBanc
Stock under clause (ii) all outstanding shares of TeleBanc Stock of which the
beneficial owner is an Interested Shareholder involved in the Merger or any
affiliate or associate of such Interested Shareholder, and (B) the Amendment is
approved by the affirmative vote, in person or by proxy, of the holders of at
least a majority of the TeleBanc Stock entitled to vote at the TeleBanc Special
Meeting.
Section 8.01(4) of TeleBanc's Indenture provides that TeleBanc shall
not merge with another company unless, among other things, the ratio of the
surviving corporation's Consolidated Tangible Net Worth to Consolidated Assets
(as defined) will not be less than 5%. At the present time, this condition is
not satisfied. Unrelated to the Merger, TeleBanc presently is exploring
alternatives to raise capital, including possibly the sale of additional
TeleBanc capital stock. Although no definitive plans have been made, TeleBanc
may seek to raise up to $50.0 million, primarily for investment in the Bank. If
such action is not taken prior to the Closing Date or if such action does not
raise sufficient capital to meet the 5% requirement, TeleBanc will seek to
obtain the consent of a majority of the holders of the Notes. There can be no
assurance that such consent, if sought, will be obtained.
The Merger is also subject to the satisfaction of certain other
conditions on or before the Closing Date, including the following:
(a) The Agreement shall not have been terminated in accordance
with its terms.
(b) The representations and warranties of MET Holdings contained
in the Agreement shall be true, correct and complete in all
material respects when made on the date of the Agreement and
on the Closing Date.
(c) Except for such consents, approvals, permits and other
authorizations that, if not obtained, would not, individually
or in the aggregate, have a material adverse effect
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on the business, financial condition, results of operations or
prospects of MET Holdings and each MET Holdings subsidiary,
taken as a whole, MET Holdings shall have obtained (i) the
consent or approval of other persons in connection with any
lease, agreement or other arrangement, the benefits of which
cannot be retained upon consummation of the transactions
contemplated hereby without such consent or approval, (ii) all
permits or other authorizations other than regulatory
approvals required to consummate the transactions contemplated
hereby, and (iii) from each of the holders of the Promissory
Notes, a waiver of the right of repayment set forth in Section
6 of its respective Promissory Note.
(d) TeleBanc shall have received from Corporate Finance, or such
other financial adviser as TeleBanc may select, an update of
its opinion dated within five business days before the Closing
Date, concluding that, in such financial adviser's opinion,
the Merger consideration is fair, from a financial point of
view, to TeleBanc and its stockholders (other than MET
Holdings).
(e) As of the Closing Date, there shall have been no Material
Adverse Change in MET Holdings from that which was represented
and warranted on the date of the Agreement pursuant to the
Agreement.
(f) TeleBanc shall have received the tax opinion. The tax opinion
shall have been obtained without the imposition of any
condition that is materially burdensome to TeleBanc. The tax
opinion shall remain in full force and effect and all
conditions and requirements set forth therein that are
required to be satisfied on or before the Closing Date shall
have been satisfied or properly waived.
(g) MET Holdings shall have in all material respects performed all
obligations and agreements and complied with all covenants
contained in this Agreement to be performed and complied with
by MET Holdings on or prior to the Closing Date. There shall
not exist a Default or matter that, with notice and/or passage
of time, would constitute a Default by MET Holdings under the
Agreement.
(h) The representations and warranties of TeleBanc contained in
the Agreement shall be true, correct and complete in all
material respects when made on the date of the Agreement and
as of the Closing Date.
(i) As of the Closing Date, there shall have been no Material
Adverse Change in TeleBanc from that which was represented and
warranted on the date of the Agreement pursuant to the
Agreement.
(j) TeleBanc shall have in all material respects performed all
obligations and agreements and complied with all covenants
contained in the Agreement to be performed and complied with
by TeleBanc on or prior to the Closing Date. There shall not
exist a Default or matter that, with notice and/or passage of
time, would constitute a Default by TeleBanc under the
Agreement.
(k) TeleBanc, MET Holdings and Daugherty shall have entered into
the Stock Exchange Agreement.
(l) Immediately prior to the Effective Time, the Daugherty Option
shall have been exercised in full.
Any of the conditions summarized above may be waived by the appropriate
party in its discretion.
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INTENTIONS AND UNDERTAKINGS
The directors of MET Holdings have indicated that they intend to vote
the shares of MET Holdings Stock which they beneficially own in favor of
approval and adoption of the Agreement and the Merger. The directors of TeleBanc
have indicated that they intend to vote the shares of TeleBanc Stock which they
beneficially own in favor of approval and adoption of the Agreement and the
Merger and approval of the Amendment. The directors of MET Holdings also have
indicated that they intend to vote the shares of TeleBanc Stock owned by MET
Holdings in favor of approval and adoption of the Agreement and the Merger and
approval of the Amendment.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income
tax consequences of the Merger to MET Holdings, MET Holdings stockholders,
TeleBanc and TeleBanc stockholders. It does not purport to be a complete
analysis or listing of all potential tax considerations or consequences relevant
to the decision of whether or not to vote for the approval of the Merger. With
respect to federal income tax consequences, the discussion does not address all
aspects of federal income taxation that may be applicable to a party and does
not address the consequences of the Merger to parties subject to special federal
income tax treatment, including without limitation foreign persons, tax-exempt
entities, retirement plans and dealers in securities. Each stockholder's
individual circumstances may affect the tax consequences of the Merger to such
stockholder. In addition, no information is provided herein with respect to the
consequences under state, local or foreign tax laws, or under any federal tax
laws other than those pertaining to federal income tax. Consequently, each
stockholder is urged to consult such stockholder's own tax advisor to determine
the specific tax consequences of the Merger to such stockholder.
MET Holdings and TeleBanc will receive an opinion of Arthur Andersen
LLP, tax advisors to MET Holdings and TeleBanc, which will assume that the
Merger will occur in accordance with the Agreement and will be based upon
certain representations made by MET Holdings and TeleBanc representatives to the
effect that for federal income tax purposes (a) the transfer of all of the
assets of MET Holdings to TeleBanc, and the assumption by TeleBanc of the
liabilities of MET Holdings pursuant to the terms of the Agreement, will
constitute a reorganization within the meaning of Internal Revenue Code ("IRC")
Section 368(a)(1)(A), and MET Holdings and TeleBanc will both be a "party to the
reorganization" within the meaning of IRC Section 368(b); (b) no gain or loss
will be recognized by MET Holdings stockholders on the conversion of MET
Holdings Stock solely into shares of TeleBanc Stock, and no gain or loss will be
recognized by TeleBanc upon the receipt by TeleBanc of the assets of MET
Holdings in exchange for shares of TeleBanc Stock and the assumption by TeleBanc
of the liabilities of MET Holdings; (c) the basis of the shares of TeleBanc
Stock received by a MET Holdings stockholder will be the same as the basis of
the shares of MET Holdings Stock which were converted into TeleBanc Stock
pursuant to the Merger, and the holding period of shares of TeleBanc Stock
received by a MET Holdings stockholder will include the period during which he
or she held the shares of MET Holdings Stock which were converted into TeleBanc
Stock pursuant to the Merger, provided that the MET Holdings Stock is held as a
capital asset by the MET Holdings stockholder on the date the Merger is
consummated (the "Effective Date"); (d) the basis of each asset of MET Holdings
in the hands of TeleBanc will be the same as the basis of such asset in the
hands of MET Holdings immediately prior to the Merger, and the holding period of
each such asset in the hands of TeleBanc will include the periods during which
such asset was held by MET Holdings; (e) no gain or loss will be recognized by
the TeleBanc stockholders as a result of the transactions contemplated by the
Agreement; (f) where cash is received by a MET Holdings stockholder in lieu of a
fractional share of TeleBanc Stock to which the stockholder may be entitled,
such cash will be treated as received by such stockholder as a distribution in
redemption of his fractional share interest; and (g) the accumulated earnings
and profits of MET Holdings on the Effective Date will be added to the
accumulated earnings and profits of TeleBanc and will be available for
subsequent distributions of dividends within the meaning of IRC Section 316.
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The opinion of Arthur Andersen LLP will be based on the IRC, the U.S.
Treasury regulations promulgated thereunder, the administrative interpretations
thereof and the judicial decisions with respect thereto, all as in effect as of
the date of the opinion, on the assumption that the Merger takes place as
described in the Agreement, and on certain representations to be provided by
representatives of both MET Holdings and TeleBanc regarding the satisfaction of
certain requirements to a reorganization within the meaning of IRC Section
368(a) (including the absence of any plan or intention by certain holders of MET
Holdings Stock to sell, exchange or otherwise dispose of shares of TeleBanc
Stock to be received by him or her in the Merger). Unlike a ruling from the
Internal Revenue Service (the "IRS"), an opinion is not binding on the IRS and
there can be no assurance that the IRS will not take a position contrary to one
or more of the positions reflected in such opinion or that such positions will
be upheld by the courts if challenged by the IRS.
The opinion does not apply to MET Holdings stockholders who dissent and
receive cash payment for their shares. Any gain or loss resulting from such cash
payments will be recognized by such dissenting stockholders for federal income
tax purposes. Such dissenting stockholders should consult their own tax counsel
with respect to the tax treatment of any recognized gain or loss.
MET Holdings and TeleBanc have not requested a ruling from the IRS on
the tax treatment of the Merger.
THE FOREGOING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO CERTAIN MET HOLDINGS AND TELEBANC STOCKHOLDERS AND
DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH
STOCKHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX
CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH
STOCKHOLDER. AS EACH STOCKHOLDER'S INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER, EACH STOCKHOLDER SHOULD CONSULT
SUCH STOCKHOLDER'S OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase. Under this method of
accounting, the minority interests in the historical book values of the assets
and liabilities of TeleBanc and Arbor will be adjusted to their fair values. The
purchase price will include only the shares of TeleBanc Stock (and cash paid in
lieu of fractional interests) transferred on the date the Merger is consummated.
Shares of TeleBanc Stock held in escrow (the Caplan/Smilow Escrow Shares, the
Stockholder Escrow Shares, the First Daugherty Escrow Shares and the Second
Daugherty Escrow Shares) will not be included in the purchase price because of
certain unresolved contingencies. When such contingencies are resolved, the
release of such shares to the members of the Caplan/Smilow Group, the former MET
Holdings stockholders and Mr. Daugherty, as applicable, will be accounted for as
additional purchase price effective on the dates such shares are released. As a
result, the fair value of the minority interests to be acquired is expected to
exceed the purchase price on the Merger consummation date; therefore, the Merger
will initially result in the creation of negative goodwill which will be applied
against the fair values of related long-term assets. The portion of the assets
and liabilities representing the ownership interests of MET Holdings in TeleBanc
and Arbor will continue to be carried at their historical book values in the
consolidated financial statements of TeleBanc. TeleBanc will include the
operations of MET Holdings and the impact of purchase method adjustments in its
consolidated statement of income beginning on the date the Merger is
consummated.
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FEDERAL SECURITIES LAW CONSEQUENCES
All TeleBanc Stock issued in connection with the Merger will be freely
transferable, except that any TeleBanc Stock received by persons who are deemed
to be "affiliates" (as such term is defined under the Securities Act) of MET
Holdings or TeleBanc prior to the Merger may be sold by them only in
transactions permitted by the resale provisions of Rule 145 under the Securities
Act with respect to persons who are or become affiliates of MET Holdings, or
Rule 144 under the Securities Act with respect to persons who are or become
affiliates of TeleBanc, or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of MET Holdings or TeleBanc generally
include individuals or entities that control, are controlled by, or are under
common control with, such party and may include certain officers and directors
of such party as well as principal stockholders of such party.
Affiliates may not sell their shares of TeleBanc Stock acquired in
connection with the Merger, except pursuant to an effective registration under
the Securities Act covering such shares or in compliance with Rule 145 (or Rule
144 under the Securities Act in the case of persons who become affiliates of
TeleBanc) or another applicable exemption from the registration requirements of
the Securities Act. In general, under Rule 145, for two years following the
Effective Date, an affiliate (together with certain related persons) would be
entitled to sell shares of TeleBanc Stock acquired in connection with the Merger
only through unsolicited "broker transactions" or in transactions directly with
a "market maker," as such terms as defined in Rule 144. Additionally, the number
of shares to be sold by an affiliate (together with certain related persons and
certain persons acting in concert) within any three-month period for purposes of
Rule 145 may not exceed the greater of 1% of the outstanding shares of TeleBanc
Stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would only remain available,
however, to affiliates if TeleBanc remained current in its informational filings
with the Commission under the Exchange Act. Two years after the Effective Date,
an affiliate would be able to sell such TeleBanc Stock without such manner of
sale or volume limitations provided that TeleBanc was current with its Exchange
Act informational filings and such affiliate was not then an affiliate of
TeleBanc. Three years after the Effective Date, an affiliate would be able to
sell such shares of TeleBanc Stock without any restrictions so long as such
affiliate had not been an affiliate of TeleBanc for at least three months prior
thereto.
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS OF MET HOLDINGS AND TELEBANC
TeleBanc is incorporated in the State of Delaware and the rights of
TeleBanc stockholders are governed by the DGCL and TeleBanc's Certificate of
Incorporation and Bylaws. MET Holdings is incorporated in the State of Delaware
and the rights of MET Holdings stockholders are governed by the DGCL and MET
Holdings' Certificate of Incorporation and Bylaws. Upon consummation of the
Merger, MET Holdings stockholders will become TeleBanc stockholders and their
rights will be governed by TeleBanc's Certificate of Incorporation and Bylaws
and will continue to be governed by the DGCL. The material differences between
the rights of TeleBanc stockholders and MET Holdings stockholders are summarized
below.
VOTING RIGHTS. MET Holdings' Certificate of Incorporation provides
generally that the entire voting power for the election of directors and for all
other purposes shall be vested exclusively in the holders of the Class A Common
Stock. Pursuant to MET Holdings' Certificate of Incorporation and Bylaws, each
share of Class A Common Stock is entitled to one vote, except that cumulative
voting rights may be exercised in the election of directors. The Certificate of
Incorporation provides that unless required by law, the holders of Class B
Common Stock are not entitled to vote and the holders of Class A Serial
Preferred Stock and Class B Serial Preferred Stock are entitled only to specific
limited voting rights. No shares of Class A Serial Preferred Stock are issued
and outstanding. For a description of the voting rights of MET Holdings'
stockholders applicable to the Merger, see "The MET Holdings Special
Meeting--Required Vote."
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TeleBanc's Certificate of Incorporation provides generally that each
outstanding share of TeleBanc Stock is entitled to one vote and that there shall
be no cumulative voting rights in the election of directors. TeleBanc's Bylaws
provide generally that each stockholder shall be entitled to one vote on each
matter for each share of TeleBanc's capital stock that has voting power and such
number of votes, including multiple or fractional votes, as may be provided by
resolution of the Board of Directors, for each share of serial preferred stock
entitled to vote. No shares of TeleBanc Preferred Stock are issued and
outstanding. For a description of the voting rights of TeleBanc's stockholders
applicable to the Merger, see "The TeleBanc Special Meeting--Required Vote."
MET Holdings' Certificate of Incorporation requires the consent of a
majority of the Board of Directors and the holders of at least three-fourths of
the Class A Common Stock to (i) amend the Certificate of Incorporation, (ii)
enter into any merger, consolidation or sale of all or substantially all of its
assets, (iii) register its securities under the Securities Act or otherwise
effect a public offering, (iv) acquire a majority interest in any other business
entity, (v) enter into certain agreements for direct or indirect payment to an
initial investor, (vi) acquire for value any capital stock of MET Holdings
except pro rata from all stockholders, or (vii) enter into any new line of
business. It also provides that approval by a majority of the Board of Directors
and two-thirds of the Class A Common Stock is required to (a) sell or dispose of
assets of MET Holdings which in the aggregate during any 12-month period exceed
10% of the total value of its assets or (b) to issue or sell any shares of
capital stock of MET Holdings.
TeleBanc's Bylaws provide generally that any matter brought before a
meeting of stockholders (other than the election of directors) shall be decided
by the affirmative vote of the majority of the votes cast on the matter and that
directors shall be elected by a plurality of the votes cast by shares entitled
to vote. For approval of amendments to TeleBanc's Certificate of Incorporation,
the Certificate of Incorporation requires the approval of at least a two-thirds
vote of the Board of Directors and a certain percentage of shares of the holders
of TeleBanc stock entitled to vote. See "Description of TeleBanc Stock--Delaware
Law and Certain Charter and Bylaw Provisions." In the event that stockholders
are entitled to vote on an amendment to the Bylaws, TeleBanc's Bylaws provide
that such amendment must be approved by two-thirds of the outstanding shares
entitled to vote generally in the election of directors, voting together as a
single class. A higher vote of stockholders is required in connection with
acquisitions of control and certain business combinations, and certain
stockholders are excluded from voting with respect to stockholder votes required
in connection with control share acquisitions and certain business combinations.
See "Description of TeleBanc Stock--Delaware Law and Certain Charter and Bylaw
Provisions."
SPECIAL MEETINGS. MET Holdings' Bylaws provide that special meetings of
stockholders may be called by a majority of the directors then in office, or by
the holders of more than 25% of MET Holdings' common stock or, within 30 days
after the occurrence of a vacancy on the Board of Directors, by any stockholder,
for the purpose of electing a new Board.
TeleBanc's Certificate of Incorporation provides that special meetings
of stockholders may be called only by the Chairman of the Board, a majority of
the Board of Directors or by a majority vote of the total votes eligible to be
voted by the stockholders.
STOCKHOLDER ACTION WITHOUT MEETING. MET Holdings' Bylaws permit
stockholder action without a meeting if such written consent is signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize such action at a meeting at which all
shares entitled to vote thereon were present and voted.
TeleBanc's Certificate of Incorporation and Bylaws permit stockholder
action by written consent only if such consent is unanimous.
STOCKHOLDER PROPOSALS AND NOMINATIONS. TeleBanc's Bylaws impose certain
restrictions on the nomination by stockholders of candidates for election to the
Board of Directors or proposals by stockholders of business to be acted upon at
an annual meeting of stockholders.
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PREFERRED STOCK. MET Holdings' Certificate of Incorporation sets forth
the terms, designations, powers, preferences and rights of the Class A Serial
Preferred Stock and Class B Serial Preferred Stock.
While TeleBanc's Certificate of Incorporation authorizes the Board of
Directors to issue preferred stock, no shares of TeleBanc Preferred Stock have
been issued. See "Description of TeleBanc Stock--Capital Stock."
LIQUIDATION OR DISSOLUTION. MET Holdings' Certificate of Incorporation
provides that in the event of liquidation, dissolution or winding up, holders of
Class A Common Stock, Class B Common Stock, Class A Serial Preferred Stock and
Class B Serial Preferred Stock share ratably in all of the assets of MET
Holdings available for distribution to stockholders.
TeleBanc's Certificate of Incorporation provides that in the event of
any liquidation, dissolution or winding up of TeleBanc -- after payment or
provision for payment of all debts and liabilities of TeleBanc (including all
deposits in the Bank and all accrued interest thereon) -- the holders of
TeleBanc Stock are entitled to receive all assets of TeleBanc available for
distribution. If TeleBanc Preferred Stock has been issued subsequently, the
holders thereof may have a priority over the holders of TeleBanc Stock.
DIRECTORS. MET Holdings' Certificate of Incorporation provides that the
Board of Directors shall consist of eight persons. MET Holdings' Board currently
consists of two directors, each of whom is elected for a one-year term.
TeleBanc's Certificate of Incorporation and Bylaws provide for not less
than six nor more than 15 directors, divided into three classes, with directors
in each class elected for three-year staggered terms. TeleBanc's Bylaws provide
that the number of directors shall be determined by resolution of the Board of
Directors. TeleBanc's Board currently consists of five directors, each of whom
is elected for a three-year term, and one vacancy. The TeleBanc Bylaws provide
that directors shall be elected by a plurality of the votes cast by the shares
entitled to vote. Pursuant to TeleBanc's Certificate of Incorporation, if
TeleBanc Preferred Stock is issued, directors elected by such stockholders might
not be classified. Certain provisions of TeleBanc's Certificate of Incorporation
would impede changes in majority control of the TeleBanc Board of Directors.
MET Holdings' Bylaws generally provide that any director may be removed
at any time, with or without cause, by the affirmative vote of the holders of a
majority of the stock of MET Holdings issued and outstanding and entitled to
vote, or by written consent.
TeleBanc's Certificate of Incorporation provides that a director may be
removed only for cause and then only by the affirmative vote of two-thirds of
the total shares eligible to vote at a duly constituted meeting of stockholders
called expressly for that purpose. It further requires at least 30 days' written
notice be provided to any director or directors whose removal is to be
considered at a stockholder meeting called for such purpose.
MET Holdings' Bylaws provide that any vacancy in the Board of Directors
may be filled by a vote of the directors then in office, and that upon any
vacancy, any stockholder may within 30 days of such event call a special meeting
of stockholders for the purpose of electing a new Board.
TeleBanc's Certificate of Incorporation and Bylaws provide that any
vacancy occurring in the Board of Directors, including a vacancy created by an
increase in the number of directors, shall be filled for the remainder of the
unexpired term by a majority vote of the directors then in office. TeleBanc's
Bylaws provide that unless excused by a resolution of the Board of Directors,
more than three consecutive absences from regular meetings of the Board of
Directors automatically constitutes a resignation.
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TeleBanc's Bylaws contain a provision which outlines the procedures
that must be followed to authorize a contract or a transaction in which an
officer or director has certain financial or other interests.
APPROVAL OF ACQUISITIONS OF CONTROL, CONTROL SHARES ACQUISITIONS AND
CRITERIA FOR EVALUATING CERTAIN OFFERS. TeleBanc's Certificate of Incorporation
contains provisions which address approval of acquisitions to acquire control,
control share acquisitions and criteria which the TeleBanc Board of Directors is
authorized to consider in evaluating certain offers. See "Description of
TeleBanc Stock--Delaware Law and Certain Charter and Bylaw Provisions." MET
Holdings' Certificate of Incorporation and Bylaws do not contain similar
provisions.
INDEMNIFICATION.
AMENDMENT TO CERTIFICATE OF INCORPORATION AND BYLAWS. MET Holdings'
Certificate of Incorporation requires the consent of a majority of the Board of
Directors and the holders of at least three-fourths of the Class A Common Stock
to amend the Certificate of Incorporation. MET Holdings' Bylaws require the
affirmative vote of the holders of three-fourths of the stock issued and
outstanding and entitled to vote thereon to amend its Bylaws.
TeleBanc's Certificate of Incorporation provides that amendments to the
Certificate of Incorporation must be approved by at least a two-thirds vote of
the Board of Directors and also by a certain percentage of the holders of the
shares of TeleBanc stock entitled to vote. See "Description of TeleBanc
Stock--Delaware Law and Certain Charter and Bylaw Provisions." Pursuant to
TeleBanc's Certificate of Incorporation and Bylaws, TeleBanc's Bylaws may be
amended by the Board of Directors, subject to the right of stockholders entitled
to vote with respect thereto. TeleBanc's Bylaws further provide that if
stockholders are entitled to vote on an amendment to the Bylaws, such amendment
must be approved by two-thirds of the total number of outstanding shares
entitled to vote generally in the election of directors, voting together as a
single class.
RIGHTS OF DISSENTING STOCKHOLDERS
Under Section 262 of the DGCL, a copy of which is included as Annex B
of this Proxy Statement/Prospectus, (i) each holder of MET Holdings Stock will
be entitled to dissent and demand an appraisal of the "fair value" of the MET
Holdings Stock held by such holder if, prior to the vote at the MET Holdings
Special Meeting, such MET Holdings stockholder files with MET Holdings a written
demand for appraisal, and (ii) each holder of TeleBanc Stock will be entitled to
dissent and demand an appraisal of the "fair value" of the TeleBanc Stock held
by such holder if, prior to the vote at the TeleBanc Special Meeting, such
TeleBanc stockholder files with TeleBanc a written demand for appraisal.
Within 10 days after the Effective Date, TeleBanc shall notify each
stockholder exercising appraisal rights in compliance with Section 262 of the
DGCL that the Merger has become effective. At any time within 60 days after the
Effective Date, any stockholder shall have the right to withdraw his or her
demand for appraisal and to accept the terms offered upon the Merger. A written
demand for appraisal should be sent to MET Holdings or TeleBanc at 1111 North
Highland Street, Arlington, Virginia 22201, Attn.: Aileen Lopez Pugh. Any MET
Holdings or TeleBanc stockholder who fails to comply with the requirements
described above will be bound by the terms of the Merger.
Within 120 days after the Effective Date, (i) TeleBanc or any MET
Holdings stockholder who has perfected his or her appraisal rights, may file a
petition in the Delaware Court of Chancery (the "Court") demanding a
determination of the value of the stock of all such stockholders, and at the
hearing on such petition, the Court shall determine the MET Holdings
stockholders who have complied with Section 262 and who have become entitled to
appraisal rights, and (ii) TeleBanc or any TeleBanc stockholder who has
perfected his or her appraisal rights, may file a petition in the Court
demanding a determination of the value of the stock of all such stockholders,
and at the hearing on such petition, the Court shall determine the TeleBanc
stockholders who have complied with Section
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262 and who have become entitled to appraisal rights. The Court may require the
stockholders to submit their certificates of stock, if any, to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Court may dismiss
the proceedings as to such stockholder.
After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares as to their fair value. In determining such fair
value, the Court shall take into account all relevant factors. The Court shall
direct the payment of the fair value of the shares, together with interest, if
any, by TeleBanc to the stockholders entitled thereto. The costs of the
proceeding may be determined by the Court and assessed against either TeleBanc
or the stockholders, or both.
The foregoing summary of the rights of stockholders requesting
appraisal contains material information relating to the exercise of appraisal
rights but does not purport to be a complete statement of the procedures to be
followed by MET Holdings stockholders or TeleBanc stockholders desiring to
exercise their rights of appraisal. The preservation and exercise of appraisal
rights are conditioned on strict adherence to the applicable provisions of
Section 262 of the DGCL. Each MET Holdings stockholder or TeleBanc stockholder
desiring to exercise appraisal rights should refer to Section 262 of the DGCL
for a complete statement of the stockholder's rights and the steps which must be
followed in connection with the exercise of those rights.
For further information relating to the exercise of appraisal rights,
see Annex B to this Proxy Statement/Prospectus.
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AMENDMENT OF TELEBANC'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF TELEBANC CAPITAL STOCK
TeleBanc's Certificate of Incorporation currently provides that the
total number of shares of all classes of stock that TeleBanc has the authority
to issue is 4,000,000 shares, consisting of 500,000 shares of serial preferred
stock, par value $0.01 per share (the TeleBanc Preferred Stock) and 3,500,000
shares of common stock, par value $0.01 per share (the TeleBanc Stock). The
proposed amendment to TeleBanc's Certificate of Incorporation (the Amendment) is
to increase the number of authorized shares of TeleBanc capital stock from
4,000,000 to 10,000,000. Such increase will be effected by amending the first
sentence of Section 4.1 of TeleBanc's Certificate of Incorporation to read as
follows:
"The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 10,000,000 shares, of
which 5,000,000 shares shall be serial preferred stock, having a par
value of $0.01 per share ("Preferred Stock"), and 5,000,000 shall be
classified as shares of common stock, having a par value of $0.01 per
share ("Common Stock")."
Of the 3,500,000 presently authorized shares of TeleBanc Stock,
2,049,500 shares were issued and outstanding on September 30, 1996, and 352,250
shares and 345,000 shares, respectively, were reserved for issuance with respect
to TeleBanc Stock Options and Warrants. Accordingly, at September 30, 1996,
697,250 shares of authorized but not outstanding and unreserved shares of
TeleBanc Stock remained available for future issuance. No shares of TeleBanc
Preferred Stock have been issued.
If the Agreement and the Merger provided for therein and the Amendment
are approved, at the Effective Time, the 1,299,500 shares of TeleBanc Stock
currently owned by MET Holdings will be canceled and returned to the treasury of
TeleBanc. Also at the Effective Time, 2,482,330 shares of TeleBanc Stock will be
issued in connection with the Merger. Therefore, giving effect to the Merger, of
the 5,000,000 then authorized shares of TeleBanc Stock, 3,232,330 will be issued
and outstanding and 352,250 shares and 345,000 shares, respectively, will be
reserved for issuance with respect to TeleBanc Stock Options and Warrants.
Accordingly, after the Merger, 1,767,670 shares of authorized but not
outstanding and unreserved shares of TeleBanc Stock, and 5,000,000 shares of
TeleBanc Preferred Stock, will be available for future issuance.
Although TeleBanc has no present intention of issuing additional shares
of authorized but unissued and unreserved shares of TeleBanc capital stock other
than in connection with the Merger, TeleBanc Stock Options and presently
outstanding Warrants, the Board of Directors believes that the increased number
of authorized shares of TeleBanc capital stock will benefit TeleBanc by making a
sufficient number of shares available in the future for use in connection with
possible stock dividends or stock splits, the raising of additional capital
through a potential public offering or private placement, and possible future
mergers or acquisitions, under a cash dividend reinvestment and stock purchase
plan or under an employee stock ownership plan. The unissued and unreserved
shares of TeleBanc Stock and TeleBanc Preferred Stock will be available for
issuance for any proper corporate purpose, as authorized from time to time by
the Board of Directors, without further approval by the stockholders of
TeleBanc, except as otherwise required by law.
Unrelated to the Merger, TeleBanc presently is exploring alternatives
to raise capital, including possibly the sale of additional TeleBanc capital
stock. Although no definitive plans have been made, TeleBanc is seeking to raise
up to $50.0 million or more, primarily for investment in the operations of the
Bank.
TeleBanc stockholders do not have any preemptive or stock purchase
rights to purchase additional shares of TeleBanc Stock, whether now or hereafter
authorized. Further issuances of additional shares of TeleBanc Stock or
securities convertible into TeleBanc Stock, therefore, may have a dilutive
effect on existing stockholders.
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As a Delaware corporation, TeleBanc is taxed on its authorized capital
stock. In general, the annual franchise tax is $90 on the first 10,000 shares
and the further sum of $50 on each 10,000 shares or part thereof. Currently,
TeleBanc's annual franchise tax is $10,288. Increasing the number of authorized
shares of TeleBanc Stock to 10,000,000 will result in an annual franchise tax of
$65,040.
In the event of a proposed merger, tender offer or other attempt to
gain control of TeleBanc of which management does not approve, it might be
possible for the Board of Directors to authorize the issuance of shares of
TeleBanc Stock or TeleBanc Preferred Stock in a transaction that could have the
effect of frustrating or impeding such takeover attempt. The Board of Directors
has no current intention to issue authorized but unissued shares for such
purpose. The Board of Directors is not aware of any specific effort to
accumulate TeleBanc's capital stock in order to obtain control by means of a
merger, tender offer or otherwise.
THE INDEPENDENT DIRECTORS OF TELEBANC HAVE UNANIMOUSLY APPROVED THE
AMENDMENT AND RECOMMEND A VOTE FOR APPROVAL AND ADOPTION OF THE AMENDMENT.
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DESCRIPTION OF TELEBANC STOCK
CAPITAL STOCK
The authorized capital stock of TeleBanc consists of 3,500,000 shares
of TeleBanc Stock, par value $.01 per share (the TeleBanc Stock), and 500,000
shares of preferred stock, par value $.01 per share (the TeleBanc Preferred
Stock). At September 1, 1996, there were 2,049,500 shares of TeleBanc Stock
issued and outstanding, 1,299,500 of which were held of record by MET Holdings.
No shares of TeleBanc Preferred Stock have been issued. The aggregate par value
of the issued shares constitutes the capital account of TeleBanc on a
consolidated basis. The balance of the purchase price of TeleBanc Stock is
reflected as paid-in capital on a consolidated basis.
In the Merger, the 1,299,500 shares of TeleBanc Stock owned by MET
Holdings will be canceled and returned to the treasury of TeleBanc. Such shares
effectively will be reissued to the MET Holdings stockholders as part of the
conversion of the MET Holdings capital stock to TeleBanc Stock. Also as part of
the Merger, an additional 340,237 shares of TeleBanc Stock will be issued to
holders of MET Holdings capital stock.
The TeleBanc Stock represents non-withdrawable capital and is not of an
insurable type or insured by the FDIC.
Under Delaware law, the holders of TeleBanc Stock possess exclusive
voting power in TeleBanc. Each stockholder is entitled to one vote for each
share of TeleBanc Stock held on all matters voted upon. If TeleBanc issues
TeleBanc Preferred Stock, holders of the TeleBanc Preferred Stock may also
possess voting powers.
In the unlikely event of any liquidation or dissolution of TeleBanc,
the holders of TeleBanc Stock are entitled to receive -- after payment or
provision for payment of all debts and liabilities of TeleBanc (including all
deposits in the Bank and accrued interest thereon) -- all assets of TeleBanc
available for distribution, in cash or in kind. If TeleBanc Preferred Stock has
been issued subsequently, the holders thereof may have a priority over the
holders of TeleBanc Stock in the event of liquidation or dissolution.
Holders of TeleBanc Stock are not entitled to preemptive rights with
respect to any shares or other securities of TeleBanc which may be issued.
TeleBanc Stock is not subject to call for redemption and, upon receipt by
TeleBanc of the full purchase price therefor, each share of TeleBanc Stock is
duly authorized, fully paid and nonassessable.
The Board of Directors of TeleBanc is authorized to issue TeleBanc
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. TeleBanc Preferred Stock may rank prior to TeleBanc Stock as to
dividend rights, liquidation preferences or both, and may have full or limited,
multiple, fractional or no voting rights. The holders of TeleBanc Preferred
Stock are entitled to vote as a separate class or series under certain
circumstances, regardless of any other voting rights which such holders may
have.
Except in connection with TeleBanc Stock Options, the Warrants and the
Merger, TeleBanc has no present plans for the issuance of additional authorized
shares of TeleBanc Stock or for the issuance of any shares of TeleBanc Preferred
Stock, except as otherwise disclosed herein. In the future, the authorized but
unissued and unreserved shares of TeleBanc Stock will be available for general
corporate purposes including, but not limited to, possible issuance as stock
dividends or stock splits, the raising of additional capital through a public
offering or private placement, possible future mergers or acquisitions, under a
cash dividend reinvestment and stock purchase plan, or under an employee stock
ownership plan. The authorized but unissued shares of TeleBanc Preferred Stock
will be available for similar purposes. Except as described above or as
otherwise required to approve the transaction in which the additional authorized
shares of TeleBanc Stock or authorized shares of TeleBanc Preferred Stock
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would be issued, no stockholder approval is required for the issuance of these
shares. Accordingly, the Board of Directors of TeleBanc, without stockholder
approval, is able to issue TeleBanc Preferred Stock with voting rights which
could adversely affect the voting power of the holders of TeleBanc Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Directors. Certain provisions of TeleBanc's Certificate of
Incorporation and Bylaws will impede changes in majority control of the Board of
Directors. TeleBanc's Certificate of Incorporation and Bylaws provide that its
Board of Directors will be divided into three classes, with directors in each
class elected for three-year staggered terms. Thus, assuming a Board of six
directors as is currently the case, it would take two annual elections to
replace a majority of TeleBanc's Board. The Certificate of Incorporation
provides that the size of the Board of Directors may be increased or decreased
only by a two-thirds vote of the Board or by a vote of two-thirds of the shares
eligible to be voted at a duly constituted meeting of stockholders called for
such purpose. The Certificate of Incorporation and the Bylaws provide that any
vacancy occurring in the Board of Directors, including a vacancy created by an
increase in the number of directors, shall be filled for the remainder of the
unexpired term by a majority vote of the directors then in office. Finally, the
Bylaws impose certain restrictions on the nomination by stockholders of
candidates for election to the Board of Directors or the proposal by
stockholders of business to be acted upon at an annual meeting of stockholders.
The Certificate of Incorporation provides that a director may be
removed only for cause and then only by the affirmative vote of two-thirds of
the total shares eligible to vote at a duly constituted meeting of the
stockholders called expressly for that purpose. Furthermore, 30 days' written
notice must be provided to any director or directors whose removal is to be
considered at a stockholders' meeting called for such purpose.
Special Meetings. The Certificate of Incorporation provides that all
actions taken by the stockholders must be taken at an annual or special meeting
of stockholders or by unanimous written consent. It also provides that a special
meeting of stockholders may be called at any time by the Chairman of the Board,
a majority of the Board of Directors or by a majority vote of the total votes
eligible to be voted by the stockholders.
Authorization of TeleBanc Preferred Stock. TeleBanc is authorized to
issue TeleBanc Preferred Stock from time to time in one or more series subject
to applicable provisions of law. The Board of Directors, without stockholder
approval, is authorized to fix the designations, powers, preferences, and
relative, participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class), which
could adversely affect the voting power of the holders of TeleBanc Stock. In the
event of a proposed merger, tender offer or other attempt to gain control of
TeleBanc of which management does not approve, it might be possible for the
Board of Directors to authorize the issuance of a series of TeleBanc Preferred
Stock with rights and preferences that could impede the completion of such a
transaction. In addition, if the Board of Directors decides at some future date
to adopt and implement a share purchase rights plan, the Board of Directors
could authorize the issuance of a series of TeleBanc Preferred Stock in
connection with such plan. An effect of the possible issuance of TeleBanc
Preferred Stock, therefore, may be to deter a future takeover attempt. The Board
of Directors has no present plans or understandings for the issuance of any
TeleBanc Preferred Stock and does not intend to issue any TeleBanc Preferred
Stock except on terms which the Board deems to be in the best interest of
TeleBanc and its stockholders.
Approval of Acquisitions of Control. TeleBanc's Certificate of
Incorporation provides that no person may acquire 10% or more of TeleBanc's
voting stock without obtaining the prior approval of two-thirds of TeleBanc's
voting stock at a stockholder meeting called for such purpose and obtaining
prior federal and state regulatory approvals. These provisions do not apply to
the purchase of shares by underwriters in connection with a public offering or
by any employee stock purchase plan, pension
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plan, profit sharing plan or other employee benefit plan of TeleBanc or any of
its subsidiaries, or by MET Holdings or any successor thereto. Shares acquired
in excess of these limitations are not entitled to vote or take other
stockholder action or be counted in determining the total number of outstanding
shares of voting stock in connection with any matter involving stockholder
action. Such excess shares are also subject to transfer to a trustee (selected
by TeleBanc) for sale on the open market or otherwise, with the expenses of such
trustee to be paid out of the proceeds of such sale.
Limitation on Control Share Acquisitions. TeleBanc's Certificate of
Incorporation provides that any person who acquires shares of stock in TeleBanc
that would increase such person's voting power in TeleBanc above any of three
thresholds (20%, 33-1/3% or 50%) must receive the approval of the other
stockholders of TeleBanc (other than the interested shares) before such person
can vote that stock. The practical effect of this requirement is to condition
the acquisition of control of TeleBanc on the approval of a majority of the
pre-existing disinterested stockholders. In general, the provision requires the
person who acquires, or seeks to acquire, TeleBanc shares in excess of the three
thresholds to send a disclosure statement regarding the acquisition to TeleBanc
and provide for a special meeting of stockholders to vote on the proposal. It
also provides for appraisal rights for dissenting stockholders in the event the
proposal is approved. The purpose of the control share provision is to provide
stockholders with an opportunity to vote on an acquisition that may lead to or
result in a change of control. The control share provision does not affect the
terms an acquiring person must offer to the stockholders. Certain acquisitions
are exempt from these restrictions, including, but not limited to, acquisitions
that are (i) consummated before March 31, 1994, (ii) pursuant to satisfaction of
a pledge or other security interest, (iii) pursuant to a merger, plan of share
exchange or tender or exchange offer if TeleBanc is a party to an agreement
relating thereto, or (iv) by MET Holdings or any successor thereto. By providing
an opportunity for collective action by stockholders, however, the control share
provision should eliminate coercive multi-step offers and ensure that any
premium paid for control of TeleBanc is shared by all stockholders.
Amendment to Certificate of Incorporation and Bylaws. Amendments to
TeleBanc's Certificate of Incorporation must be approved by a two-thirds vote of
TeleBanc's Board of Directors and also by a majority of the shares of the
Company's outstanding stock entitled to vote, provided, however, that approval
by two-thirds of the outstanding stock entitled to vote is required for amending
certain provisions (relating to the board of directors; limitation on control
share acquisitions; call of special stockholder meetings; acquisitions of
control; criteria for evaluating certain offers; stockholder action without a
meeting; indemnification; and amendments to the Certificate of Incorporation);
provided, further, that approval by 80% of the outstanding stock entitled to
vote is required for amending the provisions which address the vote required for
certain business combinations. A majority of the Board of Directors may amend
the Bylaws.
Business Combination Provision. Under Section 203 of the DGCL, a
resident domestic corporation may not engage in a business combination with an
interested stockholder for a period of three years after the date such person
became an interested stockholder, unless (i) prior to such date the Board of
Directors approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in such person becoming an
interested stockholder, the interested stockholder owned at least 85% of the
corporation's voting stock outstanding at the time the transaction commenced
(excluding for determining the number of shares outstanding shares owned by (a)
persons who are directors and also officers and (b) employee stock plans, in
certain instances), or (iii) on or subsequent to such date, the business
combination is approved by the Board of Directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least two-thirds of the outstanding voting stock which is not owned
by the interested stockholder. Section 203 defines the term "business
combination" to encompass a wide variety of transactions with or caused by an
interested stockholder in which the interested stockholder receives or could
receive a benefit on other than a pro rata basis with other stockholders,
including certain mergers, consolidations, asset sales, transfers and other
transactions resulting in financial benefit to the interested stockholder.
"Interested stockholder" means a person who owns
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(or an affiliate or associate of the corporation who within three years prior,
did own) 15% or more of the corporation's outstanding voting stock, and the
affiliates and associates of such person.
In addition, the Certificate of Incorporation provides that certain
business combinations with interested stockholders or affiliates or associates
must be approved by (i) the holders of 80% of the shares of the voting stock and
(ii) the holders of two-thirds of the voting power of the outstanding shares of
the voting stock excluding with respect to clause (ii) all shares of the voting
stock owned by the interested stockholder or any affiliates or associates. The
higher vote is not required, however, when the business combination has been
approved by two-thirds of the continuing directors, provided that certain fair
price and procedure requirements are also met.
Criteria for Evaluating Certain Offers. TeleBanc's Certificate of
Incorporation authorizes the Board of Directors, when evaluating a tender or
exchange offer, merger, consolidation or certain acquisition proposals, to take
into account factors in addition to the potential economic benefits to the
stockholders, including, without limitation, the economic effects of acceptance
of the offer on depositors, borrowers and employees of the insured institution
subsidiary or subsidiaries of TeleBanc and on the communities in which such
subsidiary or subsidiaries operate or are located as well as on the ability of
such subsidiary or subsidiaries to fulfill the objective of an insured
institution under applicable federal statutes and regulations.
OTHER RESTRICTIONS ON THE ACQUISITION OF STOCK
Federal Law and Regulation. Federal law provides that no company,
"directly or indirectly or acting in concert with one or more persons, or
through one or more subsidiaries, or through one or more transactions," may
acquire "control" of a savings association at any time without the prior
approval of the OTS. In this context, the term "savings association" includes
any holding company thereof. In addition, any company that acquires such control
becomes a "savings and loan holding company" subject to registration,
examination and regulation as a savings and loan holding company. "Control" in
this context means ownership of, control of, or holding proxies representing
more than 25% of the voting shares of a savings association or the power to
control in any manner the election of a majority of the directors of such
institution.
Federal law also provides that no "person," acting directly or
indirectly or through or in concert with one or more persons, may acquire
"control" of a savings association unless at least 60 days' prior written notice
has been given to the OTS and the OTS has not objected to the proposed
acquisition. "Control" is defined for this purpose as the power, directly or
indirectly, to direct the management or policies of a savings association or to
vote more than 25% of any class of voting securities of a savings association.
Under federal law (as well as the regulations referred to below) the term
"savings association" includes state- and federally-chartered SAIF-insured
institutions, federally-chartered savings and loans and savings banks whose
accounts are insured by the FDIC and holding companies thereof.
Federal regulations require that, prior to obtaining control of an
insured institution, a person, other than a company, must give 60 days' notice
to the OTS and have received no OTS objection to such acquisition of control; a
company must apply for and receive OTS approval of the acquisition. Control, as
defined under federal law, involves a 25% voting stock test, control in any
manner of the election of a majority of the institution's directors, or a
determination by the OTS that the acquirer has the power to direct, or directly
or indirectly to exercise a controlling influence over, the management or
policies of the institution. Acquisition of more than 10% of an institution's
voting stock, if the acquirer also is subject to any one of either "control
factors," constitutes a rebuttable determination of control under the
regulations. The determination of control may be rebutted by submission to the
OTS, prior to the acquisition of stock or the occurrence of any other
circumstances giving rise to such determination, of a statement setting forth
facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
10% or more of any class of a savings association's stock after the effective
date of the regulations must file
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with the OTS a certification that the holder is not in control of such
institution, is not subject to a rebuttable determination of control and will
take no action which would result in a determination or rebuttable determination
of control without prior notice to or approval of the OTS, as applicable.
LIMITATION ON LIABILITY
As permitted under the DGCL, the Certificate of Incorporation provides
that no director of TeleBanc will be liable for monetary damages for any breach
of fiduciary duty as a director, except (i) for any breach of the director's
duty of loyalty to TeleBanc or its stockholders, (ii) for acts or omissions not
in good faith or involving intentional misconduct or a knowing violation of law,
(iii) for approval of certain unlawful dividends or stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. In appropriate circumstances, equitable remedies such
as an injunction or other forms of non-monetary relief would remain available
under Delaware Law.
TRANSFER AGENT AND REGISTRAR
Wilmington Trust Company is the transfer agent and registrar for the
TeleBanc Stock.
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DESCRIPTION OF MET HOLDINGS CORPORATION
GENERAL
MET Holdings is a privately held financial services holding company,
the activities of which relate primarily to mortgage securities, wholesale loan
acquisition, and fixed income management. Currently, MET Holdings has no direct
employees or operations other than holding its investment portfolio.
MET Holdings' primary assets are an approximately 64.3% interest in
TeleBanc, a $599.8 million savings bank holding company, and 80.3% ownership of
the common stock and 100% ownership of the preferred stock of Arbor, a National
Association of Securities Dealers, Inc. ("NASD") licensed broker-dealer and SEC
registered investment advisor. MET Holdings also has investments in a real
estate joint venture, Security National #6 LP ("Security National") and other
business interests including a portfolio of troubled loans (the Funds). The
primary business of MET Holdings is the business of TeleBanc and Arbor. TeleBanc
was organized by MET Holdings, to become, in March 1994, the parent savings and
loan holding company for the Bank, a federally chartered savings bank. Financial
and other data as of and for all periods prior to March 1994 represent MET
Holdings' 100% ownership of the Bank. At June 30, 1996, on an unconsolidated
basis (e.g., parent company only, and giving effect to equity in net assets of
subsidiary), MET Holdings had total assets of $17.9 million ($15.1 million of
which is equity in net assets of subsidiary) and liabilities of $2.5 million.
Arbor is an investment adviser and broker dealer specializing in
non-agency mortgage securities and whole loans. Arbor is registered under the
Investment Advisers Act of 1940 and is a member of the NASD. Arbor was
established in January 1993 by members of MET Holdings' management and acquired
by MET Holdings in December 1993. As MET Holdings did not acquire Arbor until
December 1993, no financial information is presented prior to January 1994. In
the past, Arbor derived its primary source of revenue from commissions on trades
brokered, rather than through taking direct positions in an investment. In 1995,
Arbor traded in excess of $2.0 billion of mortgage-backed securities (of which
approximately only $20 million was for the Bank). Arbor also offers to its
clients fixed income management expertise in both taxable and non-taxable
instruments as well as equity allocation services. Arbor presently employs two
securities traders.
In 1996, Arbor entered into a joint venture with Angelo, Gordon & Co.,
L.P. ("Angelo, Gordon"), a New York based money management firm, to form AG
Arbor Management L.L.C. (AG Arbor), a Delaware limited liability company. AG
Arbor serves as the managing general partner for two investment partnerships,
Spruce and AGEA (the Funds), and will manage a combined total of at least
approximately $75 million of non-performing and credit impaired mortgage
securities and whole loans. The final closing date of the Funds was July 1, 1996
(the "Final Closing Date"). Arbor and Angelo, Gordon and affiliates thereof
committed to invest through AG Arbor 10% of each Fund's total capital
commitments, subject to a maximum commitment of $2.5 million each for a total of
$5.0 million.
The principal objective and policy of the two Funds is to invest
primarily in non-performing and credit impaired mortgage loans on residential
properties (the "Targeted Investments"), either through the acquisition of whole
loans or acquisitions of pass-through securities consisting of interests in
pools of such loans and to dispose of these non-performing and credit-impaired
instruments at a value higher than that at which it was acquired. Each of the
Funds may also invest up to 10% of its net assets in other assets which the AG
Arbor believes share common characteristics with the Funds' primary investments.
AG Arbor is not permitted to make any new investments in the Funds
after the second anniversary of the Final Closing Date, except (1) pursuant to
binding commitments entered into prior to that date or (2) when such investment
is ancillary to an existing investment and, in the
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judgment of AG Arbor, it is advisable in order to preserve or enhance the value
of the existing investment or (3) pursuant to certain re-investment provisions.
The management of AG Arbor intends to focus on relatively small
packages of assets for the Funds. Typically a portfolio will be in the $1 to $10
million range, as the market for Targeted Investments tends to be fragmented.
The acquisition of portfolios of this size is ordinarily negotiated directly
with the seller, frequently on an exclusive basis and, given the paramount
importance of the due diligence process, it is critical to keep the number of
assets in each portfolio to a manageable size.
The ability to carry out due diligence on a package of loans and
securities efficiently and carefully is central to the Funds' investment
strategy. Thorough due diligence is always critical, but extensive due diligence
on non-performing and credit impaired single family mortgages is particularly
time consuming and labor intensive. Each investment requires a detailed analysis
of loan files and the underlying real estate. The analysis for each mortgage
includes a review of the legal documentation, payment history, current
collateral valuation, and the economic status of the borrower. The due diligence
information becomes the basis for servicing a portfolio post-acquisition. AG
Arbor contracted with AGT Mortgage Services, L.L.C. ("AGT"), a newly-formed
Delaware limited liability company, to service investments of the Funds. AGT is
a joint venture between the Bank and Angelo, Gordon.
In building a portfolio of Targeted Investments, AG Arbor intends to
diversify along several lines. First, the portfolio will maintain a substantial
degree of geographic diversity. No more than 10% of the "gross assets,"
including committed but undrawn capital, of the Funds may be located in an area
covered by a single zip code. Second, in terms of loan size, and subject to the
above restriction, no single mortgage loan may represent more than $1 million or
2% of the gross assets, of a Fund, whichever is greater. Third, AG Arbor will
seek to ensure that a Fund's assets have been originated by a variety of
mortgage lenders. Finally, AG Arbor will seek to purchase assets in different
stages of the process of default and foreclosure.
The Funds will employ leverage where feasible and to the extent
considered prudent by AG Arbor. In general, leverage is not expected to exceed
50% of the cost for the acquisition of investments. However, a Fund will have
the authority to borrow up to 75% of the acquisition cost. There is no assurance
that leverage will be available to a Fund at all or on attractive terms.
Distributions and allocations are as follows:
I. The limited partners and AG Arbor pro rata in proportion to
their respective capital contributions, until the cumulative
amount distributed to each of them is equal to the full amount
of their respective capital contributions to a Fund; and
II. Thereafter, 80% to the limited partners and AG Arbor, pro rata
in proportion to their respective capital contributions, and
20% to AG Arbor as a performance allocation.
Amounts allocated to the Funds, net of any expense and reserves to the
Funds, will be distributed ratably among the partners of the Funds in accordance
with the number of shares held by each investor.
Annual management fees equal to 2% per annum of the total capital
commitments called by AG Arbor will be payable by Spruce and AGEA to AG Arbor
quarterly in advance. After the two-year investment period, the 2% fee will not
apply to capital contributions that have been returned to investors (calculated
generally as the excess of aggregate distributions over cumulative net profits
from the inception of the Funds).
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MARKET FOR MET HOLDINGS STOCK; DIVIDENDS
Holders of MET Holdings Stock are entitled to receive dividends as and
when declared by the MET Holdings Board of Directors. Generally, the declaration
of cash dividends by the MET Holdings Board of Directors depends on a number of
factors, including capital requirements, operating results and financial
condition, and general economic conditions. MET Holdings did not declare
dividends during the last two fiscal years.
MET Holdings Stock is not registered under the Federal securities laws
and is not listed on any exchange or automated quotations system. MET Holdings
Stock historically has not been actively traded. The most recent transactions
involving MET Holdings Stock of which MET Holdings is aware is the December 1993
purchase of 987 shares of Class A Common Stock and 1,001 shares of Class B
Common Stock for $416 per share by Mitchell H. Caplan. Also, in January 1996,
MET Holdings sold 5,000 shares of Class B Serial Preferred Stock for $600 per
share.
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MET HOLDINGS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following financial review presents management's analysis of the
financial condition and results of operations of MET Holdings, and should be
read together with the consolidated financial statements and accompanying notes.
IN ORDER TO ASSIST STOCKHOLDERS IN EVALUATING MET HOLDINGS AND THE MERGER, THE
FOLLOWING DISCUSSIONS ELIMINATE ANY IMPACT ON MET HOLDINGS' FINANCIAL CONDITION
OR RESULTS OF OPERATIONS FROM TELEBANC, EXCEPT AS MAY BE SPECIFICALLY
REFERENCED. Accordingly, separate discussion is provided for each of MET
Holdings and Arbor.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
MET HOLDINGS
Net Income. Net income (loss) for the year ended December 31, 1995 was
$(24,000) compared to $(129,000) for the year ended December 31, 1994. Net loss
for the year ended December 31, 1995 consisted primarily of $21,000 in net
income, $34,000 in non-interest income and $79,000 of non-interest expenses.
Net income (loss) for fiscal 1994 was $(129,000) compared to $(277,000)
for the year ended December 31, 1993. Net income for the year ended December 31,
1994 consisted of non-interest income of $44,000 and a tax benefit of $78,000
offset by a net interest loss of $(69,000) and total other expenses of $182,000.
Net income for the year ended December 31, 1993 consisted primarily of net
interest loss of $90,000 and $371,000 in total non-interest expenses offset by a
$178,000 tax benefit. The decrease in the net loss from 1993 to 1994 is the
result of the formation of TeleBanc and the transfer to TeleBanc of operating
and related expenses of the holding company of approximately $200,000.
Net interest income. Net interest income increased $90,000, or 130.4%,
from a net interest loss of $69,000 for the year ended December 31, 1994 to net
interest income of $21,000. Net interest income for 1995 primarily reflects
interest income of $171,000 in management's equity investment in Security
National. This income was partially offset by interest expense of $150,000 for
the approximately $2.5 million of debt incurred in a 1993 buyout of former MET
Holdings investors. In May 1993, MET Holdings purchased the shares of four
foreign investors and issued notes payable in the aggregate approximate amount
of $2.5 million with a 6.0% coupon to these shareholders (the Promissory Notes).
Net interest loss was $(69,000) and $(90,000) for the years ended
December 31, 1994 and 1993, respectively. During 1994, management recorded
interest income of $84,000 on its investment in Security National offset by
$153,000 in interest expense on the Promissory Notes payable. The $90,000 loss
recorded for the year 1993 primarily reflects the interest paid to former
investors beginning in May, 1993.
Non-interest income. Non-interest income declined by $10,000, or 22.7%,
from $44,000 for the year ending December 31, 1994 to $34,000 for the year
ending December 31, 1995. For the year ended December 31, 1993, non-interest
income was $6,000. Non-interest income primarily represents income from Arbor
for a note payable and for occupancy reimbursements, all of which are eliminated
in consolidation.
Non-interest expense. Non-interest expenses declined by $103,000, or
56.6%, from $182,000 for the year ended December 31, 1994 to $79,000 for the
year ended December 31, 1995. The decline is attributed to the $59,000 decline
in compensation expenses as MET Holdings did not have any direct employees
subsequent to the formation of TeleBanc as the parent of the Bank, and the
acquisition of Arbor.
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Total non-interest expenses were $182,000 and $371,000 for the years
ended December 31, 1994 and 1993, respectively. The decline in expenses is
attributed to an $81,000 decrease in compensation, an $87,000 decline in
professional services, a $21,000 decline in other expenses. Compensation
decreased as a result of the decline in holding company employees at MET
Holdings, specifically the Chairman, David A. Smilow and the Vice President and
Treasurer, Emidio Morizio. The majority of professional service expenses may be
attributed to preparatory legal work for the formation of TeleBanc and for the
creation of an employee stock option plan; consulting services associated with
the preparation for an initial public offering of TeleBanc; and an investment in
the Loan Identification Number Corporation, a company which researched and
investigated the development of proprietary data processing software for
mortgage originations and servicing. Other operating expenses declined
significantly as the operation of the primary bank holding company moved from
MET Holdings to TeleBanc.
Income tax expense. The effective tax rate for 1995 was 21.0% as
compared to 39.4% for 1994. The income tax benefit for the year ended December
31, 1995 was $(5,200) as compared to $(78,000).
The effective tax rate for the year ended December 31, 1994 was 37.7%
as compared to 39.1% for 1993. The income tax benefit was $(78,000) and
$(178,000) for the years ended December 31, 1994 and 1993, respectively.
ARBOR
Note: MET acquired Arbor in December, 1993. Accordingly, management's discussion
and analysis of 1993 is not included below.
Net income. Net income (loss) for fiscal 1995 was $(154,000) compared
to $74,000 for the prior year. Net income for the year ended December 31, 1995
consisted of $754,000 of non-interest income, a tax benefit of $84,000 and
$24,000 of interest income offset by $1.0 million in operating expenses. During
1994, Arbor recorded $562,000 of non-interest income offset by $405,000 of
operating expenses and $25,000 of income tax expenses. The decline in income is
primarily attributed to the $477,000 increase in operating expenses.
Non-interest income. Total non-interest income increased $192,000, or
34.2%, from $562,000 for the year ended December 31, 1994 to $754,000 in fiscal
1995. Arbor derives its primary source of revenue from commissions on trades
brokered, rather than through taking direct positions on an investment. Arbor
brokered approximately $1.4 billion in mortgage securities of "original face" in
1994 and $2.0 billion in 1995. The increase in trading reflects the addition of
a salesperson in the third quarter of 1994. In 1995, Arbor employed two
salespersons, one of whom left at the end of 1995, and one fund manager who was
terminated in early 1996. As of September 30, 1996, Arbor employs two
salespersons.
Non-interest expense. Total non-interest expenses were $1.0 million and
$470,000 for the years ended December 31, 1995 and 1994, respectively.
Compensation increased $456,000 from 1994 to 1995 due to an increase in brokered
security volume thereby increasing both revenue and the broker draws and the
addition of a fund manager. During 1995, the fund manager initiated the
development of a new product targeted towards high net worth individuals seeking
preservation of capital. During the first quarter of 1996, management determined
that its resources should be focused on mortgage securities, rather than on a
fixed income portfolio for high net worth individuals and the fund manager was
terminated. In addition, Arbor subleased space to TeleBanc and a law firm which
resulted in a decline of office occupancy costs. Other expenses increased
$51,000 due to marketing expenses related to the marketing of the fixed income
fund targeted towards high net worth individuals and the research costs related
to the joint venture for the mortgage funds (the Funds).
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Income Tax Expense. The effective tax rate for 1995 was 35.3% compared
to 25.0% for 1994. the income tax expense (benefit) for the year ended December
31, 1995 was $(84,000) as compared with $25,000 for the year ended December 31,
1994.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
MET HOLDINGs
Net income. Net income (loss) for the six months ended June 30, 1996
was $(65,000) compared to $21,000 for the six months ended June 30, 1995. Net
income for the six months ended June 30, 1996 consisted primarily of $78,000
interest income and a tax benefit of $17,000 offset by interest expense of
$102,000, and total other expense of $15,000. Net income for the six months
ended June 30, 1995 consisted primarily of $96,000 interest income and $7,000 of
other income offset by $75,000 of interest expense, income tax expense of $5,000
and $3,000 of total other expenses. Dividends was paid, totally 44,000, with
regards to the 6% preferred stock issued in the first quarter of 1996.
Net interest income. Net interest income was $(23,000) and $21,000 for
the six months ended June 30, 1996 and 1995, respectively. In the first six
months of 1996, MET Holdings recorded interest income of $78,000 related to an
equity investment in Security National which was offset by $102,000 of interest
expense for the servicing of the approximately $2.5 million of Promissory Notes.
For the six months ended June 30, 1995, MET Holdings recorded $96,000 of
interest income primarily related to Security National and interest earned on
interest-bearing deposit accounts. Interest income for the first six months of
1995 was offset by $75,000 in servicing the approximately $2.5 million of
Promissory Notes.
Non-interest income. For the six months ended June 30, 1996, MET
recorded no non-interest income. The non-interest income of $7,000 in 1995
reflects intercompany lease income from Arbor.
Non-interest expenses. Total non-interest expenses were $15,000 and
$3,000 for the six months ended June 30, 1996 and 1995, respectively. The
increase reflects an increase in depreciation expense and accounting fees.
Income tax expense. The effective tax rate for the quarter ended June
30, 1996 and 1995 was 21.0%. The income tax benefit was $(17,000) for the six
months ended June 30, 1996 compared to an income tax expense of $5,000 for the
six months ended June 30, 1995.
ARBOR
Net income. Net loss for the six months ended June 30, 1996 was
$(116,000) compared to $(10,000) for the six months ended June 30, 1995. Net
income for the six months ended June 30, 1996 consisted primarily of $161,000 of
commission revenue and a $63,000 tax benefit offset by non-interest expenses of
$337,000. Net income for the six months ended June 30, 1995 consisted primarily
of $551,000 in non-interest income and a tax benefit of $10,000 offset by
$574,000 in non-interest expenses.
Net interest income. Total net interest income declined by $10,000 from
$7,000 for the six months ended June 30, 1995 to $(3,000) for the six months
ended June 30, 1996. The decline in net interest income reflects an increase in
interest expense for a note payable drawn from MET Holdings for operating
expenses during the first six months of 1996.
Non-interest income. Total non-interest income declined by $390,000
from $551,000 for the six months ended June 30, 1995 to $161,000 for the six
months ended June 30, 1996. The decline reflects a decrease in the number of
brokers employed and a corresponding decrease in commission revenue.
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Non-interest expenses. For the six months ended June 30, 1996 and 1995,
Arbor recorded non-interest expenses of $337,000 and $574,000, respectively.
Towards the end of 1995, one of two brokers left Arbor thereby reducing both
commission revenue and related compensation and overhead expenses. For the six
months ended June 30, 1996, Arbor incurred several expenses related to the
startup of the Funds including $63,000 of compensation expenses and $10,000 of
travel expenses related to raising capital for the Funds. The remaining decline
in compensation expense corresponds to the decline in commission revenue.
Income tax expense. The effective tax rate for the six months ended
June 30, 1996 and 1995 was 35.0%. The income tax benefit for the six months
ended June 30, 1996 was $63,000 compared to $6,000 for the same period in 1995.
-51-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF MET HOLDINGS
The following table sets forth certain information as of September 30,
1996 with respect to the beneficial ownership by management of equity securities
of MET Holdings. MET Holdings has four classes of equity securities, Class A
Common Stock, Class B Common Stock, Class A Serial Preferred Stock and Class B
Serial Preferred Stock. No shares of Class A Serial Preferred Stock have been
issued.
<TABLE>
<CAPTION>
NAME EQUITY SECURITY OWNED PERCENT OF CLASS
- ---- --------------------- ----------------
<S> <C> <C>
David A. Smilow, Chairman and
Chief Executive Officer of MET
Holdings and TeleBanc and 3,968 (Class A Common Stock)(a) 40.0%
Chairman of the Bank 1,641 (Class B Common Stock)(a) 25.7
2,091 (Class B Serial Preferred
Stock)(a) 41.8
Mitchell H. Caplan, President of
MET Holdings and TeleBanc,
President and Chief Executive 987 (Class A Common Stock)(b) 9.9
Officer of the Bank 1,051 (Class B Common Stock)(b) 16.5
1,079 (Class B Serial Preferred
Stock)(b) 21.6
Directors and Executive Officers as 4,955 (Class A Common Stock)(a)(b) 49.9
a group (3 individuals) 2,692 (Class B Common Stock)(a)(b) 42.2
3,203 (Class B Serial Preferred
Stock)(a)(b) 64.0
- ---------------------------------
</TABLE>
(a) Includes 1,586 shares of Class A Common Stock, 980 shares of Class B
Common Stock and 893 shares of Class B Serial Preferred Stock owned by
Mr. Smilow's wife.
(b) Includes 645 shares of Class A Common Stock, 655 shares of Class B
Common Stock, and 1,079 shares of Class B Serial Preferred Stock with
respect to which Mr. Caplan shares beneficial ownership.
-52-
<PAGE>
ADJOURNMENT OF TELEBANC SPECIAL MEETING
The holders of TeleBanc Stock will also be asked to approve, if
necessary, the adjournment of the TeleBanc Special Meeting to solicit further
votes in favor of the Agreement and the Merger. The proxies of TeleBanc
stockholders voting against this proposal may not be used by management to vote
in favor of an adjournment pursuant to its discretionary authority.
STOCKHOLDER PROPOSALS
Any proposal which a TeleBanc stockholder wishes to have included in
the proxy materials of TeleBanc with respect to TeleBanc's 1997 Annual Meeting
must be received by TeleBanc at TeleBanc's principal executive office at 1111
North Highland Street, Arlington, Virginia 22201 no later than January 2, 1997.
OTHER MATTERS
It is not expected that any matters other than those described in this
Proxy Statement/Prospectus will be brought before the MET Holdings Special
Meeting or the TeleBanc Special Meeting. If any other matters are presented,
however, it is the intention of the persons named in the MET Holdings proxy and
the TeleBanc proxy to vote the proxy in accordance with the discretion of the
persons named in such proxy.
EXPERTS
The financial statements of MET Holdings Corporation included in this
Proxy Statement/Prospectus and elsewhere in the Registration Statement and
TeleBanc Financial Corporation incorporated by reference in this Proxy
Statement/Prospectus, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein, in reliance upon the authority of said
firm as experts in giving said reports.
The consolidated financial statements of TeleBanc Financial Corporation
as of December 31, 1994, and for each of the years in the two year period ended
December 31, 1994, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
-53-
<PAGE>
ANNEX A
AGREEMENT AND PLAN
OF MERGER
BY AND AMONG
TeleBanc FINANCIAL CORPORATION
and
MET HOLDINGS CORPORATION
May 10, 1996
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<PAGE>
TABLE OF CONTENTS
Page
----
1. WORDS, TERMS AND PHRASES....................................................1
1.1. Number And Gender................................................1
1.2. Definitions......................................................1
2. THE MERGER..................................................................5
2.1. The Merger.......................................................5
2.2. Consideration For MET Holdings Stock.............................5
2.3. MET Holdings Options.............................................7
2.4. Modification Of Structure........................................7
3. REPRESENTATIONS AND WARRANTIES..............................................8
3.1. Representations And Warranties Of TeleBanc.......................8
3.2. Representations And Warranties Of MET Holdings...................9
4. COVENANTS..................................................................15
4.1. Regulatory Applications.........................................15
4.2. Registration Statement..........................................16
4.3. Shareholder Approvals...........................................17
4.4. Blue Sky........................................................18
4.5. Other Approvals.................................................18
4.6. Conduct Of The Business Of MET Holdings And Each MET
Holdings Subsidiary.............................................18
4.7. Employee Plans..................................................20
4.8. Access To Information...........................................20
4.9. Confidentiality.................................................21
4.10. Best Efforts...................................................21
5. CONDITIONS.................................................................22
5.1. Conditions To Obligations Of The Parties........................22
5.2. Conditions To Obligations Of TeleBanc...........................22
5.3. Conditions To Obligations Of MET Holdings.......................23
6. CLOSING....................................................................24
6.1. Time And Place Of Closing.......................................24
6.2. TeleBanc Deliveries.............................................24
6.3. Met Holdings Deliveries.........................................24
6.4. Fees And Closing Costs..........................................24
7. TERMINATION................................................................25
7.1. Mutual Consent..................................................25
7.2. Other Termination...............................................25
7.3. Effect Of Termination...........................................26
8. MISCELLANEOUS..............................................................26
8.1. Notices.........................................................26
8.2. Entire Agreement................................................26
8.3. Amendment.......................................................27
8.4. Waiver..........................................................27
8.5. Severability....................................................27
8.6. Captions........................................................27
8.7. Governing Law...................................................27
8.8. No Third Party Beneficiaries....................................27
8.9. Assignability...................................................27
8.10. Parties Not Partners...........................................28
8.11. Counterparts...................................................28
8.12. Cumulative Remedies............................................28
A-2
<PAGE>
8.13. Time Of Performance............................................28
8.14. Further Assurances.............................................28
8.15. Time Of Essence................................................28
8.16. Survival.......................................................28
8.17. Indemnification Of TeleBanc....................................29
A-3
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("this Agreement") is made and
entered into effective as of May 10, 1996, by and among TeleBanc Financial
Corporation ("TeleBanc"), a Delaware corporation, and MET Holdings Corporation
("MET Holdings"), a Delaware corporation.
RECITALS
A. TeleBanc is a corporation with common stock, par value $0.01 per
share (the "TeleBanc Stock"). TeleBank (the "Bank"), a federally chartered
savings bank, is a wholly-owned subsidiary of TeleBanc which has its principal
office located in Arlington, Virginia.
B. MET Holdings is a privately held corporation whose Class A Common
Stock, Class B Common Stock, Class A Serial Preferred Stock and Class B Serial
Preferred Stock have a par value of $0.10 per share (the "MET Holdings Stock").
MET Holdings holds approximately 63.4% of the outstanding TeleBanc Stock. MET
Holdings also owns 80.3% of Arbor Capital Partners, Inc. ("Arbor"), a Securities
and Exchange Commission ("SEC") registered investment advisor and National
Association of Securities Dealers, Inc. ("NASD") member broker-dealer, and holds
direct and indirect investments in, among other things, Loan Identification
Number Corporation ("LIN"), AG Arbor Management, L.L.C. ("AG Arbor"), CD
Partners, L.P. ("CD Partners") and Eric Bruskin Associates, Inc. ("Bruskin").
C. It is the intention of the parties that TeleBanc and MET Holdings
be combined through a merger, which is tax free to TeleBanc, of MET Holdings
with and into TeleBanc on the terms and subject to the conditions set forth in
this Agreement.
D. The respective boards of directors of each of the parties have
duly approved this Agreement and have duly authorized its execution and
delivery.
NOW, THEREFORE, in consideration of the foregoing recitals, the
representations, warranties, covenants and agreements contained in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby represent, warrant,
covenant and agree as follows.
1. WORDS, TERMS AND PHRASES
1.1. NUMBER AND GENDER.
When used in this Agreement, all words in the singular number
shall extend to and include the plural number, where the content so requires;
all words used in the plural number shall extend to and include the singular
number where the content so requires; and all words used in any gender, whether
male, female or neuter, shall extend to and include all genders that may be
applicable in any particular context.
1.2. DEFINITIONS.
In addition to any other definitions contained in this Agreement,
the following words, terms and phrases shall have the following meanings when
utilized in this Agreement:
A-4
<PAGE>
"Application": Any application, notice, request, correspondence
or other filing, material or communication submitted to any Governmental
Authority in connection with any Regulatory Approval.
"Benefit Arrangement": Any form of current or deferred
compensation, bonus, stock option, stock appreciation right, severance pay,
salary continuation, retirement or incentive plan or arrangement, or any group
or individual health, disability or life insurance plan, or welfare or similar
plan or arrangement for the benefit of any one or more of the directors,
officers and employees of MET Holdings or any MET Holdings Subsidiary, whether
active or retired, other than Employee Plans and plans and agreements providing
for base salary and base wages.
"Business Day": Any day other than a Saturday, a Sunday, an
official federal or Commonwealth of Virginia holiday, a day on which banks
operating in Virginia generally are not open for business, and a day on which
the OTS and/or the FDIC are not open for business.
"Caplan/Smilow Escrow Agreement:" The escrow agreement by and
among TeleBanc, MET Holdings and the Escrow Agent, entered into on or before the
Closing Date, the terms of which will be substantially as set forth in Section
2.2.1(b) of this Agreement.
"Caplan/Smilow Escrow Shares:" This term has the meaning set
forth in Section 2.2.1(b).
"Class A Common Stock": The common stock, par value $0.10 per
share, of MET Holdings.
"Class A Serial Preferred Stock": The preferred stock, par value
$0.10 per share, of MET Holdings.
"Class B Common Stock": The common stock, par value $0.10 per
share, of MET Holdings.
"Class B Serial Preferred Stock": The preferred stock, par value
$0.10 per share, of MET Holdings.
"Closing": The consummation of the Merger and any other
transactions contemplated by this Agreement on the Closing Date.
"Closing Conditions": All conditions precedent to the obligation
of any one or more parties hereto to consummate the transactions contemplated by
this Agreement, including, without limitation, those conditions set forth in
Section 5.
"Closing Date": The date on which the Closing occurs, which shall
be the fifth Business Day after the satisfaction or waiver of all Closing
Conditions or such other earlier Business Day as the parties may mutually
determine after the satisfaction or waiver of all of the Closing Conditions.
"Common Stock Exchange Ratio:" This term has the meaning set
forth in Section 2.2.1(a).
"Default": A party shall be in Default hereunder if:
(i) any representation or warranty of said party contained
in this Agreement shall have been incorrect, incomplete or
otherwise misleading when made in any material respect; and/or
A-5
<PAGE>
(ii) such party shall have failed to perform or otherwise
breached in any material respect any of its covenants and
obligations contained in this Agreement and such failure or
breach shall have remained uncured for 10 days after notice
thereof to the defaulting party by the other party hereto.
"Dissenting Shares": The shares held by MET Holdings shareholders
that have timely and properly perfected their dissenters' rights pursuant to
Section 262 of the General Corporation Law of the State of Delaware.
"Effective Time": The time at which the Merger becomes effective,
which shall be the later of (i) the date and time set forth in the Certificate
of Merger, (ii) or the date and time at which the Certificate of Merger is
accepted for filing by the Secretary of State of the State of Delaware.
"Employee Plan": Any "employee benefit plan" (as that term is
defined in Section 3(3) of ERISA) that is subject to any provisions of ERISA and
covers any one or more of the directors and employees of MET Holdings or any MET
Holdings Subsidiary, whether active or retired.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account:" An escrow account established pursuant to the
Caplan/Smilow Escrow Agreement or the Stockholder Escrow Agreement, as
applicable.
"Escrow Agent:" An escrow agent, mutually selected by TeleBanc
and MET Holdings, that is identified as the "Escrow Agent" in the Caplan/Smilow
Escrow Agreement or the Stockholder Escrow Agreement, as applicable.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"FDIC": The Federal Deposit Insurance Corporation.
"Financial Advisor": Corporate Finance of Washington, Inc., or
such other independent financial adviser as TeleBanc may consult for the
purposes specified herein.
"Governmental Authority": Any federal, state, county, municipal
or other local legislative, regulatory (including non-governmental
self-regulatory bodies such as the NASD) or judicial body or other entity with
jurisdiction over all or any portion of any one or more of TeleBanc, MET
Holdings, the Bank, or any of their respective properties, businesses and
affairs.
"IRC": The United States Internal Revenue Code of 1986, as
amended.
"Knowledge": As to any person, and as of the date of the
statement in question, such person's actual knowledge or what such person should
have known in the ordinary exercise of that person's duties in the capacity
referred to herein.
"Laws": Any and all statutes, laws, ordinances, rules,
regulations, orders, permits, judgments, injunctions, decrees, case law and
other rules of law enacted, promulgated or issued by any Governmental Authority.
"Material Adverse Change in MET Holdings": Any material adverse
change in the business, financial condition, operating results or prospects of
MET Holdings and the MET Holdings Subsidiaries taken as a whole.
A-6
<PAGE>
"Material Adverse Change in TeleBanc": Any material adverse
change in the business, financial condition, operating results or prospects of
TeleBanc and the TeleBanc Subsidiaries taken as a whole.
"Merger": The merger of MET Holdings with and into TeleBanc in
accordance with the terms and provisions of the Plan of Merger, upon which
merger TeleBanc shall be the surviving corporation.
"Merger Consideration": Collectively, the TeleBanc Stock and cash
to be received by the holders of MET Holdings Stock and the MET Holdings Options
in accordance with Sections 2.2 and 2.3 of this Agreement.
"MET Holdings Disclosure Schedule": All of the disclosure
schedules which may be required of MET Holdings pursuant to this Agreement,
which disclosure schedules shall be cross-referenced to the specific sections
and subsections of this Agreement.
"MET Holdings Options": Options or any other rights to purchase
or acquire shares of MET Holdings Stock, including, without limitation, options,
warrants, stock appreciation rights or similar rights to acquire MET Holdings
Stock or equity capital stock of any MET Holdings Subsidiary.
"MET Holdings Stock": The Class A Common Stock, Class B Common
Stock, Class A Serial Preferred Stock, and Class B Serial Preferred Stock, of
MET Holdings.
"MET Holdings Subsidiary": Each corporation, partnership or other
business enterprise, other than TeleBanc and the Bank, which is consolidated
with MET Holdings for financial reporting purposes or of which MET Holdings
owns, directly or indirectly, 25% or more of the outstanding capital stock or
other ownership interest.
"OTS": The Office of Thrift Supervision.
"Plan of Merger": A plan of merger to be entered into subsequent
to the date of this Agreement which is consistent with the terms of this
Agreement.
"Promissory Notes:" The four promissory notes, each dated May 10,
1993, made by MET Holdings to the order of: (1) Eric Claus, in the original
principal amount of $112,400, (2) LCF America, Inc., in the original principal
amount of $356,000, (3) Antoine Schwartz, in the original principal amount of
$362,800, and (4) Banque Dumenil Leble, in the original principal amount of
$1,663,360.
"Proxy Statement/Prospectus": The combined proxy statement and
prospectus to be used to solicit MET Holdings' and TeleBanc's respective
shareholders for the approvals required to consummate the transactions
contemplated by this Agreement, and to offer TeleBanc Stock in connection
therewith.
"Registration Statement": The registration statement filed with
the SEC by TeleBanc for the purpose of registering the TeleBanc Stock to be
issued as part of the Merger Consideration, in the form declared effective by
the SEC, together with all amendments and supplements thereto, as declared
effective by the SEC.
"Regulations": The rules and regulations of the SEC, the OTS, the
NASD and the FDIC.
A-7
<PAGE>
"Regulatory Approvals": Each and every consent, approval,
expiration of a waiting period and similar action or inaction by any
governmental authority (including, without limitation, the OTS, the United
States Federal Trade Commission and the United States Department of Justice) or
self-regulatory organization (including, without limitation, the NASD) that is
required in connection with the consummation of the transactions contemplated by
this Agreement.
"Securities Act": The Securities Act of 1933, as amended.
"Stockholder Escrow Agreement:" The escrow agreement by and among
TeleBanc, MET Holdings and the Escrow Agent, entered into on or before the
Closing Date, the terms of which will be substantially as set forth in Section
2.2.1(c) of this Agreement.
"Stockholder Escrow Shares:" This term has the meaning set forth
in Section 2.2.1(c).
"Supervisory Agreement": The supervisory agreement of the Bank
and the OTS dated May 24, 1993, as amended on March 18, 1994.
"Surviving Corporation": TeleBanc, as the surviving corporation
of the Merger.
"Tax Opinion": The tax opinion of Arthur Andersen LLP that
TeleBanc may require as a Closing Condition.
"Tax Returns": All federal, state and local tax returns, reports
and declarations of estimated tax with respect to income and all other
applicable taxes, and all other tax returns and reports, the filing of which is
required by applicable Laws (including returns and reports with respect to taxes
withheld from or imposed in respect of employees' wages and with respect to
deposit accounts).
"TeleBanc Stock": The common stock, par value $0.01 per share, of
TeleBanc.
"TeleBanc Subsidiary": Each corporation, partnership or other
business enterprise which is consolidated with TeleBanc for financial reporting
purposes or of which TeleBanc owns, directly or indirectly, 25% or more of the
outstanding capital stock or other ownership interest.
2. THE MERGER
2.1. THE MERGER.
At the Effective Time, MET Holdings shall be merged with and into
TeleBanc as permitted by and in accordance with applicable Laws and on the terms
and subject to the conditions contained in this Agreement and the Plan of
Merger. Simultaneously with the effectiveness of the Merger, (a) the separate
existence of MET Holdings shall cease, and (b) TeleBanc, as the Surviving
Corporation, shall continue to exist under and be governed by the General
Corporation Law of the State of Delaware. At the Effective Time, the certificate
of incorporation and bylaws of the Surviving Corporation shall be in the form of
the certificate of incorporation and bylaws of TeleBanc immediately preceding
the Merger. At the Effective Time, the board of directors and executive officers
of TeleBanc shall be the directors and executive officers of the Surviving
Corporation.
2.2. CONSIDERATION FOR MET HOLDINGS STOCK.
In order to consummate the Merger:
A-8
<PAGE>
2.2.1. Conversion of MET Holdings Stock.
(a) At the Effective Time, all of the shares of TeleBanc Stock
owned by MET Holdings shall be canceled and returned to the Treasury of
TeleBanc. Also at the Effective Time, each issued and outstanding share of Class
A Common Stock and Class B Common Stock (other than Dissenting Shares) shall, by
virtue of the Merger, automatically and without any action on the part of the
holder thereof, be converted into the right to receive 80.54 shares of TeleBanc
Stock (the "Common Stock Exchange Ratio"). Also at the Effective Time, each
issued and outstanding share of Class A Serial Preferred Stock and Class B
Serial Preferred Stock shall, by virtue of the Merger, automatically and without
any action on the part of the holder thereof, be converted into the right to
receive 72.46 shares of TeleBanc Stock. All other shares of MET Holdings Stock
shall be canceled.
(b) Caplan/Smilow Escrow Shares. Upon the Effective Time,
TeleBanc shall issue and deposit with the Escrow Agent of the Caplan/Smilow
Escrow Agreement 235,990 shares of TeleBanc Stock which otherwise would be
issued, pursuant to Section 2.2.1(a), either on behalf of Mitchell H. Caplan or
David A. Smilow or attributed to either of Messrs. Caplan or Smilow as a result
of the Merger (the "Caplan/Smilow Escrow Shares") to be held in an Escrow
Account. Pursuant to the terms of the Caplan/Smilow Escrow Agreement, the
Caplan/Smilow Escrow Shares shall be released periodically on a pro rata basis
to each of Messrs. Caplan and Smilow within five Business Days following each
distribution, if any, to Arbor from either of AG Spruce Fund, L.P. or AGEA
Partners, L.P. (the "Funds") in return of Arbor's capital investment in the
Funds. The Caplan/Smilow Escrow Agreement shall provide that prior to the Escrow
Termination Date (as defined below), any such Caplan/Smilow Escrow Shares that
have not been distributed to Messrs. Caplan and Smilow shall be voted by Messrs.
Caplan and Smilow, as applicable. Any dividends or other earnings on the
Caplan/Smilow Escrow Shares will be held in escrow and distributed with the
Caplan/Smilow Escrow Shares to which such dividends or earnings relate, in
accordance with the terms of the Caplan/Smilow Escrow Agreement. Any
Caplan/Smilow Escrow Shares that have not been distributed upon the final
liquidation, dissolution or termination of both of the Funds (the "Escrow
Termination Date"), pursuant to the terms of the Caplan/Smilow Escrow Agreement,
shall be canceled and returned to TeleBanc's treasury.
(c) Stockholder Escrow Shares. Upon the Effective Time, in
addition to the shares of TeleBanc Stock issued pursuant to Section 2.2.1(a),
TeleBanc shall issue and deposit with the Escrow Agent 750,000 shares of
TeleBanc Stock to be held in an Escrow Account (the "Stockholder Escrow
Shares"). Pursuant to the terms of the Statement of Earnings Requirements (which
is attached as Exhibit A to this Agreement, and which also will be attached as
Schedule B to the Stockholder Escrow Agreement), once the Initial Arbor Earnings
Goal has been achieved, Stockholder Escrow Shares will be released periodically
on a pro rata basis, in accordance with the Release Ratio (as such term is
defined in Exhibit A), to the shareholders of MET Holdings identified in
Schedule A to the Stockholder Escrow Agreement. If the Initial Arbor Earnings
Goal has not been met prior to or on the Escrow Termination Date or if any of
the Stockholder Escrow Shares remain in the Escrow Account after the Escrow
Termination Date, pursuant to the terms of the Stockholder Escrow Agreement, any
remaining Stockholder Escrow Shares in the Escrow Account shall be canceled and
returned to TeleBanc's treasury. The Stockholder Escrow Agreement shall provide
that prior to the Escrow Termination Date, any such Stockholder Escrow Shares
that remain in the Stockholder Escrow Account shall be voted by the Escrow Agent
in the same pro rata proportion as the other issued and outstanding shares of
TeleBanc Stock are voted. Any dividends or other earnings on the Stockholder
Escrow Shares will be held in escrow and distributed with the Stockholder Escrow
Shares to which such dividends or earnings relate, in accordance with the terms
of the Stockholder Escrow Agreement. As provided in Section 8.17, for so long as
any of the Stockholder Escrow Shares or any dividends or other earnings thereon
are held in the Escrow Account pursuant to the Stockholder Escrow Agreement,
such shares and any dividends or other earnings thereon shall be available to
satisfy any claims for indemnification by TeleBanc for the applicable period set
forth in Section 8.16(b).
A-9
<PAGE>
2.2.2. Fractional Shares. Certificates for fractions of shares of
TeleBanc Stock will not be issued. In lieu of a fraction of a share of TeleBanc
Stock, each holder of MET Holdings Stock otherwise entitled to a fraction of a
share of TeleBanc Stock shall be entitled to receive an amount of cash equal to
(i) the fraction of a share of TeleBanc Stock to which such holder would
otherwise be entitled, multiplied by (ii) the average prices for trades of
TeleBanc Stock for the 30 days proceeding the Closing Date as reported in the
over-the-counter markets. Following consummation of the Merger, no holder of MET
Holdings Stock shall be entitled to dividends or any other rights in respect of
any such fraction.
2.2.3. Cancellation of Unissued and Treasury Shares. No payment
shall be made in respect of authorized but unissued shares of MET Holdings Stock
or treasury shares of MET Holdings Stock, and such shares shall be canceled upon
the Closing.
2.2.4. Dissenting Shares. Notwithstanding anything to the
contrary herein, Dissenting Shares shall not be converted into or represent a
right to receive the consideration specified in Sections 2.2.1 and 2.2.2, but
the holder thereof (to the extent that such holder, as of the Effective Time of
the Merger, has not effectively withdrawn or lost his dissenter's rights, shall
be entitled only to such rights as are granted by applicable Law.
2.3. MET HOLDINGS OPTIONS.
At the Effective Time, all MET Holdings Options shall terminate.
At the option of the holder, as may be determined by any holder by providing
written instructions to TeleBanc no less than 10 calendar days before the
Effective Time, TeleBanc shall either (i) in cash, pay to each holder of
outstanding unexpired and unexercised MET Holdings Options $82,302.45, or (ii)
issue to each holder of outstanding unexpired and unexercised MET Holdings
Options 9,940 shares of TeleBanc Stock which equals the Common Stock Exchange
Ratio times the number of shares of MET Holdings Stock into which such MET
Holdings Options are exercisable less the strike price of such options, or (iii)
pay to the holder part in cash and issue to the holder shares of TeleBanc Stock,
with the amount of cash and the number of shares of TeleBanc Stock to be
determined, respectively, as set forth in clauses (i) and (ii) of this
paragraph.
2.4. MODIFICATION OF STRUCTURE.
Notwithstanding any provision of this Agreement to the contrary,
TeleBanc may elect to modify the structure of the transactions contemplated
hereby so long as (i) there are no material adverse federal or state income tax
consequences to MET Holdings and its shareholders as a result of such
modification; (ii) the consideration to be paid to holders of MET Holdings Stock
or MET Holdings Options under this Agreement is not thereby changed in kind or
reduced in amount to any extent that, but for such modification, such
consideration would not have been changed or reduced; (iii) there are no
material adverse changes to the benefits and other arrangements being provided
to or on behalf of MET Holdings and the MET Holdings Subsidiaries' directors,
officers and other employees; and, (iv) such modification will not be likely to
delay materially or jeopardize receipt of any required Regulatory Approvals or
of the Tax Opinion (unless the Closing Condition regarding the Tax Opinion is
waived by TeleBanc). In the event this Agreement is terminated in accordance
with Section 7.2.3, TeleBanc shall reimburse MET Holdings for any expenses
incurred by MET Holdings solely as a result of a modification pursuant to this
Section 2.4.
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<PAGE>
3. REPRESENTATIONS AND WARRANTIES
3.1. REPRESENTATIONS AND WARRANTIES OF TeleBanc.
TeleBanc hereby makes the following representations and
warranties to MET Holdings, each of which is being relied upon by MET Holdings
as a material inducement to enter into and perform this Agreement:
3.1.1. Organization of TeleBanc. TeleBanc is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. TeleBanc has full corporate power and authority to own or lease all of
its properties and assets and to carry on its business as now being conducted,
which business is described in TeleBanc's Annual Report on Form 10-K for the
year ended December 31, 1995. TeleBanc is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or location of the employees or of the
properties or assets owned or leased by it makes such licensing or qualification
necessary.
3.1.2. TeleBanc Subsidiaries. All the shares of capital stock or
other ownership interest of a TeleBanc Subsidiary which are owned by TeleBanc or
a TeleBanc Subsidiary are owned free and clear of any liens, claims, charges or
other encumbrances. Each TeleBanc Subsidiary is duly organized, validly existing
and, to the extent applicable, in good standing under the laws of its
jurisdiction of incorporation or organization, has full corporate power and
authority to own or lease its properties and assets and to carry on its business
as now being conducted, is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the nature of the business conducted
by it or the character or location of the employees or of the properties or
assets owned or leased by it makes such licensing or qualification necessary.
3.1.3. Capitalization. The entire authorized capital stock of
TeleBanc consists of 4,000,000 shares, (i) 3,500,000 shares of common stock, par
value $0.01 per share, of which 2,049,500 shares have been issued and are
outstanding and (ii) 500,000 shares of preferred stock, par value $0.01 per
share, of which no shares have been issued and are outstanding. There also are
issued and outstanding 345,000 warrants to purchase one share each of TeleBanc
Stock (the "Warrants"). All the issued and outstanding shares of TeleBanc Stock
and the capital stock of each TeleBanc Subsidiary have been duly authorized and
validly issued.
3.1.4. Authorization. TeleBanc has all requisite corporate power
and authority to execute and deliver this Agreement and, subject to the approval
of this Agreement by the shareholders of TeleBanc entitled to vote thereon and
to the receipt of all Regulatory Approvals, to consummate the transactions
contemplated by this Agreement in accordance with the terms hereof. This
Agreement has been duly authorized by the board of directors of TeleBanc and,
except for the approval of the shareholders of TeleBanc as to this Agreement,
including the Plan of Merger, no other corporate proceedings on the part of
TeleBanc or any TeleBanc Subsidiary are necessary to consummate the transactions
so contemplated. This Agreement has been duly and validly executed and delivered
by TeleBanc and constitutes a valid and legally binding obligation of TeleBanc
enforceable against TeleBanc in accordance with its terms.
3.1.5. Non-Contravention. The execution and delivery of this
Agreement by TeleBanc does not, and the performance of this Agreement by
TeleBanc, in accordance with the terms hereof, will not (a) violate any
provision of the charter or certificate of incorporation or bylaws of TeleBanc
or any TeleBanc Subsidiary or (b) conflict with or result in a breach of, or
default under, or result in the creation of any lien, claim, charge or other
encumbrance upon any of the assets or properties of TeleBanc or any TeleBanc
Subsidiary pursuant to the provisions of any agreement, mortgage, indenture or
other document or instrument to which TeleBanc or any TeleBanc Subsidiary
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is a party or by which TeleBanc, any TeleBanc Subsidiary or any of their
respective properties or assets is bound, or (c) violate any existing Laws
applicable to TeleBanc or any TeleBanc Subsidiary or any of their respective
properties or assets, or applicable to TeleBanc's power or authority to perform
its obligations under this Agreement, or TeleBanc's ability to obtain the
Regulatory Approvals.
3.1.6. Financial Statements.
(a) TeleBanc has previously delivered or made available to MET
Holdings accurate and complete copies of the consolidated statements of
financial condition of TeleBanc as of December 31, 1994 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for the years ended December 31, 1994 and 1995, accompanied by the audit report
of the independent public accountants with respect to TeleBanc as of such date.
The consolidated statements of financial condition of TeleBanc referred to
herein (including the related notes, where applicable) fairly present the
consolidated financial condition of TeleBanc as of the respective dates set
forth therein, and the related consolidated statements of income, shareholders'
equity and cash flows (including the related notes, where applicable) fairly
present the consolidated results of operations, shareholders' equity and cash
flows of TeleBanc for the respective periods or as of the respective dates set
forth therein.
(b) Each of the financial statements referred to in Section
3.1.6(a) has been prepared in accordance with generally accepted accounting
principles. The audits of TeleBanc and each TeleBanc Subsidiary have been
conducted in accordance with generally accepted auditing standards. The books
and records of TeleBanc and each TeleBanc Subsidiary are being maintained in
material compliance with applicable legal and accounting requirements.
3.2 REPRESENTATIONS AND WARRANTIES OF MET HOLDINGS.
MET Holdings hereby makes the following representations and
warranties to TeleBanc, each of which is being relied upon by TeleBanc as a
material inducement to enter into and perform this Agreement:
3.2.1. Organization of MET Holdings. MET Holdings is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. MET Holdings has full corporate power and authority to
own or lease its properties and assets and to carry on its business as now being
conducted. MET Holdings is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the nature of the business conducted
by it or the character or location of the employees or of the properties or
assets owned or leased by it makes such licensing or qualification necessary.
3.2.2. MET Holdings Subsidiaries.
(a) Arbor, LIN, AG Arbor, CD Partners and Bruskin are the only
MET Holdings Subsidiaries. All the shares of capital stock or other ownership
interest of a MET Holdings Subsidiary which are owned by MET Holdings or a MET
Holdings Subsidiary are owned free and clear of any liens, claims, charges or
other encumbrances. Each MET Holdings Subsidiary is duly organized, validly
existing and in good standing under the laws of its state of incorporation or
organization, has full corporate, partnership or limited liability company power
and authority to own or lease its properties and assets and to carry on its
business as now being conducted, and is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or location of the employees or of the
properties or assets owned or leased by it makes such licensing or qualification
necessary. Except as to the MET Holdings Options, there is no agreement to which
MET Holdings or any MET Holdings
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Subsidiary is subject with respect to the issuance, sale, or voting of issued or
unissued shares of the capital stock of any MET Holdings Subsidiary.
(b) Except as set forth in Section 3.2.2(b) of the MET Holdings
Disclosure Schedule, there is no corporation, partnership, joint venture or
other business enterprise, other than a MET Holdings Subsidiary, in which MET
Holdings owns, directly or indirectly, any equity or other ownership interest,
or has the right to share in any profit participation.
3.2.3. Capitalization. The entire authorized capital stock of MET
Holdings consists of 210,000 shares, (i) 100,000 shares of Class A Common Stock,
par value $0.10 per share, of which 11,263 shares have been issued and are
outstanding, (ii) 100,000 shares of Class B Common Stock, par value $0.10 per
share, of which 6,940 shares have been issued and are outstanding, (iii) 5,000
shares of Class A Serial Preferred Stock, par value $0.10 per share, of which no
shares have been issued and are outstanding, and (iv) 5,000 shares of Class B
Serial Preferred Stock, par value $0.10 per share, of which 5,000 shares have
been issued and are outstanding. All of the issued and outstanding shares of MET
Holdings Stock and the capital stock of each MET Holdings Subsidiary have been
duly authorized and validly issued and, except as set forth in the next
sentence, are fully paid and nonassessable, free of any pre-emptive right, and
with no personal liability attaching thereto. As of the date of this Agreement,
167 shares of Class B Serial Preferred Stock are not fully paid, however MET
Holdings covenants that such shares shall be fully paid prior to the Closing
Date. Except for the MET Holdings Options and the convertibility of the Class A
Common Stock, the Class A Serial Preferred Stock, and the Class B Serial
Preferred Stock hereinabove described, there are no options, warrants, calls,
employee benefit or other plans, preemptive rights or commitments of any
character relating to the authorized but unissued capital stock or any other
equity security of MET Holdings or any MET Holdings Subsidiary or any securities
or obligations convertible into or exchangeable for or giving any person any
right to subscribe for or acquire from MET Holdings or any MET Holdings
Subsidiary any shares of such capital stock, nor are there any stock
appreciation rights, limited rights or other similar rights or obligations of
MET Holdings or any MET Holdings Subsidiary exercisable upon any circumstance,
including upon a change in control of MET Holdings or any MET Holdings
Subsidiary, other than the Promissory Notes. The only MET Holdings Options are
as set forth at Section 3.2.3 of the MET Holdings Disclosure Schedule attached
hereto. The MET Holdings Options have been validly and properly issued under all
applicable federal and state laws and true, correct and complete copies of the
related option agreements or grants have been provided to TeleBanc by MET
Holdings. There are no outstanding contractual obligations of MET Holdings or
any MET Holdings Subsidiary to repurchase, redeem or otherwise acquire any
outstanding shares of MET Holdings Stock or other ownership interest in MET
Holdings or capital stock or ownership interest in any MET Holdings Subsidiary.
There are no outstanding agreements, arrangements, commitments, or
understandings of any kind to which MET Holdings or, to the Knowledge of any of
the directors and officers of MET Holdings, any "associate" or "affiliate" of
MET Holdings (as those terms are defined in the rules and regulations
promulgated under the Securities Act), is a party affecting or relating to the
voting, issuance, purchase, redemption, repurchase, or transfer of MET Holdings
Stock or any other securities of MET Holdings, except for MET Holdings Options.
3.2.4. Authorization. MET Holdings has all requisite corporate
power and authority to execute and deliver this Agreement and, subject to the
approval of the shareholders of MET Holdings entitled to vote thereon and to the
receipt of all Regulatory Approvals, to consummate the transactions contemplated
by this Agreement hereby in accordance with the terms hereof. The execution,
delivery and performance of this Agreement has been duly authorized by the board
of directors of MET Holdings, and, except for the approval of the shareholders
of MET Holdings as to this Agreement, including the Plan of Merger, no other
corporate proceedings on the part of MET Holdings or any MET Holdings Subsidiary
are necessary to consummate the transactions so contemplated. This Agreement has
been duly executed and delivered by MET Holdings and constitutes a valid and
legally binding obligation of MET Holdings enforceable against MET Holdings in
accordance with its terms.
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3.2.5. Non-Contravention. The execution and delivery of this
Agreement by MET Holdings does not, and the performance of this Agreement, in
accordance with the terms hereof, will not (a) violate any provision of the
charter or articles of incorporation or bylaws of MET Holdings or any MET
Holdings Subsidiary, (b) conflict with or result in a breach of, or default
under, or result in the creation of any lien, claim, charge or other encumbrance
upon any of the assets or properties of MET Holdings or any MET Holdings
Subsidiary pursuant to the provisions of any agreement, mortgage, indenture or
other document or instrument to which MET Holdings or any MET Holdings
Subsidiary is a party or by which MET Holdings, any MET Holdings Subsidiary or
any of their respective properties or assets is bound, or (c) violate any
existing Laws applicable to MET Holdings or any MET Holdings Subsidiary or any
of their properties or assets, or applicable to MET Holdings' power or authority
to perform its obligations under this Agreement, or MET Holdings' ability to
obtain the Regulatory Approvals.
3.2.6. Properties and Assets. Neither MET Holdings nor any MET
Holdings Subsidiary owns any real property or is a party to any contract for the
purchase, sale, or development of real estate. MET Holdings has provided to
TeleBanc a true, correct and complete copy of each real property lease,
sublease, or similar agreement to which MET Holdings or any MET Holdings
Subsidiary is a party. Except for (a) items reflected in the audited financial
statements of MET Holdings as of December 31, 1995, (b) exceptions to title that
do not interfere materially with MET Holdings' or any MET Holdings Subsidiary's
use and enjoyment of owned or leased real property (other than real property
acquired through foreclosure or a transaction in lieu of foreclosure), (c) liens
for current real estate taxes not yet delinquent, or being contested in good
faith, properly reserved against (and reflected on the financial statements
referred to in Section 3.2.8 below) and (d) properties and assets sold or
transferred in the ordinary course of business consistent with past practice
since December 31, 1995, MET Holdings and each MET Holdings Subsidiary have good
title to all their respective properties and assets, including the properties
and assets reflected in the audited financial statements of MET Holdings as of
December 31, 1995, whether real, personal, tangible or intangible, free and
clear of all liens, claims, charges and other encumbrances. MET Holdings and
each MET Holdings Subsidiary, as lessees, have the right under valid and
subsisting leases to occupy, use and possess all property leased by them, and
there has not occurred under any such lease any breach, violation or default
except with respect to deductibles under insurance policies that comply with the
requirements of Section 3.2.12, and neither MET Holdings nor any MET Holdings
Subsidiary has experienced any uninsured damage or destruction with respect to
such properties since December 31, 1995. MET Holdings and each MET Holdings
Subsidiary enjoy peaceful and undisturbed possession under all leases for the
use of real or tangible personal property under which they are the lessees, and
all leases to which MET Holdings and any MET Holdings Subsidiary is a party are
valid and enforceable in all material respects in accordance with the terms
thereof except as may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors' rights and except as may be limited by the
exercise of judicial discretion in applying principles of equity. Neither MET
Holdings nor any MET Holdings Subsidiary is in default with respect to any such
lease.
3.2.7. Certificate of Incorporation and Bylaws. True and complete
copies of the certificate of incorporation and bylaws of MET Holdings and each
MET Holdings Subsidiary, as in effect on the date hereof, have been delivered to
TeleBanc.
3.2.8. Financial Statements.
(a) MET Holdings has previously delivered or made available to
TeleBanc accurate and complete copies of the consolidated statements of
financial condition of MET Holdings as of December 31, 1993, 1994 and 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for the years ended December 31, 1993, 1994 and 1995, in each case
accompanied by the audit report of the independent public accountants with
respect to MET Holdings. The consolidated statements of financial condition of
MET Holdings referred to herein
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(including the related notes, where applicable), fairly present the consolidated
financial condition of MET Holdings as of the respective dates set forth
therein, and the related consolidated statements of income, shareholders' equity
and cash flows (including the related notes, where applicable) fairly present
the consolidated results of operations, shareholders' equity and cash flows of
MET Holdings for the respective periods or as of the respective dates set forth
therein.
(b) Each of the financial statements referred to in Section
3.2.8(a) has been prepared in accordance with generally accepted accounting
principles consistently applied during the periods involved. The audits of MET
Holdings and each MET Holdings Subsidiary have been conducted in accordance with
generally accepted auditing standards. The books and records of MET Holdings and
each MET Holdings Subsidiary are being maintained in material compliance with
applicable legal and accounting requirements.
(c) Except and to the extent (i) reflected, disclosed or provided
for in the financial statements as of December 31, 1995 referred to above and
(ii) of liabilities incurred since December 31, 1995 in the ordinary course of
business and consistent with past practice, neither MET Holdings nor any MET
Holdings Subsidiary has any liabilities, whether absolute, accrued, contingent
or otherwise.
3.2.9. Absence of Changes. Since December 31, 1995, the business
of MET Holdings has been conducted only in the ordinary course consistent with
past practice and there has not been any Material Adverse Change in MET
Holdings, nor has there been any material change in any policy or practice
followed by MET Holdings or any MET Holdings Subsidiary in the ordinary course
of business.
3.2.10. Legal Proceedings. There are no legal, administrative or
other claims, actions, suits or other proceedings pending, or to the Knowledge
of any of MET Holdings' officers and directors or those of any MET Holdings
Subsidiary, threatened, of which MET Holdings or any MET Holdings Subsidiary is
a party before any court or arbitration tribunal or before or by any
Governmental Authority. Neither MET Holdings nor any MET Holdings Subsidiary is
a party to any pending or, to the Knowledge of any of MET Holdings' officers and
directors, threatened legal, administrative or other claim, action, suit,
investigation, arbitration or proceeding challenging the validity or propriety
of any of the transactions contemplated by this Agreement. Neither MET Holdings
nor any MET Holdings Subsidiary is subject to any judgment, order, writ,
injunction, decree or arbitration award.
3.2.11. Certain Contracts. Except as contemplated by this
Agreement, neither MET Holdings nor any MET Holdings Subsidiary is a party to or
is bound or affected by, or receives benefits under (i) any material agreement,
arrangement or understanding not made in the ordinary course of business; (ii)
any agreement, indenture or other instrument relating to the borrowing of money
by MET Holdings or any MET Holdings Subsidiary or the guarantee by MET Holdings
or any MET Holdings Subsidiary of any obligation; (iii) any agreement,
arrangement or understanding relating to the employment, election, retention in
office or severance of any present or former director, officer or employee of
MET Holdings or any MET Holdings Subsidiary; (iv) any agreement, arrangement or
understanding pursuant to which any payment (whether of severance pay or
otherwise) became or may become due to any director, officer or employee of MET
Holdings or any MET Holdings Subsidiary upon execution of this Agreement or upon
or following consummation of the transactions contemplated by this Agreement
(either alone or in connection with the occurrence of any additional acts or
events); (v) any assistance agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order or condition of any
regulatory order or decree with or by the OTS, the SEC, the NASD or any other
regulatory agency; or (vi) any other agreement, arrangement or understanding,
which requires aggregate payments to or from MET Holdings and/or any MET
Holdings Subsidiary of $25,000 or more per year.
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3.2.12. Insurance. All insurance policies and bonds maintained by
MET Holdings and any MET Holdings Subsidiary, have, from time to time, in
respect of the nature of the risks insured against and amount of coverage
provided, been substantially similar in kind and amount to that customarily
carried by parties similarly situated who engage in businesses substantially
similar to that of MET Holdings and any MET Holdings Subsidiary), and are in
full force and effect and have been in full force and effect at all times during
which MET Holdings or any MET Holdings Subsidiary had any insurable interest in
the subject of such insurance policies and bonds. As of the date hereof, neither
MET Holdings nor any MET Holdings Subsidiary has received any notice of
cancellation or amendment of any such policy or bond or is in default under any
such policy or bond, no coverage thereunder is being disputed and all material
claims thereunder have been filed in a timely fashion. The existing insurance
carried by MET Holdings and any MET Holdings Subsidiary is and will continue to
be, in respect of the nature of the risks insured against and the amount of
coverage provided, substantially similar in kind and amount to that customarily
carried by parties similarly situated who engage in businesses substantially
similar to that of MET Holdings and any MET Holdings Subsidiary, and is
sufficient for compliance by MET Holdings and any MET Holdings Subsidiary with
all material requirements of law and regulations and agreements to which MET
Holdings or any MET Holdings Subsidiary is subject or is a party. True and
complete copies of all such policies and bonds as in effect on the date hereof,
have been delivered to TeleBanc.
3.2.13. Employee Benefit Plans.
(a) True, correct and complete copies of each Employee Plan of
MET Holdings, including amendments and trust agreements relating thereto, have
been delivered to TeleBanc, together with (i) a complete and correct copy of the
five most recent annual reports (Form 5500 including, if applicable, Schedule B
thereto) prepared in connection with any such Employee Plan, (ii) a true,
correct and complete copy of the five most recent actuarial valuation reports,
if any, prepared in connection with any such Employee Plan, and (iii) a true,
correct and complete copy of the most recent summary plan description (including
any summaries of material modifications) of each such Employee Plan. None of
such Employee Plans is a "multiemployer plan," as defined in Section 3(37) of
ERISA, and neither MET Holdings nor any MET Holdings Subsidiary has been
obligated to make a contribution to any such multiemployer plan within the past
five years. Since its inception, each Employee Plan which is intended to be
qualified under Section 401(a) of the IRC has been operated and administered in
all material respects in accordance with the requirements for a qualified plan
under Section 401(a) of the IRC and each trust maintained in connection with
each such Employee Plan has been operated and administered in all material
respects in accordance with the requirements for a tax exempt trust under
Section 501 of the IRC and applicable state laws. MET Holdings has received from
the Internal Revenue Service a determination letter with respect to the
qualification of each such Employee Plan and has delivered to TeleBanc a true
and complete copy of the most recent determination letter for each such Employee
Plan, as well as all correspondence relating to the application therefor. The
representations made as a part of the application for each such determination
letter were true and complete when made and continue to be true and complete.
Nothing has occurred since the date of the most recent applicable determination
letter that would adversely affect the qualified status of any such Employee
Plan.
(b) True and complete copies of all Benefit Arrangements that MET
Holdings or any MET Holdings Subsidiary maintains have been delivered to
TeleBanc.
(c) Each of the Employee Plans and Benefit Arrangements of MET
Holdings and any MET Holdings Subsidiary is in compliance with the requirements
prescribed by any and all applicable laws and regulations, including, but not
limited to, ERISA and the IRC. No Employee Plan is subject to Title IV of ERISA.
Neither MET Holdings nor any MET Holdings Subsidiary nor any Employee Plan has
engaged in a "prohibited transaction," as defined in Section 406 of ERISA and
Section 4975 of the IRC, which could subject any of them or MET Holdings to
material liability under Section 409 or 502(i) of ERISA or Section 4975 of the
IRC. No Employee Plan is subject to
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Part III of Subtitle B of Title I of ERISA or Section 412 of the IRC, or both.
Neither MET Holdings nor any MET Holdings Subsidiary failed to make any
contribution or pay any amount due and owing as required by the terms of any
Employee Plan or Benefit Arrangement. Each funded Employee Plan is fully funded
such that the fair market value of the net assets of the Employee Plan equals or
exceeds the present value of all accrued benefits and other liabilities under
such Employee Plan. No events have occurred or are expected to occur with
respect to any Employee Plan that would cause a material change in the value of
the assets or the amount or present value of accrued benefits and other
liabilities of such Employee Plan.
(d) No Employee Plan or Benefit Arrangement, individually or
collectively, provides for any payment by MET Holdings or any MET Holdings
Subsidiary to any employee or independent contractor, in connection with or as a
result of the transactions contemplated by this Agreement, that is not
deductible under either Section 162(a)(1), 162(m), 280G or 404 of the IRC.
3.2.14. Compliance with Applicable Laws. Each of MET Holdings and
any MET Holdings Subsidiary has complied with all Laws applicable to it or to
the operation of its business and none of them has received any notice of any
alleged claim or threatened claim, violation of or liability or potential
responsibility under such Laws that has not heretofore been cured and for which
there is no remaining liability.
3.2.15. Regulatory Filings and Reports. Since December 31, 1991,
MET Holdings and each MET Holdings Subsidiary has filed all documents required
to be filed by it under federal securities laws and Laws applicable to savings
and loan holding companies, broker-dealers and investment advisors, and
applicable Regulations thereunder, and all such documents, as finally amended,
were complete and accurate, complied in all material respects as to form and
substance with all applicable requirements of law and regulation and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.2.16. Tax Matters.
(a) MET Holdings has timely filed on behalf of itself and any MET
Holdings Subsidiary, with the appropriate Governmental Authorities, the Tax
Returns. All of the Tax Returns are accurate and complete in all material
respects.
(b) MET Holdings and each MET Holdings Subsidiary have collected
and withheld all taxes which they are or have been required to collect or
withhold and have timely submitted all such collected and withheld amounts to
the appropriate authorities. MET Holdings and each MET Holdings Subsidiary are
in compliance with the back-up withholding and information reporting
requirements under the IRC, and the rules and regulations of the Internal
Revenue Service thereunder.
(c) All federal, state and local taxes, due and payable by MET
Holdings or any MET Holdings Subsidiary pursuant to the Tax Returns, or pursuant
to any assessment with respect to taxes, penalties or interest in any of such
jurisdictions, have been accrued or paid.
(d) The reserves for taxes contained in the financial statements
(including the notes thereto) described in Section 3.2.8 of this Agreement are
adequate to cover the tax liabilities, including penalties and interest, of MET
Holdings and any MET Holdings Subsidiary for all periods up to and including
December 31, 1995.
(e) Neither MET Holdings nor any MET Holdings Subsidiary has
received any notice of deficiency or assessment or proposed deficiency or
assessment by the Internal Revenue Service or any other taxing authority in
connection with the Tax Returns that has not been brought
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to the attention of TeleBanc management. There is no action, suit, proceeding,
audit, examination, investigation, or claim pending, or to the Knowledge of any
of MET Holdings' officers and directors, or those of any MET Holdings
Subsidiary, threatened, in respect of any taxes for which MET Holdings or any
MET Holdings Subsidiary is or may become liable if such action, suit,
proceeding, audit, examination, investigation, or claim were to be resolved, in
whole or in part, adversely to MET Holdings or any MET Holdings Subsidiary that
has not been brought to the attention of TeleBanc management. To the Knowledge
of any of MET Holdings' officers and directors, or those of any MET Holdings
Subsidiary, no fact exists which constitutes grounds for the assessment of
material additional taxes with respect to MET Holdings or any MET Holdings
Subsidiary that has not been brought to the attention of TeleBanc management.
MET Holdings has provided to TeleBanc a true, correct and complete copy of the
agreement for the allocation or sharing of taxes among MET Holdings and any MET
Holdings Subsidiary.
(f) Neither MET Holdings nor any MET Holdings Subsidiary has
waived any Law fixing, or consented to the extension of, any period of time for
assessment of any tax.
(g) Neither MET Holdings nor any MET Holdings Subsidiary has made
an election under Section 341(f) of the IRC.
(h) MET Holdings has provided to TeleBanc complete and correct
copies of the Tax Returns and all material correspondence and documents, if any,
relating directly or indirectly to taxes for each taxable year of MET Holdings
and each MET Holdings Subsidiary as to which the applicable statute of
limitations has not run on the date hereof. For this purpose, "correspondence
and documents" include, without limitation, amended tax returns, claims for
refunds, notices from taxing authorities of proposed changes or adjustments to
taxes or tax returns, consents to assessment or collection of taxes, acceptances
of proposed adjustments, closing agreements, rulings and determination letters
and requests therefor, and all other written communications to or from taxing
authorities relating to any material tax liability of MET Holdings or any MET
Holdings Subsidiary.
3.2.17. Broker's Fees. No agent, finder, broker, investment
banker, person or firm acting on behalf or under authority of MET Holdings is or
will be entitled to any fee as compensation for services as broker or finder or
any other commission or similar fee directly or indirectly in connection with
this Agreement or any of the transactions contemplated hereby.
3.2.18. No Misrepresentation. None of the representations and
warranties of MET Holding set forth in this Agreement nor any matter disclosed
in any of the schedules, lists, certificates, exhibits or other documents
delivered to TeleBanc hereunder or in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading.
4. COVENANTS
4.1 REGULATORY APPLICATIONS.
Upon the execution and delivery of this Agreement, the parties
hereto shall thereupon cause to be prepared and filed, as soon as is reasonably
practical, all required Applications and any other filings with Governmental
Authorities which are necessary or contemplated for the consummation of the
Merger. Such filing deadline is subject to receipt by the filing party from each
other party hereto of all information required in connection with the filing of
such Applications and other filings. The parties hereto will use their best
efforts to supply, on a timely basis, each other
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party all information required in connection with the preparation and filing of
such Applications and other filings. Such Applications and filings shall be in
such forms as may be prescribed by the respective Governmental Authorities and
shall contain such information as they may require. The parties hereto will
cooperate with each other, including their respective attorneys, advisers and
other representatives, and will use their best efforts to prepare and execute
all necessary documentation, to effect all necessary or contemplated filings and
to obtain all necessary or contemplated permits, consents, Regulatory Approvals,
and authorizations of Governmental Authorities and third parties which are
necessary or contemplated to consummate the transactions contemplated by this
Agreement; provided, however, that TeleBanc shall not be obligated to amend any
Application or other filing, or take any action in connection with such
application or other filing, which TeleBanc reasonably determines would result
in a Material Adverse Change in MET Holdings or a Material Adverse Change in
TeleBanc. TeleBanc shall deliver to MET Holdings, and MET Holdings shall deliver
to TeleBanc, reasonably in advance of the time it intends to file any such
Application or other filing, a draft of the proposed Application or other
filing, and each shall cooperate with the other in responding to and considering
any reasonable questions or comments regarding such draft before it is finalized
and filed, provided that such questions or comments are received on a timely
basis so as to permit response or incorporation.
4.2 REGISTRATION STATEMENT.
(a) Upon the execution and delivery of this Agreement, TeleBanc
shall thereupon cause to be prepared and filed with the SEC, as soon as
reasonably practical (provided that MET Holdings has given to TeleBanc all
information concerning MET Holdings which is required for inclusion in the
Registration Statement, including the Proxy Statement/Prospectus), a
Registration Statement, including the Proxy Statement/Prospectus, complying in
form and substance in all material respects with the requirements of applicable
Laws for the purpose of registering the TeleBanc Stock to be issued in exchange
for MET Holdings Stock and will use its best efforts to have the Registration
Statement declared effective by the SEC upon receipt of the Regulatory
Approvals, or as soon thereafter as possible, and remain effective through the
Closing Date.
(b) TeleBanc shall deliver to MET Holdings, reasonably in advance
of the time it intends to file the Registration Statement with the SEC, a draft
Registration Statement for review and comment upon all information relating to
MET Holdings and any MET Holdings Subsidiary that appears in the Registration
Statement. TeleBanc shall cooperate with MET Holdings in responding to and
considering any reasonable questions or comments regarding such draft
Registration Statement before it is finalized and filed, provided that such
questions or comments are received on a timely basis so as to permit response or
incorporation.
(c) If at any time after the Registration Statement is first
filed with the SEC, and prior to the Closing Date, any event relating to MET
Holdings or any MET Holdings Subsidiary should be discovered which should be set
forth in an amendment of, or a supplement to, the Registration Statement,
including the Proxy Statement/Prospectus, MET Holdings shall promptly so inform
TeleBanc, and will furnish all necessary information to TeleBanc relating to
such event. TeleBanc shall thereupon cause an amendment to the Registration
Statement to be filed with the SEC, and upon the effectiveness of such
amendment, if appropriate, MET Holdings will take any necessary action as
promptly as practicable to permit an appropriate amendment or supplement to be
transmitted to the holders of MET Holdings Stock entitled to vote at the MET
Holdings Shareholders Meeting (as defined in Section 4.3(a) hereof), and will
transmit such amendment or supplement as promptly as practical.
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4.3 SHAREHOLDER APPROVALS.
(a) At such time as TeleBanc and MET Holdings may reasonably
agree, and no later than five Business Days following the later to occur of
receipt of the Regulatory Approvals or the day the Registration Statement
(including any amendments necessitated by Regulatory Approvals) is declared
effective by the SEC, each of MET Holdings and TeleBanc will (i) duly and
properly call, and give notice of, and thereafter cause to be convened and held
no later than 30 days after such notice, a meeting of its shareholders
(including any adjournment of such meeting which may be necessary), for the
purpose of approving this Agreement (including the Plan of Merger) and for such
other purposes as may be necessary to effect the transactions contemplated
hereby (respectively, the "MET Holdings Shareholders Meeting" and the "TeleBanc
Shareholders Meeting"), and (ii) subject to the fiduciary duty of its directors,
recommend to its shareholders the approval of this Agreement (including the Plan
of Merger) and use its best efforts to obtain, as promptly as reasonably
practical, such shareholder approval as may be necessary to effect the Merger.
(b) At the earlier of the time that the Proxy
Statement/Prospectus is mailed to the shareholders of MET Holdings or TeleBanc
for the solicitation of proxies for the approvals referred to above in
connection with the MET Holdings Shareholders Meeting or the TeleBanc
Shareholders Meeting and at all times subsequent to such mailing up to and
including the Closing Date, TeleBanc shall cause all information set forth in
the Proxy Statement/Prospectus (including any supplements thereto) relating to
TeleBanc and any TeleBanc Subsidiary, this Agreement, the Plan of Merger, the
Merger, and all other transactions contemplated hereby and thereby, and any
other documents or notices delivered to shareholders in connection therewith:
(i) to comply in all material respects with applicable
provisions of the Exchange Act and rules and regulations of the
SEC thereunder and all other applicable Laws; and
(ii)to not contain any statement which, at the time and in
light of the circumstances under which it is made, is false or
misleading with respect to any material fact or omit to state any
material fact required to be stated therein or necessary in order
to make the statements therein not false or misleading, or
necessary to correct any statement in an earlier communication
with respect to the solicitation of a proxy for the same meeting
or subject matter which has become false or misleading.
TeleBanc's obligations hereunder are subject to MET Holdings promptly furnishing
TeleBanc with the information relating to MET Holdings and each MET Holdings
Subsidiary which is required under applicable Laws for inclusion in the Proxy
Statement/Prospectus, which information MET Holdings represents and warrants to
TeleBanc shall not contain any statement which, at the time and in light of the
circumstances under which it is furnished, is false or misleading with respect
to any material fact or omits to state any material fact required to be stated
therein or necessary in order to make the information furnished therein not
false or misleading. MET Holdings further represents and warrants to TeleBanc
that it will amend, supplement or revise any information so furnished as
necessary to make the foregoing sentence correct and true in all material
respects at and as of all times from the date of the mailing of the Proxy
Statement/Prospectus to and including the Closing Date.
(c) At the earlier of the time that the Proxy
Statement/Prospectus is mailed to the shareholders of MET Holdings or TeleBanc
for the solicitation of proxies for the approvals referred to above in
connection with the MET Holdings Shareholders Meeting or the TeleBanc
Shareholders Meeting and at all times subsequent to such mailing up to and
including the Closing Date, MET Holdings shall cause all information set forth
in the Proxy Statement/Prospectus (including any supplements thereto) relating
to MET Holdings and any MET Holdings Subsidiary,
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this Agreement, the Plan of Merger, the Merger, and all other transactions
contemplated hereby and thereby, and any other documents or notices delivered to
shareholders in connection therewith:
(i) to comply in all material respects with applicable
provisions of the Exchange Act and rules and regulations of
the SEC thereunder and all other applicable Laws; and
(ii)to not contain any statement which, at the time and
in light of the circumstances under which it is made, is
false or misleading with respect to any material fact or
omit to state any material fact required to be stated
therein or necessary in order to make the statements therein
not false or misleading, or necessary to correct any
statement in an earlier communication with respect to the
solicitation of a proxy for the same meeting or subject
matter which has become false or misleading.
MET Holdings' obligations hereunder are subject to TeleBanc promptly furnishing
MET Holdings with the information relating to TeleBanc and each TeleBanc
Subsidiary which is required under applicable Laws for inclusion in the Proxy
Statement/Prospectus, which information TeleBanc represents and warrants to MET
Holdings shall not contain any statement which, at the time and in light of the
circumstances under which it is furnished, is false or misleading with respect
to any material fact or omits to state any material fact required to be stated
therein or necessary in order to make the information furnished therein not
false or misleading. TeleBanc further represents and warrants to MET Holdings
that it will amend, supplement or revise any information so furnished as
necessary to make the foregoing sentence correct and true in all material
respects at and as of all times from the date of the mailing of the Proxy
Statement/Prospectus to and including the Closing Date.
4.4. BLUE SKY.
(a) TeleBanc shall take all actions necessary to have the shares
of TeleBanc Stock to be delivered in exchange for the MET Holdings Stock
qualified or registered for offering and sale, or to identify and perfect an
exemption therefrom, under the securities or "Blue Sky" laws of each
jurisdiction within the United States in which shareholders of MET Holdings
reside.
(b) TeleBanc shall provide all such notices and make such all
filings as may be required in connection with the transactions contemplated
hereby.
4.5. OTHER APPROVALS.
The parties shall cooperate and use their best efforts to obtain
all written consents and approvals of other persons in connection with any lease
or other agreement the benefits of which cannot be retained upon consummation of
the transactions contemplated hereby without such written consent or approval.
4.6. CONDUCT OF THE BUSINESS OF MET HOLDINGS AND EACH MET HOLDINGS
SUBSIDIARY.
4.6.1. Negative Covenants. From and after the date of this
Agreement up to and including the Closing Date, none of MET Holdings or any MET
Holdings Subsidiary shall, except with the prior written consent of TeleBanc,
which consent shall not be unreasonably withheld, do any one or more of the
following:
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(a) Except for the MET Holdings Stock issuable upon exercise of
existing MET Holdings Options, issue any shares of MET Holdings Stock or
securities exercisable for or convertible into any such shares (including the
grant of additional options or other rights under the MET Holdings Option Plans
or any similar plan of MET Holdings);
(b) Except as otherwise provided by this Agreement, (i) amend or
enter into any agreement with any employee establishing the terms of employment
or severance or termination benefits; (ii) adopt or establish any Employee Plan
or Benefit Arrangement or amend, supplement or otherwise modify any existing
Employee Plan or Benefit Arrangement; or (iii) make additional grants or
contributions under any existing Employee Plans or Benefit Arrangements except
in accordance with past practices;
(c) Increase the compensation payable to any director, officer or
employee, or pay any bonuses to any officer or employee;
(d) Incur any material indebtedness;
(e) Sell, purchase or lease, or commit to sell, purchase or
lease, any material assets, except for transactions pursuant to legally binding
agreements or commitments entered into or approved before the date hereof and
transactions otherwise permitted by this Agreement;
(f) Pay any dividend, acquire any of its capital stock (by
repurchase, tender, redemption or otherwise) or make any other capital
distribution;
(g) Engage in any securities or other trading activity, except in
the ordinary course of business and consistent with past practice;
(h) Make any capital expenditure in excess of $5,000, except in
accordance with budget terms supplied to TeleBanc by MET Holdings hereafter and
specifically approved by TeleBanc;
(i) Make any change in its capital stock by split, reverse split,
reclassification, combination, subdivision, or otherwise;
(j) Amend its certificate of incorporation or by-laws;
(k) Merge, combine, or consolidate with or into, or permit the
merger into it of, any other corporation, association, trust, or entity or
change in any manner the character of its business;
(l) Invest in a MET Holdings Subsidiary or enter into any joint
venture, management agreement, partnership (general or limited) agreement, or
other business enterprise;
(m) Make any investment that does not conform to its existing
investment policies;
(n) Settle or otherwise agree to cease proceedings with respect
to any claims, actions, suits, or other proceedings, where such settlement or
other agreement would require any charge against the income or assets of MET
Holdings or any MET Holdings Subsidiary;
(o) Change or modify in any way any current accounting policy or
practice with respect to the MET Holdings' financial statements prepared in
accordance with generally accepted accounting principles;
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(p) Change or modify in any way business or operating policies,
practices or procedures, as in effect on the date hereof;
(q) Engage in any other transaction that is not consistent with
past practices and in the ordinary course of the business of MET Holdings or
such MET Holdings Subsidiary, as the case may be;
(r) Make any payment to any director, officer, employee or
independent contractor, in connection with or as a result of the transactions
contemplated by this Agreement, or otherwise, that is not deductible under
either Section 162(a)(1) 162(m), 280G or 404 of the IRC; or
(s) Not take any affirmative action which would cause to not be
true as of the Closing Date any of the representations and warranties of MET
Holdings or any MET Holdings Subsidiary.
4.6.2. Affirmative Covenants. To the extent not otherwise
restricted or limited by the terms of this Agreement, MET Holdings and each MET
Holdings Subsidiary shall:
(a) carry on its business in all material respects in
substantially the same manner as heretofore conducted;
(b) use its best efforts to preserve intact the business of MET
Holdings and each MET Holdings Subsidiary, to keep available their present
officers and key employees, to preserve the goodwill of customers and others
having business relationships with MET Holdings and each MET Holdings
Subsidiary, and to comply in all material respects with applicable Laws; and
(c) promptly notify TeleBanc in writing of the existence or
happening of any Material Adverse Change in MET Holdings, Default, or any event
or matter that, with notice or passage of time, would constitute a Default.
4.7. EMPLOYEE PLANS.
From the date of this Agreement to the Closing, MET Holdings
shall not terminate any of its Employee Plans and MET Holdings will use its best
efforts to arrange for the assignment and assumption by TeleBanc, pursuant to
the Merger, of each of the Employee Plans of Met Holdings.
4.8. ACCESS TO INFORMATION.
(a) From the date hereof until the Closing, MET Holdings shall
furnish to TeleBanc and its authorized representatives, and TeleBanc shall
furnish to MET Holdings and its authorized representatives, upon reasonable
notice and during ordinary business hours, full access to all of its respective
books, records, properties, operations and activities, including, but not
limited to, all contracts, commitments, and all loan, investment, accounting,
tax and property records and files (and those of its subsidiaries).
(b) Until the Closing Date, TeleBanc and MET Holdings shall
provide to the other financial statements and other information and reports at
the same time such reports are provided to their respective board of directors
for the preceding calendar month period. Each of TeleBanc and MET Holdings
hereby covenants that the consolidated statements of financial condition
included in the financial statements (including the related notes, where
applicable) to be delivered pursuant to this Section 4.8(b) will fairly present,
the consolidated financial condition of TeleBanc or MET Holdings, as the case
may be, as of the respective dates set forth therein, and the
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related consolidated statements of income, shareholders' equity and cash flows
(including the related notes, where applicable) will fairly present the
consolidated results of operations, shareholders' equity and cash flows of
TeleBanc or MET Holdings, as the case may be, for the respective periods or as
of the respective dates set forth therein, and that each of such financial
statements will be prepared in accordance with generally accepted accounting
principles consistently applied during the periods involved.
(c) MET Holdings and TeleBanc shall provide to each other
complete and correct copies of all reports presented to either of them or any of
their respective subsidiaries by their independent accountants after the date
hereof and for any preceding fiscal years with respect to internal accounting
controls. Each of MET Holdings and TeleBanc represents and warrants to the other
that all recommendations made in such prior reports have been implemented.
4.9. CONFIDENTIALITY.
Any and all commercial, financial, technical, or other
information regarding MET Holdings, TeleBanc or their respective subsidiaries or
their respective businesses, properties, and personnel, or that of their
respective officers, directors, control persons, or affiliates, including such
information obtained in accordance with Section 4.8 above (the "Confidential
Information"), which is derived or results from access by such party (or their
authorized agents and representatives) to the properties, books, contracts,
commitments, and records of the other party or its subsidiaries pursuant to the
provisions of this Agreement, whether obtained before or after the execution of
this Agreement, shall be held in strict confidence; and the party in possession
of the Confidential Information shall exercise the same degree of care with
respect thereto that it uses to preserve and safeguard its own confidential
proprietary information. Such Confidential Information shall not directly or
indirectly be divulged, disclosed or communicated to any other person or entity
or used for any purposes other than those expressly contemplated by this
Agreement, except as otherwise required by judicial or regulatory authorities
having jurisdiction in respect thereof. Each party shall cause its authorized
agents and representatives to maintain the confidentiality of Confidential
Information. In the event the transactions contemplated by this Agreement are
not consummated for any reason, the confidentiality of such Confidential
Information shall be maintained by such party and its authorized agents and
representatives (except to the extent that such Confidential Information can be
shown to be previously known to such party or later acquired by it from
legitimate sources or otherwise available to the public). MET Holdings and
TeleBanc acknowledge and agree that any prior agreements regarding the
confidentiality of Confidential Information shall not merge into and shall
survive the execution and delivery of this Agreement, except that to the extent
that the terms and provisions of this Section impose more stringent restrictions
and limitations on the parties, the terms and provisions of this Section shall
supersede the previously executed and delivered confidentiality agreements.
4.10. BEST EFFORTS.
Each party hereto agrees to use such party's best efforts to
cause the conditions within its control to be satisfied and to effect the
Merger.
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5. CONDITIONS
5.1. CONDITIONS TO OBLIGATIONS OF THE PARTIES.
The obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, on or before the
Closing Date, of each of the following conditions precedent:
5.1.1. Termination. This Agreement shall not have been terminated
in accordance with its terms.
5.1.2. Regulatory Approvals. All Regulatory Approvals shall have
been obtained; no Regulatory Approval shall contain any condition that would
require any material modification or nonperformance of the terms of this
Agreement; all Regulatory Approvals shall remain in full force and effect and
all conditions and requirements set forth in any Regulatory Approval that are
required to be satisfied on or before the Closing Date, including the expiration
of any waiting periods, shall have been satisfied or properly waived.
5.1.3 Shareholder Approvals. This Agreement (including the Plan
of Merger) shall have been approved by the requisite vote of the shareholders of
MET Holdings and TeleBanc in accordance with applicable Laws and the respective
certificate of incorporation and bylaws of MET Holdings and TeleBanc.
5.1.4. Matters Regarding TeleBanc Stock.
(a) Registration Statement. The Registration Statement shall have
been declared effective by the SEC, shall remain effective and shall not be
subject to a stop order or any threatened stop order.
(b) Blue Sky. The shares of TeleBanc Stock to be issued in
exchange for MET Holdings Stock as part of the Merger Consideration shall have
been qualified or registered for offering and sale under the securities or "Blue
Sky" Laws of each jurisdiction within the United States in which shareholders of
MET Holdings reside where such qualification or registration is necessary, and
no order suspending the sale of such shares of TeleBanc Stock in any such
jurisdiction shall have been issued on or before the Closing Date, such
qualification or registration shall remain in effect and no proceedings to
suspend the sale of such shares shall have been instituted or, to the Knowledge
of any of TeleBanc's directors and officers, shall be contemplated.
5.1.5. Escrow Agreements. TeleBanc, MET Holdings and the Escrow
Agent(s) shall have entered into the Caplan/Smilow Escrow Agreement and the
Stockholder Escrow Agreement.
5.2. CONDITIONS TO OBLIGATIONS OF TeleBanc.
The obligations of TeleBanc to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, on or before the
Closing Date, of each of the following conditions precedent, any one or more of
which may be waived by TeleBanc, in its sole and absolute discretion:
5.2.1. Representations and Warranties. The representations and
warranties of MET Holdings contained in this Agreement shall be true, correct
and complete in all material respects when made on the date of this Agreement
and on the Closing Date.
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5.2.2. Regulatory Approvals. The Regulatory Approvals shall not
contain any condition, obligation or other term which TeleBanc reasonably
determines to be materially burdensome.
5.2.3. Other Approvals. Except for such consents, approvals,
permits and other authorizations that, if not obtained, would not, individually
or in the aggregate, have a material adverse effect on the business, financial
condition, results of operations or prospects of MET Holdings and each MET
Holdings Subsidiary, taken as a whole, MET Holdings shall have obtained (i) the
consent or approval of other persons in connection with any lease, agreement or
other arrangement, the benefits of which cannot be retained upon consummation of
the transactions contemplated hereby without such consent or approval, (ii) all
permits or other authorizations other than Regulatory Approvals required to
consummate the transactions contemplated hereby, and (iii) from each of the
holders of the Promissory Notes, a waiver of the right of repayment set forth in
Section 6 of its respective Promissory Note.
5.2.4. Fairness Opinion. TeleBanc shall have received from the
Financial Advisor, or such other financial adviser as TeleBanc may select, an
opinion dated the date of or immediately before the date of this Agreement and
an update of such opinion dated within five Business Days before the Closing
Date, concluding that, in such financial adviser's opinion, the Merger
Consideration is fair, from a financial point of view, to TeleBanc and its
shareholders (other than MET Holdings).
5.2.5. No Material Adverse Change. As of the Closing Date, there
shall have been no Material Adverse Change in MET Holdings from that which was
represented and warranted on the date of this Agreement pursuant to this
Agreement.
5.2.6. Tax Opinion. TeleBanc shall have received the Tax Opinion.
The Tax Opinion shall have been obtained without the imposition of any condition
that is materially burdensome to TeleBanc. The Tax Opinion shall remain in full
force and effect and all conditions and requirements set forth therein that are
required to be satisfied on or before the Closing Date shall have been satisfied
or properly waived.
5.2.7. Compliance. MET Holdings shall have in all material
respects performed all obligations and agreements and complied with all
covenants contained in this Agreement to be performed and complied with by MET
Holdings on or prior to the Closing Date. There shall not exist a Default or
matter that, with notice and/or passage of time, would constitute a Default by
MET Holdings under this Agreement.
5.3. CONDITIONS TO OBLIGATIONS OF MET HOLDINGS.
The obligations of MET Holdings to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, on or before the
Closing Date, of each of the following conditions precedent, any one or more
which may be waived by MET Holdings, at its sole and absolute discretion:
5.3.1. Representations and Warranties. The representations and
warranties of TeleBanc contained in this Agreement shall be true, correct and
complete in all material respects when made on the date of this Agreement and as
of the Closing Date.
5.3.2. No Material Adverse Change. As of the Closing Date, there
shall have been no Material Adverse Change in TeleBanc from that which was
represented and warranted on the date of this Agreement pursuant to this
Agreement.
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5.3.3. Compliance. TeleBanc shall have in all material respects
performed all obligations and agreements and complied with all covenants
contained in this Agreement to be performed and complied with by TeleBanc on or
prior to the Closing Date. There shall not exist a Default or matter that, with
notice and/or passage of time, would constitute a Default by TeleBanc under this
Agreement.
6. CLOSING
6.1. TIME AND PLACE OF CLOSING.
The Closing shall take place on the Closing Date at 9:00 a.m. at
TeleBanc's corporate office, located in Arlington, Virginia, or at such other
time and place on the Closing Date as the parties may mutually agree.
6.2. TeleBanc DELIVERIES.
On the Closing Date, TeleBanc shall deliver or cause to be
delivered to MET Holdings, or in the case of the Merger Consideration, to an
agent (the "Exchange Agent") for the stockholders of MET Holdings receiving all
of the Merger Consideration other than the Caplan/Smilow Escrow Shares and the
Stockholder Escrow Shares, which shares shall be delivered to the Escrow
Agent(s), with each instrument being dated as of the Closing Date and fully
executed, attested, notarized and acknowledged, as appropriate, (i) the Merger
Consideration, (ii) the Amended and Restated Certificate of Incorporation of
TeleBanc certified by the Secretary of State of Delaware, and (iii) such
documents and instruments as MET Holdings may deem reasonably necessary to
consummate the Merger and any other transactions contemplated by this Agreement,
provided that such documents and instruments are consistent with the parties'
intent as expressed in this Agreement.
6.3. MET HOLDINGS DELIVERIES.
On the Closing Date, MET Holdings shall deliver or cause to be
delivered to TeleBanc, with each document and instrument being dated as of the
Closing Date and fully executed, attested, notarized and acknowledged, as
appropriate, (i) the Restated Certificate of Incorporation of MET Holdings, as
amended, certified by the Secretary of State of Delaware, and (ii) such
documents and instruments as TeleBanc may deem reasonably necessary to
consummate the Merger and any other transactions contemplated by this Agreement,
provided that such documents and instruments are consistent with the parties'
intent as expressed in this Agreement.
6.4. FEES AND CLOSING COSTS.
6.4.1. Each party shall pay all reasonable fees and costs of its
own attorneys, accountants, financial advisers and other professionals incurred
in connection with the transactions contemplated by this Agreement, and TeleBanc
hereby expressly consents to the payment by MET Holdings, and MET Holdings
hereby expressly consents to the payment by TeleBanc, before or simultaneously
with the Closing, of such reasonable fees and costs for which the other is
responsible under this Section.
6.4.2. Expenses in connection with the "Blue Sky" registration
and approvals of TeleBanc Stock shall be paid by TeleBanc.
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6.4.3. All other fees and expenses incurred in connection with
the transactions contemplated hereby shall be paid by the party incurring such
expenses.
7. TERMINATION
7.1. MUTUAL CONSENT.
The parties may terminate this Agreement at any time by mutual
written agreement.
7.2. OTHER TERMINATION.
Provided that there does not then exist any Default by the party
or parties giving such notice, MET Holdings, on the one hand, or TeleBanc, on
the other, may terminate this Agreement by giving notice (a "Termination
Notice") to the other at the time designated in this Section or, in the absence
of such designation, at any time up to and including the Closing Date, if any
one or more of the following shall have occurred and be continuing:
7.2.1. Termination By Any Party. Any party may terminate this
Agreement under any one or more of the following circumstances:
(a) at any time after March 31, 1997, if the Closing shall not
have occurred for any reason other than a Default by the party giving such
notice;
(b) this Agreement is not approved by the requisite vote of the
shareholders of MET Holdings or TeleBanc.
(c) any Application for Regulatory Approval is denied or
withdrawn and is not modified or supplemented and resubmitted in a manner that
the party giving the notice believes is responsive to the comments of the
applicable Governmental Authority within 90 days after it is so denied or
withdrawn;
(d) a court or other Governmental Authority of competent
jurisdiction shall have issued an order, writ, injunction or decree or shall
have taken any other action permanently restraining or otherwise prohibiting the
Merger and such order, writ, injunction, decree or other action shall have
become final and nonappealable.
7.2.2. Termination By TeleBanc. TeleBanc may terminate this
Agreement under any one or more of the following circumstances:
(a) at any time if there shall have occurred a Default by MET
Holdings;
(b) on the Closing Date, if any Closing Condition set forth in
Section 5.1 or Section 5.2 shall not have been satisfied;
(c) at any time if a Material Adverse Change in MET Holdings has
occurred and;
(d) at any time up to and including 45 days from the date hereof
if, based upon its corporate investigation of MET Holdings, TeleBanc reasonably,
determines that the business and operations of MET Holdings are not
substantially as represented and warranted on the date hereof.
7.2.3. Termination By MET Holdings. MET Holdings may terminate
this Agreement under any one or more of the following circumstances:
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(a) at any time if there shall have occurred a Default by
TeleBanc;
(b) on the Closing Date, if any condition precedent set forth in
Section 5.1 or Section 5.3 shall not have been satisfied; and
(c) at any time if a Material Adverse Change in TeleBanc has
occurred.
7.3. EFFECT OF TERMINATION.
Termination of this Agreement pursuant to this Section 7 shall
not relieve any party of any liability for a Default or other breach, default or
nonperformance under this Agreement.
8. MISCELLANEOUS
8.1. NOTICES.
Unless expressly provided otherwise in this Agreement, any
notice, request, demand or other communication required to be given under this
Agreement shall be in writing, shall be deemed to be given or delivered (a) on
the date of personal delivery of the notice, request, demand or other
communication at or before 4:00 p.m. Eastern Standard Time (or Eastern Daylight
Savings Time if then in effect in Virginia), (b) on the third Business Day after
the day of mailing of such notice, request, demand or other communication by
United States Registered Mail or United States Certified Mail, postage prepaid,
or (c) on the next Business Day after mailing of such notice, request, demand or
other communication by express courier, freight charges prepaid, to the parties
(including any person or entity designated for receipt of a photocopy thereof)
at the following addresses or at such other address as any of the parties may
hereafter specify in the aforementioned manner:
If to TeleBanc: TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
Attention: Aileen Lopez Pugh
And to: Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
Attention: Stuart G. Stein, Esq.
If to MET Holdings: MET Holdings Corporation
405 Park Avenue, Suite 1104
New York, New York 10022
Attention: Emidio Morizio
8.2. ENTIRE AGREEMENT.
Except as expressly provided otherwise in this Agreement, this
Agreement constitutes the entire agreement of the parties hereto with respect to
the matters addressed herein and, except as expressly set forth herein,
supersedes all prior or contemporaneous contracts, covenants, agreements,
representations, warranties and statements, whether written or oral, with
respect to such matters.
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8.3. AMENDMENT.
This Agreement may not be amended, changed, modified or
terminated, except by written instrument executed by all parties to this
Agreement.
8.4. WAIVER.
Except as expressly provided herein, no waiver by any party of
any failure or refusal of any other party to comply with one or more of its
obligations under this Agreement shall be deemed a waiver of any other or
subsequent failure or refusal to so comply by such other party. No waiver shall
be valid unless in writing signed by the party to be charged and only to the
extent therein set forth.
8.5. SEVERABILITY.
If any term or provision of this Agreement or application thereof
to any person or circumstances shall, to any extent, be found by a court of
competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each other term or provision of this Agreement
shall be valid and be enforced to the fullest extent permitted by law unless, as
a result, the intent of the parties as expressed in this Agreement would be
violated.
8.6. CAPTIONS.
The title of this Agreement and the headings of the various
paragraphs of this Agreement have been inserted only for the purposes of
convenience, and are not part of this Agreement and shall not be deemed in any
manner to modify, explain, expand or restrict any of the provisions of this
Agreement.
8.7 GOVERNING LAW.
Both parties to this Agreement are Delaware corporations. This
Agreement shall be construed and enforced according to the laws of that State
(not including the choice of law rules thereof), unless and to the extent that
the laws of the United States govern the performance of this Agreement.
8.8 NO THIRD PARTY BENEFICIARIES.
Except as expressly provided herein, this Agreement is made and
entered into for the sole protection and benefit of the parties hereto, and no
other person or entity shall have any right of action hereon, right to claim any
right or benefit from the terms contained herein or be deemed a third party
beneficiary hereunder.
8.9 ASSIGNABILITY.
All terms and provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto, and their respective
transferees, successors and assigns; provided, however, that neither this
Agreement nor any rights, privileges, duties and obligations of the parties
hereto may be assigned or delegated by any party hereto without the prior
written consent of the
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other party to this Agreement and any such purported or attempted assignment
shall be null and void ab initio and of no force or effect.
8.10. PARTIES NOT PARTNERS.
Nothing contained in this Agreement shall constitute any party as
a partner with, agent for or principal of any one or more of the other parties
or their successors and assigns.
8.11. COUNTERPARTS.
This Agreement and the documents and instruments to be executed
and delivered pursuant to this Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one instrument.
8.12. CUMULATIVE REMEDIES.
Unless expressly provided otherwise herein, the remedies of each
party provided for herein shall be cumulative and concurrent and shall include
all other rights and remedies available at law or in equity, may be pursued
singly, successively or together, at the sole and absolute discretion of the
applicable party and may be exercised as often as occasion therefor shall arise.
8.13. TIME OF PERFORMANCE.
If any payment to be made or obligation to be performed hereunder
is to be made or performed on a day other than a Business Day, it shall be
deemed to be made or performed in a timely manner if done on the next succeeding
Business Day.
8.14. FURTHER ASSURANCES.
Subject to the terms and conditions of this Agreement, each of
the parties agrees to use its best efforts to take, or cause to be taken, all
action and do, or cause to be done, all things necessary, proper or desirable to
satisfy the Closing Conditions and to consummate and make effective the Merger
and the other transactions contemplated by this Agreement. If, any time after
the Closing Date, any further action is necessary, proper or desirable to effect
the purposes of this Agreement, the proper officers and directors of each party
of this Agreement shall take all such further action.
8.15. TIME OF ESSENCE.
Time is of the essence of this Agreement.
8.16. SURVIVAL.
(a) Except as specifically provided otherwise herein, none of the
representations, warranties, covenants or agreements of TeleBanc contained in
this Agreement or in any certificate or instrument delivered pursuant to this
Agreement shall survive the Closing except to the extent that performance
thereof is to occur subsequent to the Closing Date.
(b) Except as specifically provided otherwise herein, all of the
representations, warranties, covenants or agreements of MET Holdings contained
in this Agreement or in any
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<PAGE>
certificate or instrument delivered pursuant to this Agreement shall survive the
Closing for a period of two years from the Closing Date; provided, however, that
this two year period shall be extended with respect to claims in respect of
taxes or employee benefits to 30 days after the expiration of the applicable
statutory period for such assessments.
8.17 INDEMNIFICATION OF TeleBanc.
After the Closing, TeleBanc and its successors and assigns, shall
be indemnified and held harmless against and from any loss, liability,
obligation, claim, demand, damage, or expense, including without limitation
reasonable attorneys' fees and disbursements, which is directly or indirectly
suffered or incurred at any time by TeleBanc or any of its successors or
assigns, and which arises directly or indirectly out of or by virtue of, or
relates directly or indirectly to, any of the following:
(a) for any claim made by TeleBanc of any false, misleading or
inaccurate representation or warranty made by MET Holdings in this Agreement or
in any certificate or instrument delivered pursuant to this Agreement, or any
breach of or omission with respect to any such representation or warranty;
(b) for any claim made by TeleBanc of any breach, violation, or
nonfulfillment by MET Holdings of, or any failure by MET Holdings to perform any
covenant, agreement, obligation or other provision contained in this Agreement;
(c) for any violation of the obligations of MET Holdings set
forth in Sections 4.3(b) and (c); and
(d) for any action, lawsuit or other proceeding arising from or
relating to any of the foregoing if a claim is made by TeleBanc within the
applicable period set forth in Section 8.16(b).
Any claim by TeleBanc or its successors or assigns pursuant to
this Section 8.17 shall be satisfied only by recourse to the Stockholder Escrow
Shares and only to the extent any such shares remain in the Escrow Account
provided for in Section 2.2.1(c).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.
TeleBanc FINANCIAL CORPORATION
By: /s/ Mark Rollinson
---------------------
Name: Mark Rollinson
---------------------
ATTEST
By: /s/ Sang-Hee Yi
--------------------
Asst. Secretary
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<PAGE>
MET HOLDINGS CORPORATION
By: /s/ Mitchell Caplan
-------------------------
Name: Mitchell Caplan
-------------------------
Title: President
-------------------------
ATTEST
By: /s/ Jane Gelman
-------------------
Secretary
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<PAGE>
EXHIBIT LIST
------------
EXHIBIT A Statement of Earnings Requirements
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<PAGE>
EXHIBIT A
STATEMENT OF EARNINGS REQUIREMENTS
Between the Closing Date and up to and including the Escrow Termination
Date, at such time as Arbor has $1,875,000 of cumulative net income, determined
in accordance generally accepted accounting principles, as measured from the
Closing Date (the "Initial Arbor Earnings Goal"), then, for each $10.31 of
additional cumulative net income (determined in accordance with generally
accepted accounting principles, of Arbor, as measured at the end of each fiscal
quarter) one share of the TeleBanc Stock deposited in the Stockholder Escrow
Account pursuant to Section 2.2.1(c) of the Agreement and Plan of Merger (the
"Release Ratio") shall be released from escrow, pursuant to the terms of Section
2.2.1(c) and the Stockholder Escrow Agreement.
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<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------------
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment")
is made and entered into effective as of October 7, 1996, by and between
TeleBanc Financial Corporation ("TeleBanc"), a Delaware corporation, and MET
Holdings Corporation ("MET Holdings"), a Delaware corporation.
RECITALS
--------
WHEREAS, TeleBanc and MET Holdings entered into a certain Agreement and
Plan of Merger, effective as of May 10, 1996 (the "Agreement"), pursuant to
which, at the Effective Time (as defined in the Agreement), MET Holdings will
merge with and into TeleBanc (the "Merger");
WHEREAS, the parties to the Agreement now desire to amend the Agreement
in several respects;
WHEREAS, pursuant to Section 4.1 of the Amended and Restated
Certificate of Incorporation of TeleBanc ("Certificate of Incorporation"),
TeleBanc is authorized to issue 3,500,000 shares of common stock, par value
$0.01 per share ("TeleBanc Stock") and 500,000 shares of serial preferred stock,
par value $0.01 per share ("TeleBanc Preferred Stock");
WHEREAS, in connection with the Merger and other considerations, the
independent members of the Board of Directors of TeleBanc (the "Independent
Directors") have declared it advisable and have approved the authorization of
the amendment of TeleBanc's Certificate of Incorporation to increase the
authorized number of shares of TeleBanc Stock from 3,500,000 to 5,000,000 and to
increase the authorized number of shares of TeleBanc Preferred Stock from
500,000 to 5,000,000.
WHEREAS, the Independent Directors of TeleBanc and the Board of
Directors of MET Holdings deem it advisable to make certain changes to certain
provisions of the Agreement related to, inter alia, the exchange ratios, the
Caplan/Smilow Escrow Shares and the Stockholder Escrow Shares (each such term as
defined in the Agreement);
WHEREAS, MET Holdings currently owns 106 shares (80.3%) of the issued
and outstanding common stock of Arbor Capital Partners, Inc. ("Arbor"), without
par value, and 100% of the issued and outstanding preferred stock of Arbor, par
value $100 per share;
WHEREAS, William M. Daugherty owns the remaining 26 shares (19.7%) of
the issued and outstanding common stock of Arbor and has the right (the
"Daugherty Option") to acquire up to 27 additional shares of Arbor common stock
in connection with the Merger (collectively, such 53 shares are hereinafter
referred to as the "Remaining Arbor Stock");
WHEREAS, the Independent Directors of TeleBanc and the Board of
Directors of MET Holdings deem it advisable for TeleBanc, MET Holdings and Mr.
Daugherty to enter into a stock exchange agreement (the "Stock Exchange
Agreement"), pursuant to which, if the Merger is consummated, immediately prior
to the Effective Time, the Daugherty Option will be exercised in full and at the
Effective Time, the Remaining Arbor Stock will be exchanged for 342,604 shares
of TeleBanc Stock, such that Arbor will become a wholly-owned subsidiary of
TeleBanc; and
WHEREAS, the Independent Directors of TeleBanc and the Board of
Directors of MET Holdings deem it advisable for 342,604 shares of TeleBanc Stock
(the "Shares") to be issued to Mr. Daugherty for the Remaining Arbor Stock and
that (i) 46,302 of such Shares be issued to Mr. Daugherty at the Effective Time,
(ii) 42,302 of such Shares be held in a certain escrow account and (iii) 250,000
of such Shares be held in a certain separate escrow account;
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<PAGE>
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties, covenants and conditions set forth
herein and in the Agreement, the sufficiency of which is hereby acknowledged,
the parties mutually agree that the Agreement is hereby amended as follows:
1. Section 1.2 of the Agreement is amended to include the following
definition: "`Amendment': The proposed amendment to the Certificate of
Incorporation of TeleBanc, pursuant to which TeleBanc would be
authorized to issue 5,000,000 shares of TeleBanc Stock and 5,000,000
shares of TeleBanc Preferred Stock."
2. The definition of "Caplan/Smilow Escrow Agreement" in Section 1.2 of
the Agreement is amended by inserting after the word "TeleBanc" the
words ", on its own behalf and on behalf of the members of the
Caplan/Smilow Group."
3. Section 1.2 of the Agreement is amended to include the following
definition: "`Caplan/Smilow Group': This term has the meaning set forth
in Section 2.2.1(d)."
4. Section 1.2 of the Agreement is amended to include the following
definition: "`Daugherty Arbor Issued Shares': This term has the meaning
set forth in Section 2.2.1(d)."
5. Section 1.2 of the Agreement is amended to include the following
definition: "`Daugherty Option:' The right of William M. Daugherty to
acquire up to 27 additional shares of Arbor common stock which,
pursuant to the Stock Exchange Agreement, is to be exercised
immediately prior to the Effective Time of the Merger.'"
6. The definition of "Escrow Account" in Section 1.2 of the Agreement is
amended by inserting after the words "Caplan/Smilow Escrow Agreement"
the words ", the First Daugherty Escrow Agreement, the Second Daugherty
Escrow Agreement."
7. The definition of "Escrow Agent" in Section 1.2 of the Agreement is
amended by deleting the word "An" at the beginning of the sentence and
by inserting in its place the words "With respect to the Caplan/Smilow
Escrow Agreement and the Stockholder Escrow Agreement, an" and by
inserting at the end of that sentence after the words "as applicable"
the words ", and with respect to the First Daugherty Escrow Agreement
and the Second Daugherty Escrow Agreement, an escrow agent mutually
selected by TeleBanc and William M. Daugherty that is identified as the
"Escrow Agent" in the Daugherty Escrow Agreement."
8. Section 1.2 of the Agreement is hereby amended to include the following
definition: "`First Daugherty Escrow Agreement': The escrow agreement
by and among TeleBanc, William M. Daugherty and the Escrow Agent,
entered into on or before the Closing Date, the terms of which will be
substantially as set forth in Section 2.2.1(d) of this Agreement.
9. Section 1.2 of the Agreement is amended to include the following
definition: "`First Daugherty Escrow Shares': This term has the meaning
set forth in Section 2.2.1(d)."
10. Section 1.2 of the Agreement is amended to include the following
definition: "`Remaining Arbor Stock': This term has the meaning set
forth in Section 2.2.1(d)."
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<PAGE>
11. Section 1.2 of the Agreement is hereby amended to include the following
definition: "`Second Daugherty Escrow Agreement': The escrow agreement
by and among TeleBanc, William M. Daugherty and the Escrow Agent,
entered into on or before the Closing Date, the terms of which will be
substantially as set forth in Section 2.2.1(e) of this Agreement.
12. Section 1.2 of the Agreement is amended to include the following
definition: "`Second Daugherty Escrow Shares': This term has the
meaning set forth in Section 2.2.1(e)."
13. Section 1.2 of the Agreement is amended to include the following
definition: "`Stock Exchange Agreement': The agreement entered into by
and among TeleBanc, MET Holdings and William M. Daugherty, pursuant to
which immediately prior to the Effective Time, the Daugherty Option
shall be exercised in full and at the Effective Time, all of the shares
of common stock of Arbor then owned by Mr. Daugherty shall be exchanged
for shares of TeleBanc Stock."
14. The definition of "Stockholder Escrow Agreement" in Section 1.2 of the
Agreement is amended by inserting after the word "TeleBanc" the words
", on its own behalf and on behalf of the shareholders identified in
Schedule A thereto (all of the shareholders of MET Holdings at the
Effective Time)."
15. Section 1.2 of the Agreement is amended to include the following
definition: "`TeleBanc Preferred Stock': The serial preferred stock,
par value $0.01 per share, of TeleBanc."
16. The second sentence of Section 2.2.1(a) of the Agreement is amended by
deleting the number "80.54" and inserting in its place the number
"102.2797." The third sentence of Section 2.2.1(a) is amended by
deleting the number "72.46" and inserting in its place the number
"94.5550."
17. Section 2.2.1(b) of the Agreement is deleted in its entirety and
replaced by the following paragraph:
"(b) Caplan/Smilow Escrow Shares. In the Merger, 235,990
shares of TeleBanc Stock which otherwise would be issued
(pursuant to Section 2.2.1(a) or Section 2.3) or attributed to
the common MET Holdings and TeleBanc directors, Mitchell H.
Caplan and David A. Smilow, and certain of their family
relations and affiliates (collectively, the "Caplan/Smilow
Group") as a result of the Merger (the "Caplan/Smilow Escrow
Shares") will be placed, pursuant to the Caplan/Smilow Escrow
Agreement, into an Escrow Account, and released on a pro rata
basis to the members of the Caplan/Smilow Group to the
proportion, if any, that Arbor receives net return of capital
from AG Spruce Fund, L.P. and AGEA Partners, L.P. (the
"Funds") of $2.5 million on or before the final liquidation,
dissolution or termination of both of the Funds (the "Escrow
Termination Date"). To the extent such shares are not paid out
of escrow to the members of the Caplan/Smilow Group, they will
be canceled and returned to the treasury of TeleBanc. Prior to
the Escrow Termination Date, the Caplan/Smilow Escrow Shares
shall be voted by the members of the Caplan/Smilow Group on a
pro rata basis. Any dividends or other earnings on the
Caplan/Smilow Escrow Shares will be held in escrow and
distributed with the Caplan/Smilow Escrow Shares to which such
dividends or earnings relate. If any Caplan/Smilow Escrow
Shares are returned to TeleBanc from the Escrow Account, any
dividends or earnings on such shares also will be returned to
TeleBanc."
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<PAGE>
18. Section 2.2.1(c) of the Agreement is deleted in its entirety and
replaced by the following paragraph:
"(c) Stockholder Escrow Shares. Upon the Effective Time, in
addition to the shares of TeleBanc Stock issued pursuant to
Section 2.2.1(a), TeleBanc shall issue and deposit with the
Escrow Agent, pursuant to the Stockholder Escrow Agreement,
approximately 500,000 shares of TeleBanc Stock to be held in
an Escrow Account (the "Stockholder Escrow Shares"). Pursuant
to the terms of the Stockholder Statement of Earnings
Requirements (which is attached as Exhibit A to this
Agreement, and which also will be attached as Schedule B to
the Stockholder Escrow Agreement), if the Stockholder Initial
Arbor Earnings Goal is achieved as of the Escrow Termination
Date, the appropriate number of Stockholder Escrow Shares will
be released to the former shareholders of MET Holdings
identified in Schedule A to the Stockholder Escrow Agreement
on a pro rata basis, in accordance with the Stockholder
Earnings Ratio (as such term is defined in Exhibit A). If the
Stockholder Initial Arbor Earnings Goal has not been met as of
the Escrow Termination Date and if any of the Stockholder
Escrow Shares remain in the Escrow Account after the Escrow
Termination Date, any remaining Stockholder Escrow Shares in
the Escrow Account shall be canceled and returned to
TeleBanc's treasury. Prior to the Escrow Termination Date,
Stockholder Escrow Shares shall be voted by the Escrow Agent
in the same pro rata proportion as the other issued and
outstanding shares of TeleBanc Stock are voted. Any dividends
or other earnings on the Stockholder Escrow Shares will be
held in escrow and distributed with the Stockholder Escrow
Shares to which such dividends or earnings relate. If any
Stockholder Escrow Shares are returned to TeleBanc from the
Escrow Account, any dividends or other earnings thereon shall
be distributed to TeleBanc. As provided in Section 8.17, for
so long as the Stockholder Escrow Shares or any dividends or
other earnings thereon are held in the Escrow Account pursuant
to the Stockholder Escrow Agreement, such shares and any
dividends or other earnings thereon shall be available to
satisfy any claims for indemnification by TeleBanc for the
applicable period set forth in Section 8.16(b)."
19. Section 2.2.1 of the Agreement is amended by adding a new subsection
(d) which provides as follows:
"(d) Remaining Arbor Stock. Immediately prior to the Effective
Time, pursuant to the Stock Exchange Agreement, the Daugherty
Option will be exercised in full. At the Effective Time, in
addition to the shares of TeleBanc Stock issued to Mr.
Daugherty pursuant to Sections 2.2.1(a) and 2.2.1(c), each
issued and outstanding share of common stock, without par
value, of Arbor then owned by Mr. Daugherty (the "Remaining
Arbor Stock") shall be exchanged for 342,604 shares of
TeleBanc Stock (at an exchange ratio of 6,464.2264 shares of
TeleBanc Stock for each of the 53 shares of Remaining Arbor
Stock). Of such 342,604 shares, (i) 46,302 shares shall be
issued to Mr. Daugherty at the Effective Time (the "Daugherty
Arbor Issued Shares"), (ii) 250,000 shares shall be placed in
an Escrow Account as described in Section 2.2.1(e), and (iii)
46,302 shares (the "First Daugherty Escrow Shares") will be
placed, pursuant to the First Daugherty Escrow Agreement, into
an Escrow Account, and released to the proportion, if any,
that Arbor receives net return of capital from the Funds of
$2.5 million on or before the Escrow Termination Date. To the
extent such shares are not paid out of escrow to Mr.
Daugherty, they will be canceled and returned to the treasury
of TeleBanc. Prior to the Escrow Termination Date, the First
Daugherty Escrow Shares shall be voted by Mr. Daugherty. Any
dividends or other earnings on the First Daugherty Escrow
Shares will be held in escrow and distributed with the First
Daugherty Escrow Shares to which such dividends or earnings
relate. If any First Daugherty Escrow Shares are returned to
TeleBanc from the Escrow Account, any dividends or earnings on
such shares also will be returned to TeleBanc.
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<PAGE>
20. Section 2.2.1 of the Agreement is amended by adding a new subsection
(e) which provides as follows:
"Upon the Effective Time, of the 342,604 shares of
TeleBanc Stock issued to Mr. Daugherty pursuant to
Section 2.2.1(d), TeleBanc shall issue and deposit
with the Escrow Agent, pursuant to the Second
Daugherty Escrow Agreement, 250,000 of such 342,604
shares of TeleBanc Stock to be held in an Escrow
Account (the "Second Daugherty Escrow Shares").
Pursuant to the terms of the Daugherty Statement of
Earnings Requirements (which is attached as Exhibit B
to this Agreement, and which also will be attached as
Schedule A to the Second Daugherty Escrow Agreement),
if the Daugherty Initial Arbor Earnings Goal is
achieved as of the Escrow Termination Date, the
appropriate number of Second Daugherty Escrow Shares
will be released to Mr. Daugherty, in accordance with
the Daugherty Earnings Ratio (as such term is defined
in Exhibit B). If the Daugherty Initial Arbor
Earnings Goal has not been met as of the Escrow
Termination Date and if any of the Second Daugherty
Escrow Shares remain in the Second Daugherty Escrow
Account after the Escrow Termination Date, any
remaining Second Daugherty Escrow Shares in the
Second Daugherty Escrow Account shall be canceled and
returned to TeleBanc's treasury. Prior to the Escrow
Termination Date, Second Daugherty Escrow Shares
shall be voted by Mr. Daugherty. Any dividends or
other earnings on the Second Daugherty Escrow Shares
will be held in escrow and distributed with the
Second Daugherty Escrow Shares to which such
dividends or earnings relate. If any Second Daugherty
Escrow Shares are returned to TeleBanc from the
Escrow Account, any dividends or other earnings
thereon shall be distributed to TeleBanc."
21. The first sentence of Section 2.2.2 is amended by deleting the word
"Certificate" and inserting in its place the words "At the Effective
Time, other than with respect to shares issued and deposited into
escrow pursuant to Section 2.2.1(c), certificates." Section 2.2.2 of
the Agreement is further amended by inserting at the end of that
section:
"In lieu of a fraction of a share, the amount of cash that the
holder of the Daugherty Arbor Issued Shares is entitled to
shall be determined in the manner set forth above, and
following the consummation of the Merger, such holder shall
not be entitled to dividends or any other rights in respect of
any such fraction. In the event that shares of TeleBanc Stock
are released from escrow on or before the Escrow Termination
Date pursuant to Section 2.2.1(b), Section 2.2.1(c), Section
2.2.1(d) or Section 2.2.1(e) hereof, in lieu of a fraction of
a share, such holder(s) shall receive an amount of cash
determined in the manner set forth in above, except that with
respect to these shareholders, the reference in clause (ii) to
the Closing Date shall be replaced with the Escrow Termination
Date, or, with respect to those shares held in escrow pursuant
to Section 2.2.1(b) or Section 2.2.1(d), the date such shares
are entitled to be released from escrow if such date occurs
prior to the Escrow Termination Date. Following the release of
shares from escrow pursuant to Section 2.2.1(b), Section
2.2.1(c), Section 2.2.1(d) or Section 2.2.1(e), such holder(s)
shall not be entitled to dividends or any other rights in
respect of any such fraction."
22. Section 2.3 of the Agreement is amended by deleting in clause (i) of
the second sentence the number "$82,302.45" and inserting in its place
the number "$82,219.59" and by deleting in clause (ii) of the same
sentence the number "9,940" and inserting in its place the number
"9,640."
23. Section 3.1.3 of the Agreement is amended by inserting at the end of
that section the following additional sentence: "In connection with the
Merger and general corporate governance of TeleBanc, TeleBanc
shareholders will vote on the Amendment, which if approved, would
increase the authorized number of shares of TeleBanc capital stock to
10,000,000, including 5,000,000 shares of common stock and 5,000,000
shares of preferred stock."
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<PAGE>
24. Section 3.1.4 of the Agreement is amended by inserting in the first
sentence after the words "approval of the Agreement" the words "and the
Amendment." The second sentence of Section 3.1.4 is amended by
inserting after the words "Plan of Merger," the words "and the
Amendment."
25. Section 4.3(a) of the Agreement is amended to insert in each of clauses
(i) and (ii) after the words "(including the Plan of Merger)" the words
"and with respect to TeleBanc only, the Amendment."
26. Section 5.1.3 of the Agreement is amended by inserting after the words
"(including the Plan of Merger") the words "and with respect to
TeleBanc only, the Amendment."
27. The heading and text of Section 5.1.5 of the Agreement shall be deleted
in their entirety and replaced by the following: "Other Agreements. The
appropriate parties shall have entered into (i) the Caplan/Smilow
Escrow Agreement, (ii) the Stockholder Escrow Agreement, (iii) the
First Daugherty Escrow Agreement, (iv) the Second Daugherty Escrow
Agreement and (v) the Stock Exchange Agreement."
28. Section 5.1 of the Agreement is amended by adding a new subsection
5.1.6 which provides as follows: "5.1.6 Daugherty Option. Immediately
prior to the Effective Time, the Daugherty Option shall be exercised in
full."
29. Section 7.2.1(b) of the Agreement is amended by inserting after the
word "Agreement" the words "and with respect to TeleBanc only, the
Amendment."
30. All references in the Agreement to the "Plan of Merger" shall hereafter
refer to the Agreement, which shall constitute the Plan of Merger.
There shall be no separate Plan of Merger.
31. The Exhibit List is amended by inserting before the words "Statement of
Earnings Requirements" the word "Stockholder" and by adding a new
exhibit, "EXHIBIT B Daugherty Statement of Earnings Requirements."
32. The heading and the paragraph of text in EXHIBIT A to the Agreement,
the Statement of Earnings Requirements, are deleted in their entirety
and replaced by the following:
"STOCKHOLDER STATEMENT OF EARNINGS REQUIREMENTS
Between the Closing Date and up to and including the Escrow
Termination Date, if Arbor has received a return of at least
$1,875,000 of cumulative return of capital from the Funds,
determined in accordance with generally accepted accounting
principles, as measured from the Closing Date to the Escrow
Termination Date (the "Stockholder Initial Arbor Earnings
Goal"), then, for each $15.46 of additional cumulative net
income (determined in accordance with generally accepted
accounting principles) of Arbor earned prior to the Escrow
Termination Date, one share of the TeleBanc Stock deposited in
the Stockholder Escrow Account pursuant to Section
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<PAGE>
2.2.1(c) of the Agreement and Plan of Merger (the "Stockholder
Earnings Ratio") shall be released from escrow, pursuant to
the terms of Section 2.2.1(c) and the Stockholder Escrow
Agreement."
33. A new EXHIBIT B is added to the Agreement which provides as follows:
"DAUGHERTY STATEMENT OF EARNINGS REQUIREMENTS
Between the Closing Date and up to and including the Escrow
Termination Date, if Arbor has received a return of at least
$1,875,000 of cumulative return of capital from the Funds,
determined in accordance with generally accepted accounting
principles, as measured from the Closing Date to the Escrow
Termination Date (the "Daugherty Initial Arbor Earnings
Goal"), then, for each $30.93 of additional cumulative net
income (determined in accordance with generally accepted
accounting principles) of Arbor earned prior to the Escrow
Termination Date, one share of the TeleBanc Stock deposited in
the Escrow Account pursuant to Section 2.2.1(e) of the
Agreement and Plan of Merger (the "Daugherty Earnings Ratio")
shall be released from escrow, pursuant to the terms of
Section 2.2.1(e) and the Second Daugherty Escrow Agreement."
34. Except as otherwise specifically amended herein, the balance of the
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Agreement and Plan of Merger to be duly executed as of the date first above
written.
TeleBanc FINANCIAL CORPORATION
By: ___________________________
Name: _________________________
ATTEST
By: ______________________
Secretary
MET HOLDINGS CORPORATION
By: ___________________________
Name: _________________________
ATTEST
By: ______________________
Secretary
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<PAGE>
ANNEX B
DELAWARE GENERAL CORPORATION LAW
Section 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to
subsection (g) of ss. 251), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss.
264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any
class or series of stock, which stock, or depository
receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders
to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities
exchange or designated as a national market system
security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and
further provided that no appraisal rights shall be
available for any shares of stock of the constituent
corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders
of the surviving corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be
available for the shares of any class or series of
stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of
merger or consolidation pursuant to ss.ss. 251, 252,
254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving
or resulting from such merger or
consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof,
which shares of stock or depository receipts
at the effective date of the merger or
consolidation will be either listed on a
national securities exchange or designated
as a national market system security on an
interdealer quotation system by the National
Association of Securities Dealers, Inc. or
held of record by more than 2,000 holders;
B-1
<PAGE>
c. Cash in lieu of fractional shares or
fractional depository receipts described in
the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of
fractional shares or fractional depository
receipts described in the foregoing
subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under
ss. 253 of this title is not owned by the parent
corporation immediately prior to the merger,
appraisal rights shall be available for the shares of
the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is
to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its
stockholders who was such on the record date for such
meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for
any or all of the shares of the constituent
corporations, and shall include in such notice a copy
of this section. Each stockholder electing to demand
the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the
merger or consolidation, a written demand for
appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal
of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so
by a separate written demand as herein provided.
Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each
constituent corporation who has complied with this
subsection and has not voted in favor of or consented
to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to ss. 228 or ss. 253 of this title, each constituent
corporation, either before the effective date of the
merger or consolidation or within ten days
thereafter, shall notify each of the holders of any
class or series of stock of such constituent
corporation who are entitled to appraisal rights of
the approval of the merger or consolidation and that
appraisal rights are available for any or all shares
of such class or series of stock of such constituent
corporation, and shall include in such notice a copy
of this section; provided that, if the notice is
given on or after the effective date of the merger or
B-2
<PAGE>
consolidation, such notice shall be given by the
surviving or resulting corporation to all such
holders of any class or series of stock of a
constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on
or after the effective date of the merger or
consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may,
within twenty days after the date of mailing of such
notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of
the effective date of the merger or consolidation,
either (i) each such constituent corporation shall
send a second notice before the effective date of the
merger or consolidation notifying each of the holders
of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall
send such a second notice to all such holders on or
within 10 days after such effective date; provided,
however, that if such second notice is sent more than
20 days following the sending of the first notice,
such second notice need only be sent to each
stockholder who is entitled to appraisal rights and
who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer
agent of the corporation that is required to give
either notice that such notice has been given shall,
in the absence of fraud, be prima facie evidence of
the facts stated therein. For purposes of determining
the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior
to the date the notice is given; provided that, if
the notice is given on or after the effective date of
the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and
the notice is given prior to the effective date, the
record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by l or more publications at
least l week
B-3
<PAGE>
before the day of the hearing, in a newspaper of general circulation published
in the City of Wilmington, Delaware or such publication as the Court deems
advisable. The forms of the notices by mail and by publication shall be approved
by the Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
B-4
<PAGE>
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-5
<PAGE>
ANNEX C
October 4, 1996
To the Board of Directors
TeleBanc Financial Corporation
1111 North Highland Street
Arlington, VA
You have asked our opinion of fairness from a financial point of view to the
shareholders of TeleBanc Financial Corporation of the Agreement and Plan of
Merger between TeleBanc Financial Corporation and MET Holdings Corporation dated
May 10, 1996, as amended (the "Merger Agreement").
In developing our opinion, we have, among other things, appraised TeleBanc
Financial Corporation, MET Holdings Corporation and its subsidiary, Arbor
Capital Partners, Inc. ("Arbor"), all as of March 31, 1996. In so doing, we have
relied upon management with respect to the accuracy and completeness of the
financial and other information provided.
Under the Merger Agreement, TeleBanc will issue common shares in exchange for
MET Holdings preferred stock, common stock, and stock options. William M.
Daugherty's Arbor shares and option will be similarly exchanged. It is
noteworthy that 87.3% of the TeleBanc shares to be issued will be contingent
shares to be released based upon the four-year financial performance of Arbor
Capital Partners.
We have considered the contributions of each company to the combined assets and
earnings of the new entity including the assumptions underlying future financial
performance. According to our fully-diluted per-share analysis, TeleBanc will
initially dilute its net tangible assets by 0.79% and enhance its core earnings
by 4.05%. Based on Arbor Capital's achievement of the four-year financial
objectives contemplated by the Merger Agreement and the consequent release of
escrowed TeleBanc shares, the transaction will have diluted TeleBanc's tangible
net assets per share by 1.07% but will have enhanced TeleBanc's potential core
earnings per share by as much as 43.7%.
In our opinion, the consideration to be paid for MET Holdings pursuant to the
Merger Agreement and for the common stock of Arbor Capital Partners owned by Mr.
Daugherty at the effective time (as defined in the Merger Agreement) is fair
from a financial point of view to the shareholders of TeleBanc.
Corporate Finance of Washington, Inc.
/s/ Peter W. Gavian
Peter W. Gavian, CFA, ASA
C-1
<PAGE>
ANNEX D
D-1
<PAGE>
ANNEX F
INDEX TO FINANCIALS
Met Holdings Corporation
and Subsidiaries
Report of Independent Public Accountants F-3
Consolidated Statements of Financial Position F-4
Consolidated Statements of Operations F-6
Consolidated Statements of Changes in Stockholders' Equity F-8
Consolidated Statements of Cash Flows F-9
Notes to Financial Statements F-11
F-1
<PAGE>
MET Holdings Corporation
Financial Statements
As of December 31, 1995,
And for the Year then Ended,
Together With Auditors' Report
F-2
<PAGE>
Report of Independent Public Accountants
To the Stockholders of
MET Holdings Corporation:
We have audited the accompanying consolidated statement of financial position of
MET Holdings Corporation (a Delaware corporation) and subsidiaries
(collectively, the "Company") as of December 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MET Holdings Corporation and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Washington,D.C.,
July 18, 1996 (except with
respect to the matters
discussed in Note 21, as to
which the date is September
30, 1996)
F-3
<PAGE>
MET Holdings Corporation and Subsidiaries
Consolidated Statements of Financial Position
(In Thousands)
<TABLE>
<CAPTION>
Assets
June 30, December 31,
--------------------------------
1996 1995 1994
------------- --------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash and amounts due from depository institutions $ 1,366 $ 2,897 $ 2,309
Interest bearing deposits 3,370 5,956 3,623
Federal funds sold 809 905 647
------------- --------------- -------------
Total cash and cash equivalents 5,545 9,758 6,579
------------- --------------- -------------
Securities purchased under agreement to resell -- -- 1,181
Investment securities available for sale, at fair value 61,195 40,058 10,548
Mortgage-backed securities available for sale, at fair value 216,206 234,210 15,459
Investment securities held to maturity (fair value of
$1,901 at December 31, 1994) -- -- 1,896
Mortgage-backed and related securities held to
maturity (fair value of $214,105 at December 31, 1994) -- -- 221,005
Loans receivable, net 185,509 248,667 154,742
Loans receivable, held for sale 106,563 -- --
Real estate acquired through foreclosure 1,127 790 793
Accrued interest receivable 4,784 4,378 3,081
Other assets 22,010 16,842 12,389
------------- --------------- -------------
Total assets $602,939 $544,703 $427,673
============= =============== =============
</TABLE>
The accompanying notes are an integral part
of these consolidated statements of financial position.
F-4
<PAGE>
MET Holdings Corporation and Subsidiaries
Consolidated Statements of Financial Position
(In Thousands)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
June 30, December 31,
---------------------------
1996 1995 1994
----------- ---------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Deposits $345,755 $306,500 $212,411
Advances from Federal Home Loan Bank of Atlanta 120,500 105,500 96,000
Securities sold under agreements to repurchase 79,944 93,905 79,613
Subordinated debt, net of original issue discount 16,541 16,496 16,390
Notes payable 2,495 2,595 2,495
Other liabilities 13,515 9,752 5,560
----------- ---------- ------------
578,750 534,748 412,469
Commitments and contingencies
Minority interest 8,450 7,955 5,981
Stockholders' equity:
Preferred stock, 6 percent nonconvertible, Class B,
$0.10 par value, 5,000 shares authorized, 5,000
shares issued and outstanding 1 - -
Common stock, Class A, $0.10 par value, 100,000
shares authorized; 11,263 shares issued and 9,924
outstanding 1 1 1
Common stock, Class B, $0.10 par value, 100,000
shares authorized; 6,940 issued and 6,201
outstanding 1 1 1
Additional paid-in capital 10,204 7,205 7,205
Retained earnings 5,372 4,637 3,052
Treasury stock at cost (1,339 Class A and 739 Class B
shares) (831) (831) (831)
Unrealized gain (loss) on securities available for sale,
net of tax 991 987 (205)
----------- ---------- ------------
Total stockholders' equity 15,739 12,000 9,223
----------- ---------- ------------
Total liabilities and stockholders' equity $602,939 $554,703 $427,673
============ ========== =============
</TABLE>
The accompanying notes are an integral part
of these consolidated statements of financial position.
F-5
<PAGE>
MET Holdings Corporation and Subsidiaries
Consolidated Statements of Operations
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Six Months For the Year Ended
Ended June 30, December 31,
---------------------- --------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Mortgage loans and other loans $10,866 $ 7,821 $17,726 $10,813 $ 9,563
Mortgage-backed and related securities 216 9,432 18,614 9,328 5,452
Investment securities and interest-bearing deposits 423 470 984 752 558
Mortgage-backed and related securities available for
sale 9,418 785 1,755 646 331
Investment securities available for sale 1,548 521 1,405 621 636
Other interest income 101 136 233 132 133
------- ------- ------- ------- -------
Total interest income 22,572 19,165 40,717 22,292 16,673
Interest expense:
Deposits 9,783 7,888 17,033 9,727 7,694
Advances from Federal Home Loan Bank of Atlanta 3,078 2,984 5,985 4,278 2,543
Reverse repurchase agreements 2,663 3,104 6,252 2,281 1,254
Subordinated debt 1,037 1,037 2,089 1,227 --
Other interest payable 347 370 735 153 433
------- ------- ------- ------- -------
Total interest expense 16,908 15,383 32,094 17,666 11,924
------- ------- ------- ------- -------
Net interest income 5,664 3,782 8,623 4,626 4,749
Provision for loan and security losses 619 661 1,722 492 211
------- ------- ------- ------- -------
Net interest income after provision for
loan and security losses 5,045 3,121 6,901 4,134 4,538
Other income:
Commissions, fees and service charges 618 591 930 602 46
Gain on sale of securities, net 178 994 3,409 118 1,096
Gain on sale of loans held for sale -- -- 232 -- --
Earnings of equity investments 214 -- -- -- --
Other 47 15 -- 69 21
------- ------- ------- ------- -------
Total noninterest income 1,057 1,600 4,571 789 1,163
Other expenses:
General and administrative-
Compensation and employee benefits 1,954 2,006 3,833 2,182 1,497
Office occupancy and equipment 270 241 506 449 304
Federal deposit insurance premiums 344 225 526 337 347
Professional services 704 522 1,076 707 922
Other 508 296 736 449 321
------- ------- ------- ------- -------
Total general and administrative expenses 3,780 3,290 6,677 4,124 3,391
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
MET Holdings Corporation and Subsidiaries
Consolidated Statements of Operations (Cont'd)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Six Months For the Year Ended
Ended June 30, December 31,
----------------------- ----------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net operating costs of real estate acquired through
foreclosure $ 47 $ 80 $ 430 $ (13) $ 534
Amortization of goodwill and other intangibles 336 86 239 198 183
-------- ------- ------- ------- -------
Total other expenses 4,163 3,456 7,346 4,309 4,108
-------- ------- ------- ------- -------
Income before income tax expense, minority interest
and cumulative effect of change in accounting principle 1,939 1,265 4,126 614 1,593
Income tax provision 668 429 1,576 129 663
-------- ------- ------- ------- -------
Income before minority interest and cumulative effect of
change in accounting principle 1,271 836 2,550 485 930
Minority interest 492 300 965 (13) --
-------- ------- ------- ------- -------
Income before cumulative effect of a change in accounting
principle 779 536 1,585 498 930
Cumulative effect of a change in accounting for income
taxes -- -- -- -- 170
-------- ------- ------- ------- -------
Net income 779 536 1,585 498 1,100
-------- ------- ------- ------- -------
Preferred Stock dividends 44 -- -- -- --
Net income available to common stockholders $ 735 $ 536 $ 1,585 $ 498 $ 1,100
======= ======= ======= ======= =======
Earnings per share:
Income before cumulative effect of change in
accounting principle $ 36.22 $ 33.24 $ 98.29 $ 30.88 $ 57.67
Cumulative effect of a change in accounting for income
taxes -- -- -- -- 10.54
-------- ------- ------- ------- -------
Net income $ 36.22 $ 33.24 $ 98.29 $ 30.88 $ 68.21
======== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
<PAGE>
MET Holdings Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Year Ended December 31, 1995, 1994 and 1993, and
The Six Months Ended June 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
Preferred Common Common Additional
Stock Stock Stock Treasury Paid-in Retained
Class B Class A Class B Stock Capital Earnings
------- ------- ------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1992 (unaudited) $- $1 $1 $ - $ 8,098 $1,386
Purchase of treasury shares - - - (831) - -
Miscellaneous adjustments - - - - - 68
Net income - - - - - 1,100
Unrealized gain on available for sale securities, net - - - - - -
------- ------- ------- ----- ------- --------
December 31, 1993 (unaudited) - 1 1 (831) 8,098 2,554
Adjustment to basis of subsidiary - - - - (893) -
Net income - - - - - 498
Unrealized loss on available for sale securities, net - - - - - -
------- ------- ------- ----- ------- --------
December 31, 1994 (unaudited) - 1 1 (831) 7,205 3,052
Net income - - - - - 1,585
Unrealized gain on available for sale securities, net - - - - - -
------- ------- ------- ----- ------- --------
December 31, 1995 - 1 1 (831) 7,205 4,637
Issuance of new shares 1 - - - 2,999 -
Net income - - - - - 735
Unrealized gain on available for sale securities - - - - - -
------- ------- ------- ----- ------- --------
June 30, 1996 (unaudited) $1 $1 $1 $(831) $10,204 $5,372
======== ======= ======= ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on
Available For
Sale Securities Total
--------------- -----
<S> <C> <C>
December 31, 1992 (unaudited) $ - $ 9,486
Purchase of treasury shares - (831)
Miscellaneous adjustments - 68
Net income - 1,100
Unrealized gain on available for sale securities, net 286 286
--------------- -------
December 31, 1993 (unaudited) 286 10,109
Adjustment to basis of subsidiary - (893)
Net income - 498
Unrealized loss on available for sale securities, net (491) (491)
--------------- -------
December 31, 1994 (unaudited) (205) 9,223
Net income - 1,585
Unrealized gain on available for sale securities, net 1,192 1,192
--------------- -------
December 31, 1995 987 12,000
Issuance of new shares - 3,000
Net income - 735
Unrealized gain on available for sale securities 4 4
--------------- -------
June 30, 1996 (unaudited) $991 $15,739
=============== =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-8
<PAGE>
MET Holdings Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
--------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 779 $ 536
Minority interest 492 300
Adjustments to reconcile net income to net cash provided (used) by operating activities-
Net amortization of premiums and discounts on investment securities 55 (13)
Net amortization or premiums, discounts, and fees on loans and mortgage-backed and related
securities 812 (1,603)
Gain on sales of securities (241) (995)
Purchase of assets for trading - -
Proceeds from sale of trading assets - -
Provision for loan and security losses 619 661
Provision for losses on relate estate acquired through foreclosure and real estate held for sale - 4
Gain on sale of real estate acquired through foreclosure (57) -
Depreciation and amortization of premises and equipment 78 80
Amortization of goodwill and other intangibles 26 22
Stock dividends received from FHLB - (188)
(Increase) decrease in accrued interest receivable (406) (823)
(Increase) decrease in other assets (2,314) 554
Interest credited to deposits 9,791 4,181
Increase in accrued expenses and other liabilities 2,761 1,809
------ -----
Net cash provided by operating activities 12,395 4,525
------ -----
Cash flows from investing activities:
Purchase of securities under agreement to resell - -
Proceeds from sale of securities purchased under agreement to resell - -
Purchases of investment securities available for sale (84,998) (16,411)
Proceeds from sale of investment securities available for sale 45,311 2,050
Principal payments on investment securities available for sale 18,531 -
Purchases of mortgage-backed and related securities (94,315) (65,296)
Proceeds from sale of mortgage-backed and related securities 86,204 14,075
Investment in subsidiaries (2,808) -
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------
1995 1994 1993
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,585 $ 498 $ 1,100
Minority interest 965 (13) -
Adjustments to reconcile net income to net cash provided (used) by operating activities- -
Net amortization of premiums and discounts on investment securities 293 444 162
Net amortization or premiums, discounts, and fees on loans and mortgage-backed and related
securities (2,674) (1,407) (836)
Gain on sales of securities (3,409) (118) (1,096)
Purchase of assets for trading - (25,295) -
Proceeds from sale of trading assets - 25,267 -
Provision for loan and security losses 1,722 492 211
Provision for losses on relate estate acquired through foreclosure and real estate held for sale 256 22 691
Gain on sale of real estate acquired through foreclosure (153) (95) (268)
Depreciation and amortization of premises and equipment 193 102 83
Amortization of goodwill and other intangibles 52 92 269
Stock dividends received from FHLB - (100) (192)
(Increase) decrease in accrued interest receivable (1,297) (1,524) 289
(Increase) decrease in other assets (3,850) (1,395) 904
Interest credited to deposits 17,033 7,473 5,852
Increase in accrued expenses and other liabilities 2,472 780 (1,183)
------- ------ ------
Net cash provided by operating activities 13,188 5,223 5,986
------- ------ ------
Cash flows from investing activities:
Purchase of securities under agreement to resell - (39,327) -
Proceeds from sale of securities purchased under agreement to resell - 38,146 10,000
Purchases of investment securities available for sale (46,666) (2,155) (18,291)
Proceeds from sale of investment securities available for sale 24,146 6,193 10,309
Principal payments on investment securities available for sale 491 - -
Purchases of mortgage-backed and related securities (68,629) (181,234) (34,109)
Proceeds from sale of mortgage-backed and related securities 39,751 417 2,399
Investment in subsidiaries - - -
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<TABLE>
F-9
<PAGE>
MET Holdings Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Continued)
For the Six Months
Ended June 30,
--------------
1996 1995
---------- ---------
(Unaudited)
<S> <C> <C>
Net (increase) decrease in mortgage loans $ (17,424) $ (19,666)
Purchases of investment securities held to maturity -- (1,379)
Proceeds from call of investment securities held to maturity -- 2,448
Principal payments on mortgage-backed and related securities held to maturity -- --
Proceeds from sale of real estate acquired through foreclosure 219 --
Purchase of equipment (139) (412)
Disposition of equipment -- --
Increase in FHLB stock (1,050) (187)
---------- ---------
Net cash (used in) provided by investing activities (50,469) (84,778)
---------- ---------
Cash flows from financing activities:
Net increase (decrease) in deposits, net of interest credited 29,966 52,356
Increase in advances from FHLB 85,000 59,000
Payments on advances from FHLB (70,000) (49,500)
Net increase in securities sold under agreements to repurchase (13,961) 17,162
Subordinated debt borrowings -- --
Increase in notes payable -- --
Principal payments on notes payable (100) --
Increase in common stock and additional paid-in capital 3,000 --
Dividends paid to common and preferred stockholders (44) --
---------- ---------
Net cash provided by (used in) financing activities 33,861 79,018
---------- ---------
Net (decrease) increase in cash and cash equivalents (4,213) (1,235)
Cash and cash equivalents, beginning of period 9,758 6,579
---------- ---------
Cash and cash equivalents, end of period $ 5,545 $ 5,344
========== =========
Supplemental information:
Interest paid on deposits and borrowed funds $ 7,986 $ 4,089
Income taxes paid $ 768 $ 239
Gross unrealized gain on marketable securities available for sale $ 1,655 $ (517)
Tax effect of gain on available for sale securities $ 673 $ (194)
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net (increase) decrease in mortgage loans $ (98,376) $ (27,722) $ 29,989
Purchases of investment securities held to maturity (7,490) (1,289) (2,000)
Proceeds from call of investment securities held to maturity 7,187 1,367 6,385
Principal payments on mortgage-backed and related securities held to maturity 39,155 -- --
Proceeds from sale of real estate acquired through foreclosure 402 750 2,112
Purchase of equipment (604) (279) (143)
Disposition of equipment 51 -- --
Increase in FHLB stock (375) (1,229) --
--------- --------- ---------
Net cash (used in) provided by investing activities (110,957) (206,362) 6,651
--------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in deposits, net of interest credited 77,056 91,806 (22,820)
Increase in advances from FHLB 59,000 207,000 72,600
Payments on advances from FHLB (49,500) (172,000) (65,350)
Net increase in securities sold under agreements to repurchase 14,292 49,971 --
Subordinated debt borrowings -- 16,390 --
Increase in notes payable 100 -- --
Principal payments on notes payable -- -- --
Increase in common stock and additional paid-in capital -- 5,157 --
Dividends paid to minority interest -- (82) --
--------- --------- ---------
Net cash provided by (used in) financing activities 100,948 198,242 (15,570)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents 3,179 (2,897) (2,933)
Cash and cash equivalents, beginning of period 6,579 9,476 12,409
--------- --------- ---------
Cash and cash equivalents, end of period $ 9,758 $ 6,579 $ 9,476
========= ========= =========
Supplemental information:
Interest paid on deposits and borrowed funds $ 29,852 $ 15,728 $ 12,316
Income taxes paid $ 965 $ 239 $ 720
Gross unrealized gain on marketable securities available for sale $ 1,644 $ (564) $ 286
Tax effect of gain on available for sale securities $ 657 $ (219) $ 105
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-10
<PAGE>
MET Holdings Corporation and Subsidiaries
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. ORGANIZATION:
MET Holdings Corporation ("MET Holdings" or the "Company") is a thrift holding
company organized under the laws of Delaware on November 7, 1989. The primary
purpose of MET Holdings is to hold its majority ownership interests in TeleBanc
Financial Corporation ("TeleBanc"), a savings and loan holding company and Arbor
Capital Partners,Inc. ("Arbor"), a registered broker-dealer. MET Holdings is a
thrift holding company by virtue of its ownership of a majority interest in
TeleBanc and is subject to regulation by the Office of Thrift Supervision
("OTS").
The Company owns 63.4 percent of the outstanding shares of TeleBanc, whose
assets accounted for over 99 percent of the total consolidated assets of MET
Holdings at December 31, 1995. TeleBanc was organized in Delaware in 1994 to
hold 100 percent of the outstanding shares of Metropolitan Bank for Savings
F.S.B. ("MBFS"). MBFS is a federally chartered and federally insured stock
savings bank. The primary business operations of TeleBanc are composed of the
activities conducted by MBFS, which provides financial products nationwide. In
March 1996, MBFS changed its name to TeleBank (the "Bank").
MET Holdings also owns 80.3 percent of the outstanding common shares of Arbor
and 100% of the preferred shares, whose assets accounted for less than 1 percent
of the consolidated assets of MET Holdings at December 31, 1995. Arbor is a U.S.
registered broker-dealer in securities and a registered investment advisor with
the Securities and Exchange Commission (the "SEC"). Arbor's primary business
activity involves trading of mortgage-back securities principally with other
broker-dealers and government sponsored enterprises.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
TeleBanc and Arbor. All significant intercompany transactions and balances are
eliminated in consolidation. In March 1994, TeleBanc became the direct savings
and loan holding company parent of the Bank. Accordingly, all financial data as
of and for the periods prior to March 1994 represent the consolidated financial
data of the Bank.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosures of contingent assets and
liabilities and revenues and expenses for the period. Actual results could
F-11
<PAGE>
differ significantly from those estimates. Material estimates for which a change
is reasonably possible in the near-term relate to the determination of the
allowance for loan losses and the valuation of real estate acquired in
connection with foreclosures.
In addition, the regulatory agencies which supervise the financial services
industry periodically review the Bank's allowance for losses on loans. This
review, which is an integral part of their examination process, may result in
additions to the allowance for loan losses based on judgments with regard to
available information at the time of their examinations.
INVESTMENT SECURITIES AND MORTGAGE-BACKED
SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No.115, "Accounting for Certain Investments in Debt and
Equity Securities," on December 31, 1993. Under SFAS No.115, the Company
classifies its debt and marketable equity securities in one of three categories:
held-to-maturity, trading, and available-for-sale. Upon adoption, the Company
transferred certain securities between categories. On December 15, 1995, the
Company reclassified the entire held-to-maturity investment and mortgage-backed
securities portfolios as available-for-sale.
Held-to-maturity securities are those securities that the Company has the
ability and intent to hold until maturity. Held-to-maturity securities are
recorded at amortized cost, adjusted for the amortization or accretion of
premiums or discounts. Trading securities are bought and held principally for
the purpose of selling them in the near term. Securities purchased for trading
are carried at market value with the corresponding unrealized gains and losses
being recognized as credits or charges to income. The Company had no assets
classified as trading securities at December 31, 1995 or 1994. All other
securities not included in held-to-maturity or trading are classified as
available-for-sale. Available-for-sale securities are recorded at fair value.
Unrealized gains and losses on available-for-sale securities, net of the related
tax effects, are reported as a separate component of stockholders' equity until
realized.
A decline in market value of any held-to-maturity or available-for-sale asset
below its cost that is deemed other than temporary, is charged to earnings,
resulting in the establishment of a new cost basis for the asset. Transfers of
securities into the available-for-sale category are recorded at fair value at
the date of the transfer. Any unrealized gain or loss at the date of transfer is
recognized as a separate component of stockholders' equity net of tax effect.
Premiums and discounts on such securities are amortized or accreted over the
life of the related held-to-maturity security as an adjustment to yield using
the effective interest method. Dividend and interest income are recognized when
earned. Realized gains and losses for securities classified as
available-for-sale and held-to-maturity are included in earnings and are derived
using the specific identification method for determining the cost of the
security sold.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are composed of interest-bearing deposits,
certificates of deposit, funds due from banks, and federal funds sold with
original maturities of three months or less.
F-12
<PAGE>
ALLOWANCE FOR LOAN AND SECURITY LOSSES
The loan portfolio is carried at cost and is reviewed by the Company's
management to set provisions for estimated losses on loans which are charged to
earnings in the current period. In this review, particular attention is paid to
delinquent loans, loans in the process of foreclosure, and when collectibility
is in doubt, any loans where there is evidence of a decline in the market value
of the underlying collateral to less than the related loan balance. The
allowance and provision for loan losses are based on several factors, including
continuing examinations and appraisals of the loan portfolio by management,
examinations by supervisory authorities, continuing reviews of problem loans and
overall portfolio quality, analytical reviews of loan loss experience in
relation to outstanding loans, and management's judgment with respect to
economic conditions and its impact on the loan portfolio. In addition, the
Company considers certain mortgage-backed securities with little or no credit
enhancement of the underlying mortgages to have the same credit risks of such
mortgages. Accordingly, management provides for estimated credit losses on the
underlying loans of these securities, utilizing similar criteria for loan losses
as described above.
NONPERFORMING/UNDERPERFORMING ASSETS
Nonperforming/underperforming assets consist of loans for which interest is no
longer accrued, loans which have been restructured in order to afford the
Company a better opportunity to collect amounts due on the loan, real estate
acquired by foreclosure and real estate upon which deeds in lieu of foreclosure
have been accepted. Interest previously accrued but not collected on nonaccrual
loans is reversed against current income when a loan is placed on nonaccrual
status. Accretion of deferred fees is discontinued for nonaccrual loans. All
loans past due ninety days as well as other loans considered uncollectible are
placed on non-accrual status. Loans delinquent more than ninety days are
considered impaired.
The Company adopted the provisions of SFAS No.114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No.118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures," on January 1, 1995. SFAS No.114
requires that impaired loans be 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. In general, SFAS No.118
amends the disclosure requirements of SFAS No.114 to require information about
the recorded investment in certain impaired loans. The impact of adopting SFAS
Nos.114 and 118 was not material to the Company's financial condition or results
of operations.
LOAN, DISCOUNTS AND PREMIUMS
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized in interest income using the interest method over the
contractual life of the loans. Premiums and discounts on loans receivable are
amortized or accreted, respectively, into income using the interest method over
the remaining period to contractual maturity adjusted for anticipated and actual
prepayments.
F-13
<PAGE>
REAL ESTATE ACQUIRED THROUGH FORECLOSURE AND
HELD FOR SALE
Real estate properties acquired through foreclosure and held for sale are
recorded at fair value less estimated selling costs at acquisition. Fair value
is determined by management using appraisals or other appropriate methods of
valuation. Losses estimated at the time of acquisition are charged to the
allowance for loan losses. Valuations are periodically performed by management
and an allowance for losses is established through a charge to operations if the
carrying value of a property exceeds its estimated fair value less selling
costs. Gains and losses, if any, on sales of such real estate properties are
recognized as net operating costs of real estate acquired through foreclosure
upon disposition of the property
DEFERRED FINANCING COSTS
Deferred financing costs related to the issuance of the subordinated notes in
May and June 1994 have been capitalized and are being amortized as additional
interest expense using the interest method over the life of the notes.
INCOME TAXES
For Federal income tax purposes, MET Holdings and Arbor have entered into a tax
sharing agreement pursuant to which they file a consolidated Federal income tax
return. TeleBanc is not part of this tax sharing arrangement and, therefore,
files a separate consolidated Federal income tax return with the Bank.
Furthermore, each entity files separate income tax returns for state and local
purposes.
Effective January 1, 1993, the Bank adopted the provisions of SFAS No.109,
"Accounting for Income Taxes," and has reported the cumulative effect of that
change in the method of accounting for income taxes in the 1993 consolidated
statement of income. Under the asset and liability method of SFAS No.109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
FINANCIAL INSTRUMENTS
Interest Rate Swaps, Caps, Floors, and Collars, interest rate exchange contracts
and protected rate agreements are used by TeleBanc in the management of its
interest-rate risk. TeleBanc is generally exposed to rising interest rates
because of the nature of the repricing of rate-sensitive assets as compared with
rate-sensitive liabilities. The objective of these financial instruments is to
match estimated repricing periods of rate-sensitive assets and liabilities to
reduce interest rate exposure. These instruments are used only to hedge specific
assets and liabilities and are not used for speculative purposes.
Premiums and fees associated with interest rate exchange contracts and protected
rate agreements are amortized to expense on a straight-line basis over the lives
of the contracts. The
F-14
<PAGE>
net interest received or paid on these contracts is treated as an adjustment to
the interest expense related to the hedged obligations in the period in which
such amounts are due.
OTHER ASSETS
Other assets include loan servicing rights acquired, premiums paid on interest
rate caps, prepaid assets, and escrows advanced on serviced loans. The cost of
the loan servicing rights is amortized in proportion to, and over the period of,
estimated net servicing income. The cost of loan servicing rights purchased and
the amortization thereon is periodically evaluated in relation to estimated
future net servicing income. Premiums paid on interest rate caps are amortized
on a straight-line basis over the life of the applicable cap agreements.
EARNINGS PER SHARE
Earnings per common share are computed by dividing net income by the total of
the weighted average number of common shares outstanding during the respective
period. The weighted average number of common share equivalents outstanding, net
of treasury shares was 16,125 in 1995, 1994 and 1993.
RECLASSIFICATIONS
Certain reclassifications of the unaudited 1994 and 1993 financial statements
have been made to conform to the 1995 presentation.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This standard provides guidance on the carrying value
of long lived assets, including real estate acquired through foreclosure, and is
effective January 1, 1996. Management believes that adopting the new standard
will not have a material effect on the consolidated financial statements.
In May 1995, the FASB issued SFAS No.122, "Accounting for Mortgage Servicing
Rights." This statement requires a mortgage banking enterprise to recognize
separately all rights to service mortgage loans and provides for the assessment
of impairment of such rights using fair value. This statement is required to be
adopted by the Company effective January 1, 1996. Management believes the
adoption of this statement will not have a material impact on either its
financial position or results of operations.
In October 1995, the FASB issued SFAS No.123, "Accounting for Stock-Based
Compensation," which requires entities to measure compensation costs related to
awards of stock-based compensation using either the fair value method or the
intrinsic value method. Under the fair value method, compensation expense is
measured at the grant date based on the fair value of the award. Under the
intrinsic value method, compensation expense is equal to the excess, if any, of
the quoted market price of the stock at the grant date over the amount the
employee must pay to acquire the stock. Entities electing to measure
compensation costs using the intrinsic value method must make pro forma
disclosures, beginning after the effective date of
F-15
<PAGE>
January 1, 1996, of net income and earnings per share as if the fair value
method had been applied. The Company has elected to account for stock-based
compensation programs using the intrinsic value method consistent with existing
accounting, therefore, the standard will not have a material impact on the
consolidated financial statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. It also establishes
criteria for the recognition of either a servicing asset or servicing liability
for servicing contracts to service financial assets. This standard is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. The Company believes adopting the new standard will not have a
material impact on the consolidated financial statements.
3. NOTES PAYABLE:
MET Holdings has notes payable from certain individuals and businesses totaling
$2.5 million as of December 31, 1995 and 1994. These notes were entered into in
conjunction with the acquisition of the Bank in 1993 and require quarterly
interest only payments at an interest rate of 1.5 percent. Interest expense was
$150,000 for each of the years ended December 31, 1995 and 1994 (unaudited). The
principal balance plus any unpaid interest is due on May 10, 1998.
In addition, during 1995 Arbor entered into a loan agreement with a relative of
an officer of the Company to borrow $100,000 at an interest rate of 8 percent
per annum and maturing on December 1, 1996. The proceeds from this loan were
used to fund the initial contribution to AG Arbor Management, LLC, a joint
venture Arbor entered into subsequent to year end (See Note 20). This loan was
repaid by Arbor on February 1, 1996.
4. SECURITIES AND WHOLE LOANS PURCHASED UNDER
AGREEMENT TO RESELL:
The Company had no securities and whole loans purchased under agreement to
resell at December 31, 1995 or 1994 (unaudited).
However, during 1994, TeleBanc entered into purchases of U.S. Treasury and
mortgage-backed securities and mortgage loans under agreements to resell the
same securities or loans. Fixed coupon repurchase agreements are treated as
short-term liquid assets. The securities underlying the agreements are book
entry securities, and the broker retains possession of the securities
collateralizing the repurchase agreements. For the year ended December 31, 1994
(unaudited), the weighted average interest rate, weighted average balance, and
maximum month end balance was 4.70 percent, $1,875,000 and $2,637,000
respectively.
F-16
<PAGE>
5. INVESTMENT SECURITIES:
The amortized cost basis and estimated fair values of investment securities
available-for-sale at December 31, 1995 and 1994 (unaudited), by contractual
maturity, are shown below (in thousands):
<TABLE>
<CAPTION>
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Fair
Basis Gains Losses Values
----- ----- ------ ------
<S> <C> <C> <C> <C>
1995:
Due within one year-
Agency Notes $ 3,359 $ - $ - $ 3,359
Due within one to five years-
Municipal Bonds 2,946 15 - 2,961
Due in five to ten years-
Corporate Debt 6,162 79 - 6,241
Municipal Bonds 5,942 74 - 6,016
Due after ten years-
Corporate Debt 16,688 1,058 - 17,746
Municipal Bonds 3,472 263 - 3,735
-------- ------- -------- ---------
$38,569 $1,489 $ - $ 40,058
======== ======= ======== =========
1994 (unaudited):
Due within one year-
Securities Purchased Under
Agreement to Resell $ 1,181 $ - $ - $ 1,181
Due within one to five years-
Municipal Bonds 1,023 - (36) 987
Due in five to ten years-
Municipal Bonds 8,176 - (604) 7,572
Due after ten years-
Municipal Bonds 1,261 - (98) 1,163
Domestic Corporate Debt 823 3 - 826
-------- ------- -------- ---------
$ 12,464 $ 3 $ (738) $ 11,729
======== ======= ======== ========
</TABLE>
For the period ended December 31, 1995, total proceeds on sale of securities
equaled $24,146,000, resulting in gross realized gains of $3,421,000 and gross
realized losses of $12,000.
F-17
<PAGE>
The amortized cost and estimated fair values of investment securities
held-to-maturity at December 31, 1994 (unaudited), by contractual maturity, are
shown below (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Basis Gains Losses Values
---------- ----- ------ ------
1994 (unaudited):
Due within one to five years-
Domestic Corporate Debt $ 989 $11 $ - $1,000
Due within one to five years-
ESOP Note Receivable 300 - - 300
Due within five to ten years-
Domestic Corporate Debt 607 - (6) 601
------ --- --- ------
$1,896 $11 $(6) $1,901
====== === === ======
6. MORTGAGE-BACKED AND RELATED SECURITIES:
Mortgage-backed and related securities represent participating interests in
pools of long-term first mortgage loans originated and serviced by the issuers
of the securities. TeleBanc has also invested in collateralized mortgage
obligations ("CMOs") which are securities issued by special purpose entities
generally collateralized by pools of mortgage-backed securities. TeleBanc's CMOs
are senior tranches collateralized by federal agency securities or whole loans.
The fair value of mortgage-backed and related securities fluctuate according to
current interest rate conditions and prepayments. Fair value is estimated using
quoted market prices. For illiquid securities, market prices are estimated by
obtaining market price quotes on similar liquid securities and adjusting the
price to reflect differences between the two securities, such as credit risk,
liquidity, term, coupon, payment characteristics, and other information.
The amortized cost basis and estimated fair values of mortgage-backed securities
available-for-sale at December 31, 1995 and 1994 (unaudited), by contractual
maturity, are shown as follows: (in thousands)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Basis Gains Losses Values
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
1995:
Due within one to five years-
Private issuer $ 2,371 $ - $ (15) $ 2,356
Agency certificates 9,594 62 - 9,656
Due within five to ten years-
Private issuer 5,993 - (111) 5,882
Agency certificates 3,085 - (6) 3,079
Due after ten years-
Private issuer 181,481 260 - 181,741
Agency certificates 22,252 686 - 22,938
Collateralized mortgage obligations 8,325 233 - 8,558
-------- ------- ---------- ----------
$233,101 $ 1,241 $ (132) $ 234,210
======== ======= ========== ==========
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Basis Gains Losses Values
---------- ----- ------ ------
<S> <C> <C> <C> <C>
1994 (unaudited):
Due within one to five years-
Agency certificates $ 5,921 $ - $(185) $ 5,736
Due within five to ten years-
Agency certificates 3,990 - (24) 3,966
Due after ten years-
Agency certificates 2,890 8 (81) 2,817
Private issuer 2,360 580 - 2,940
--------- ------- ----- ---------
$ 15,161 $ 588 $(290) $ 15,459
========= ======= ===== =========
</TABLE>
The amortized cost and estimated fair values of mortgage-backed and related
securities held-to-maturity at December 31, 1994 (unaudited), by contractual
maturity, are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Basis Gains Losses Values
---------- ----- ------ ------
<S> <C> <C> <C> <C>
1994 (unaudited):
Due in one to five years-
Private issuer 1,689 $ - $ (23) $ 1,666
Due in five to ten years-
Private issuer 4,369 - (379) 3,990
Due after ten years-
Private issuer 168,784 363 (4,889) 164,258
Collateralized mortgage obligations 4,043 - (92) 3,951
Agencies 42,184 - (1,880) 40,304
Less- allowance for losses (64) - - (64)
--------- ------- --------- --------
$ 221,005 $ 363 $ (7,263) $214,105
========= ======= ========= ========
</TABLE>
At December 31, 1995 and 1994 (unaudited), $108,460,000 and $91,724,000
respectively, of private issuer mortgage-backed securities were pledged as
collateral for reverse repurchase agreements.
F-19
<PAGE>
7. LOANS RECEIVABLE:
Loans receivable at December 31, 1995 and 1994 (unaudited), are summarized as
follows (in thousands):
1995 1994
---------- -----------
(Unaudited)
First mortgage loans (principally conventional):
Secured by one-to-four family residences $ 254,678 $ 147,150
Secured by commercial real estate 4,553 4,385
Secured by mixed-use property 1,792 1,953
Secured by five or more dwelling units 1,286 1,114
Secured by land 384 387
---------- -----------
262,693 154,989
Less:
Net deferred loan origination fees (42) (50)
Unamortized discounts, net (14,129) (2,835)
---------- -----------
Total first mortgage loans 248,522 152,104
Other loans:
Home equity and second mortgage loans 2,202 3,395
Other 79 168
---------- -----------
250,803 155,667
Less- Allowance for loan losses (2,136) (925)
---------- -----------
Net loans receivable $ 248,667 $ 154,742
========== ===========
The unpaid principal balance of mortgage loans owned by TeleBanc but serviced by
others was $103,349,000 and $101,176,000 at December 31, 1995 and 1994
(unaudited), respectively.
Loans on non-accrual status and loans past due ninety days or more at December
31, 1995 and 1994 (unaudited), are summarized as follows (in thousands):
1995 1994
------ ------
(Unaudited)
First mortgage loans:
Secured by one-to-four family residences $4,526 $1,296
Secured by commercial real estate 261 702
Home equity and second mortgage loans 136 41
Other -- 27
------ ------
$4,923 $2,066
All loans past due ninety days are on non-accrual status. If all nonperforming
loans had been performing during 1995, 1994 (unaudited) and 1993 (unaudited),
the Bank would have recorded $365,000, $113,000, and $46,000, respectively, in
additional interest income. There were no commitments to lend additional funds
to these borrowers as of December 31, 1995 and 1994 (unaudited). There was no
allowance for uncollected interest at December 31, 1995 or 1994 (unaudited).
F-20
<PAGE>
Troubled debt restructurings ("TDRs") are loans to which TeleBanc has granted
certain concessions in consideration of the borrower's financial difficulty. The
objective of granting these concessions through a modification of terms is to
maximize the recovery of the Bank's investment. These modifications may include
reduction in principal, stated interest rate, extension of maturity, and/or
reduction of accrued interest. The principal balance of loans that underwent a
TDR totaled $602,000 and $688,000 at December 31, 1995 and 1994 (unaudited),
respectively. There were no commitments to lend additional funds to these
borrowers as of December 31, 1995 and 1994 (unaudited). Interest income on TDRs
that would have been recorded under the original terms of such loans and the
interest income actually recognized for the years ended December 31, 1995 and
1994 (unaudited), is summarized as follows (in thousands):
1995 1994
---- ------
(Unaudited)
Interest income that would have been recognized $76 $95
Interest income recognized (45) (9)
---- -----
Interest income foregone $31 $86
==== =====
Activity in the allowance for loan losses for the years ended December 31, 1995,
1994 (unaudited) and 1993 (unaudited) is summarized as follows (in thousands):
1995 1994 1993
------- ----- -------
(Unaudited) (Unaudited)
Balance, beginning of the year $ 925 $835 $659
Provision for loan losses 1,211 392 211
Charge-offs, net - (302) (35)
------- ----- -------
Balance, end of year $2,136 $925 $835
======= ===== =======
The table below presents impaired loans as of December 31, 1995. In accordance
with SFAS No. 114, the statement was adopted prospectively on January 1, 1995,
and, therefore, prior periods are not presented:
F-21
<PAGE>
<TABLE>
<CAPTION>
Amount of Amount of
Total Recorded Recorded
Recorded Investment Investment
Investment With Without
in Impaired Specific Specific
Description of Loans Loans Reserves Reserves
- -------------------- ----- -------- --------
<S> <C> <C> <C>
Impaired loans that have not been
charged-off fully:
Commercial real estate $ 261 $ 222 $ 39
One- to four-family 4,662 1,070 3,592
------- ------- -------
Total $ 4,923 $ 1,292 $ 3,631
======= ======= =======
Restructured loans:
Commercial real estate $ 255 $ 38 $ 217
One- to four-family 110 26 84
------- ------- -------
Total $ 365 $ 64 $ 301
======= ======= =======
</TABLE>
The average recorded investment in impaired loans at December 31, 1995, was
$1.8 million. The related amount of interest income recognized for the year
ending December 31, 1995, was $60,000. Specific reserves of $482,000 for
impaired loans are included in the reserves for loan losses, as discussed in
Note 1. TeleBanc's charge-off policy for impaired loans is consistent with its
charge-off policy for other loans. Impaired loans are charged-off when, in the
opinion of management all principal and interest due on the impaired loan will
not be fully collected.
SFAS No.118 allows a creditor to use existing methods for recognizing interest
income on an impaired loan. Consistent with TeleBanc's method for nonaccrual
loans, interest received on impaired loans is recognized as interest income,
except when it is doubtful that full payment will be collected, in which case,
interest received is applied to principal. The balance of impaired loans at
January 1, 1995, totaled approximately $1.5 million. The initial adoption of
SFAS No.114 and SFAS No.118 did not require an increase in reserves for loan
losses and was not material to TeleBanc's consolidated financial statements or
results from operations.
8. REAL ESTATE ACQUIRED THROUGH FORECLOSURE:
Real estate acquired through foreclosure at December 31, 1995 and 1994
(unaudited), is summarized as follows (in thousands):
1995 1994
--------- ---------
(Unaudited)
Real estate acquired through foreclosure $ 1,003 $ 885
Less- Allowance for losses (213) (92)
--------- ---------
Net real estate acquired through foreclosure $ 790 $ 793
========= =========
F-22
<PAGE>
Activity in the allowance for real estate losses for the years ended December
31, 1995, 1994 (unaudited) and 1993 (unaudited), is summarized as follows (in
thousands):
1995 1994 1993
------ ------- ------
(Unaudited) (Unaudited)
Balance, beginning of year $ 92 $ 221 $ 162
Provision for real estate losses 256 22 218
Charge-offs (135) (151) (159)
----- ----- -----
Balance, end of year $ 213 $ 92 $ 221
===== ===== =====
9. LOANS SERVICED FOR OTHERS:
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition because the related loans are not
owned by TeleBanc. The unpaid principal balances of these loans at December 31,
1995 and 1994 (unaudited), are summarized as follows (in thousands):
1995 1994
-------- ----------
(Unaudited)
Mortgage loans underlying pass-through securities:
Federal Home Loan Mortgage Corporation $ 3,574 $ 4,342
Federal National Mortgage Association 5,307 3,318
-------- ----------
8,881 7,660
Mortgage loan portfolio serviced for-
Other investors 9,315 1,853
-------- ----------
$18,196 $ 9,513
======== ==========
Custodial escrow balances held in connection with the foregoing loans serviced
were approximately $168,000 and $57,000 at December 31, 1995 and 1994
(unaudited), respectively.
In August 1995, the Bank purchased a loan secured by mortgage servicing rights
that were owned by an affiliate for $2.5 million. The loan was paid off in
October 1995 in conjunction with the Bank's purchase of the underlying servicing
rights for $3.3 million. Purchased mortgage servicing rights of $3.3 million and
$340,000 as of December 31, 1995 and 1994 (unaudited), respectively are included
in other assets.
F-23
<PAGE>
10. ACCRUED INTEREST RECEIVABLE:
Accrued interest receivable is included in other assets at December 31, 1995 and
1994 (unaudited), is summarized as follows (in thousands):
1995 1994
------ ------
(Unaudited)
Loans receivable $2,276 $1,276
Mortgage-backed and related securities 1,537 1,634
Investment securities 565 171
------ ------
$4,378 $3,081
====== ======
11. DEPOSITS:
Deposits at December 31, 1995 and 1994 (unaudited), are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Weighted
Average Rate at
December 31, Amount Percent
-------------------- ----------------------- -------------------
1995 1994 1995 1994 1995 1994
------ ------ -------- ----------- ------- ---------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Demand accounts, non interest-bearing - % - % $ 2,020 $ 299 0.7% 0.1%
Money market 5.23 5.01 75,732 10,390 24.7 4.9
Passbook savings 3.00 3.00 1,748 2,700 0.6 1.3
Certificates of deposit 6.53 6.67 227,000 199,022 74.0 93.7
-------- ---------- ------ -----
$306,500 $212,411 100.0% 100.0%
======== ========== ====== =====
</TABLE>
Certificates of deposit and money market accounts, classified by rates as of
December 31, 1995 and 1994 (unaudited), are as follows (in thousands):
Amount 1995 1994
---------- ---------- -------------
(Unaudited)
2 - 3.99% $ -- $ 1,844
4 - 5.99% 141,750 75,923
6 - 7.99% 158,375 106,915
8 - 9.99% 1,817 22,549
10 - 11.99% 790 2,181
---------- -------------
$302,732 $209,412
========== =============
F-24
<PAGE>
At December 31, 1995, scheduled maturities of certificates of deposits and money
market accounts are as follows (in thousands):
<TABLE>
<CAPTION>
Less than 1-2 2-3 3-4 4-5 5+
Amount one year years years years years years Total
- ---------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
4 - 5.99% $111,568 $ 10,708 $ 9,128 $ 9,453 $ 865 $ 28 $141,750
6 - 7.99% 51,759 47,356 4,299 41,628 8,877 4,456 158,375
8 - 9.99% 236 973 508 67 -- 33 1,817
10 - 11.99% -- 790 -- -- -- -- 790
-------- -------- -------- -------- -------- -------- --------
$163,563 $ 59,827 $ 13,935 $ 51,148 $ 9,742 $ 4,517 $302,732
======== ======== ======== ======== ======== ======== ========
</TABLE>
The aggregate amount of certificates of deposit with denominations greater than
or equal to $100,000 was $20,020,000 and $23,105,000 at December 31, 1995 and
1994 (unaudited), respectively.
Interest expense on deposits for the years ended December 31, 1995, 1994
(unaudited) and 1993 (unaudited) , is summarized as follows (in thousands):
1995 1994 1993
------- ------- -------
(Unaudited) (Unaudited)
Money market $ 2,036 $ 417 $ 550
Passbook savings 78 92 135
Certificates of Deposit 14,919 9,218 7,009
------- ------- -------
$17,033 $ 9,727 $ 7,694
======= ======= =======
Accrued interest payable on deposits at December 31, 1995 and 1994 (unaudited),
was $452,000 and $1,471,000, respectively.
12. ADVANCES FROM THE FHLB OF ATLANTA:
Advances to the Bank from the FHLB of Atlanta at December 31, 1995 and 1994
(unaudited), were as follows (dollars in thousands):
Weighted Weighted
Average Interest Average Interest
Maturity 1995 Rate 1994 Rate
- -------- ----------- --------- ------------- --------------
(Unaudited)
1995 $ -- --% $ 45,000 4.71%
1996 51,000 5.52 51,000 5.13
1997 29,500 5.72 -- --
1999 25,000 5.59 -- --
-------- ----- --------- -------
$105,500 5.59% $ 96,00 4.93%
======== ===== ========= =======
All advances, except for $2.0 million, are floating rate advances and adjust
quarterly or semi-annually to the London InterBank Offering Rate ("LIBOR"). In
1995 and 1994 (unaudited), the
F-25
<PAGE>
advances were collateralized by a specific lien on mortgage loans in accordance
with an "Advances, Specific Collateral Pledge and Security Agreement" with the
FHLB of Atlanta, executed September 10, 1980. Under this agreement, the Bank is
required to maintain qualified collateral equal to 120 to 160 percent of the
Bank's FHLB advances, depending on the collateral type. As of December 31, 1995
and 1994 (unaudited), TeleBanc secured these advances with an assignment of
specific mortgage loan collateral from its loan and mortgage-backed security
portfolio. These 1-4 family whole first mortgage loans and securities pledged as
collateral totaled approximately $140,178,000 and $104,345,000 at December 31,
1995 and 1994 (unaudited), respectively.
TeleBanc is required to be a member of the FHLB System and to maintain an
investment in the stock of the FHLB of Atlanta at least equal to the greater of
1 percent of the unpaid principal balance of its residential mortgage loans or 1
percent of 30 percent of its total assets or 1/20th of its outstanding advances
from the FHLB.
13. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
Information concerning borrowings under fixed and variable rate coupon reverse
repurchase agreements is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
(Unaudited)
<S> <C> <C>
Weighted average balance during the year $ 97,692 $ 45,759
Weighted average interest rate during the year 6.29% 4.92%
Maximum month-end balance during the year 119,507 79,613
Balance at year-end 93,905 79,613
Private issuer mortgage-backed securities underlying the
agreements as of the end of the year:
Carrying value, including accrued interest 103,590 93,608
Estimated market value 103,891 89,224
</TABLE>
The securities sold under the reverse repurchase agreements at December 31,
1995, are due in less than one year. TeleBanc enters into sales of securities
under agreements to repurchase the same securities. Reverse repurchase
agreements are collateralized by fixed and variable rate mortgage-backed
securities or investment grade securities. Reverse repurchase agreements are
treated as financings, and the obligations to repurchase securities sold are
reflected as a liability in the balance sheet. The dollar amount of securities
underlying the agreement remains in the asset accounts. The securities
underlying the agreements are physical and book entry securities and the brokers
retain possession of the securities collateralizing the reverse repurchase
agreements. If the counterparty in a reverse repurchase agreement were to fail,
F-26
<PAGE>
TeleBanc might incur an accounting loss for the excess collateral posted with
the counterparty. Below is data concerning reverse repurchase agreements under
which the amount at risk with the listed counterparties exceeded 10 percent of
the Company's stockholders' equity at December 31, 1995:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Maturity Amount
Name of Counterparty Coupon (in Months) at Risk
- -------------------- -------- ---------- -------------
<S> <C> <C> <C>
Goldman Sachs 6.08% 0.50 $ 588,547
Salomon Brothers 6.18 6.44 1,216,820
Lehman Brothers 6.09 5.64 2,323,445
Morgan Stanley 5.84 2.57 193,723
Nomura 5.95 0.76 951,456
</TABLE>
14. SUBORDINATED DEBT:
In May and June 1994, TeleBanc issued 15,000 units of subordinated debt at a
price of $15.0 million and 2,250 additional units at a price of $2.3 million,
respectively. Each unit consists of $1,000 of 11.5 percent subordinated notes
due in 2004 and 20 detachable warrants to purchase one share each of TeleBanc
common stock. The notes may not be redeemed prior to May 1, 1999. The notes are
redeemable at the option of TeleBanc after May 1, 1999, at an initial redemption
price of 105.75 percent of the principal amount plus accrued interest with the
redemption price declining to 104.60 percent, 103.45 percent, 102.30 percent,
and 101.15 percent annually each year thereafter. Interest is payable
semi-annually on May 1 and November 1, commencing November 1, 1994. The
indenture, among other things, restricts the ability of TeleBanc under certain
circumstances to incur additional indebtedness, limits cash dividends and other
capital distributions by TeleBanc, requires the maintenance of a reserve
initially equal to 150 percent of TeleBanc's annual interest expense on all
indebtedness, restricts disposition of the Bank or its assets and limits
transactions with affiliates.
The total value of the 345,000 TeleBanc warrants was $948,750 which resulted in
an original issue discount on the subordinated debt in the amount of $899,289.
The original issue discount is amortized on a level yield basis over the life of
the debt. The TeleBanc warrants became transferable on November 27, 1994 and are
exercisable on or after May, 27, 1995. The exercise price of each warrant is
$7.65625.
15. PENSION PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN:
TeleBanc sponsors an Employee Stock Ownership Plan ("ESOP"). All full-time
employees of TeleBanc who meet limited qualifications participate in the ESOP.
Under the ESOP, TeleBanc contributes cash to a separate trust fund maintained
exclusively for the benefit of those employees who have become participants.
Participants will have shares of TeleBanc common stock, valued at market value,
allocated to their personal plan accounts based on a uniform percentage of
wages. At December 31, 1995, TeleBanc carried a $240,000 note receivable from
the ESOP which was collateralized by TeleBanc's common stock. The ESOP owned
67,600 shares of TeleBanc's stock at December 31, 1995 with approximately 18,000
shares vested. In
F-27
<PAGE>
addition, the ESOP owns 368 shares of MET Holdings Class A Common Stock and 132
Class B Common Stock as of December 31, 1995. Subsequent to fiscal year end the
ESOP purchased 310 shares of MET Holdings, newly issued, Class B Serial
Preferred Stock at $600 per share. TeleBanc's contribution to the ESOP, which is
reflected in compensation expense, was $210,000, $104,000 and $130,000 for the
years ended December 31, 1995, 1994 (unaudited) and 1993 (unaudited),
respectively.
16. INCOME TAXES:
As of January 1, 1993, the Bank adopted SFAS No.109, "Accounting for Income
Taxes." The cumulative impact of this change in accounting principle at January
1, 1993 resulted in an increase in earnings of $170,000 which is reported
separately in the consolidated statements of operations. Prior years' financial
statements have not been restated to apply the provisions of SFAS No.109.
For federal income tax purposes, MET Holdings and Arbor have entered into a tax
sharing agreement and file on a consolidated basis their federal income tax
return. TeleBanc is not part of the same consolidated group for federal tax
purposes and, therefore, files a separate federal income tax return. TeleBanc
and TeleBank have entered into a tax sharing agreement and file a consolidated
basis federal income tax return. Furthermore, each entity files separate income
tax returns for state and local purposes.
Income tax provision for the years ended December 31, 1995, 1994 (unaudited) and
1993 (unaudited), is summarized as follows (in thousands):
1995 1994 1993
--------- -------- ---------
(Unaudited)
Current:
Federal $ 1,954 $ 171 $ 698
State 181 59 154
--------- -------- ---------
2,135 230 852
--------- -------- ---------
Deferred:
Federal (474) (86) (170)
State (85) (15) (19)
--------- -------- ---------
(559) (101) (189)
--------- -------- ---------
Total:
Federal 1,480 85 528
State 96 44 135
--------- -------- ---------
$ 1,576 $ 129 $ 663
========= ======== =========
F-28
<PAGE>
A reconciliation of the statutory federal income tax rate to MET Holdings'
effective income tax rate for the years ended December 31, 1995, 1994
(unaudited) and 1993 (unaudited), is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Federal income tax at statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 4.5 4.8 5.5
Municipal bond interest, net of disallowed interest expense (7.4) (21.2) --
Other 7.1 3.4 2.1
---- ---- ----
38.2% 21.0% 41.6%
==== ==== ====
</TABLE>
Deferred income taxes result from temporary differences in the recognition of
income and expense for tax versus financial reporting purposes. The sources of
these temporary differences and the related tax effects, primarily due to the
operations of TeleBanc, for the years ended December 31, 1995 and 1994
(unaudited), are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Deferred tax liabilities:
Acquired loan servicing rights $ (15) $ (18)
Purchase accounting premium - land and building (37) (75)
Purchase accounting premium on investments (3) (4)
Depreciation (15) (12)
Tax reserve in excess of base year (93) (93)
Prepaid expenses (25) (95)
FHLB stock dividends (168) (168)
----- -----
Total (356) (465)
----- -----
Deferred tax assets:
Purchase accounting discount on loan portfolio $ 4 $ 3
General reserves and real estate owned losses 674 222
Deferred loan fees 16 19
----- -----
Total 694 244
----- -----
Net deferred tax asset (liability) 338 (221)
----- -----
Tax effect of securities available-for-sale adjustment to fair value
(Notes 5 and 6) (832) 62
----- -----
Adjusted net deferred tax liability $(494) $(159)
===== =====
</TABLE>
TeleBanc carries an accumulated tax bad debt reserve of $785,000 for which
income taxes have not been provided. If the Bank were to convert from its thrift
charter, the Bank would pay taxes of approximately $100,000 on this bad debt
reserve. In addition, the Bank has entered into a tax sharing agreement with
TeleBanc under which it is allocated its share of income tax expense or benefit
based on its portion of consolidated income or loss.
Subsequent to December 31, 1995, legislation was passed which repealed the
reserve method which afforded thrift institutions favorable treatment when
calculating the tax deduction for
F-29
<PAGE>
bad debt. Management does not believe that this legislation will have a material
impact on the Bank's consolidated financial statements.
17. FINANCIAL INSTRUMENTS:
TeleBanc enters into swap agreements to make fixed-rate interest payments in
exchange for receiving variable market-indexed interest payments. The effect of
these agreements is to lengthen short-term variable liabilities into longer term
fixed-rate liabilities. The net costs of these agreements are charged to
interest expense. Two such agreements were outstanding at December 31, 1995. On
November 28, 1995, TeleBanc entered into a forward swap agreement, with a
notional principal of $25.0 million, under which TeleBanc will pay 5.97 percent
and receives 3 month LIBOR in exchange. This agreement is effective January 12,
1996, through October 12, 2000, and hedges certain current and anticipated FHLB
advances. On December 28, 1995, TeleBanc entered into the second interest rate
swap, which has a notional principal of $15.0 million, under which TeleBanc will
pay 5.875 percent and receive 3-month LIBOR in exchange. This agreement is
effective December 28, 1995, through December 29, 2002, and also hedges certain
current and anticipated FHLB advances.
Interest rate exchange agreements for the years ended December 31, 1995 and 1994
(unaudited), are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(Unaudited)
<S> <C> <C>
Weighted average fixed rate payments 5.93% 5.78%
Weighted average original term 6.0 yrs 2.0 yrs
Weighted average variable rate obligation at December31, 1995 5.63% 6.31%
Net cost for the year $ 18 $ 119
Notional Amount $ 40,000 $ 10,000
</TABLE>
TeleBanc enters into interest rate cap agreements to hedge outstanding FHLB
advances and reverse repurchase agreements. Under the terms of the interest rate
cap agreements, TeleBanc generally receives an amount equal to the difference
between 3 month LIBOR and the cap's strike rate, multiplied by the notional
amount. The interest rate cap agreements are summarized as follows (dollars
in thousands):
Notional
Cap Strike Rate Effective Date Balance Maturity Date
- --------------- -------------- ------- -------------
4% July 1992 $10,000 July 1999
5% July 1992 10,000 July 1997
7% December 1994 10,000 July 1998
7% July 1995 10,000 July 1997
8% October 1994 10,000 January 1997
9% October 1994 14,000 December 1998
9.5% January 1995 10,000 April 1997
10% November 1994 10,000 January 2002
10% January 1995 10,000 January 1997
F-30
<PAGE>
The counterparties to the interest rate cap agreements are Goldman Sachs, Lehman
Brothers, Salomon Brothers, UBS and Nomura and contain credit risk of $974,000,
$440,000, $198,000, $21,000 and $13,000, respectively. Because no amounts were
due to the Bank under these agreements, credit risk is attributable to the
unamortized cap premium at December 31,1995. The total amortization expense for
premiums on interest rate caps was $213,000, $292,000 and $332,000 for the years
ended December 31, 1995, 1994 (unaudited) and 1993 (unaudited), respectively.
18. FAIR VALUE DISCLOSURE OF FINANCIAL
INSTRUMENTS:
The fair value information for financial instruments, which is provided below,
is based on the requirements of SFAS No.107, "Disclosure About Fair Value of
Financial Instruments," and does not represent the aggregate net fair value of
the Bank. Much of the information used to determine fair value is subjective and
judgmental in nature, therefore, fair value estimates, especially for less
marketable securities, may vary. In addition, the amounts actually realized or
paid upon settlement or maturity could be significantly different. The following
methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is reasonable to estimate that value:
CASH AND INTEREST-BEARING DEPOSITS - Fair value is estimated to be carrying
value.
FEDERAL FUNDS SOLD - Fair value is estimated to be carrying value.
SECURITIES PURCHASED UNDER AGREEMENT TO RESELL - Fair value is estimated to be
carrying value.
INVESTMENT SECURITIES - Fair value is estimated by averaging two quoted market
prices for most securities. For illiquid securities, market prices are estimated
by obtaining market price quotes on similar liquid securities and adjusting the
price to reflect differences between the two securities, such as credit risk,
liquidity, term coupon, payment characteristics, and other information.
MORTGAGE-BACKED AND RELATED SECURITIES - Fair value is estimated using quoted
market prices. For illiquid securities, market prices are estimated by obtaining
market price quotes on similar liquid securities and adjusting the price to
reflect differences between the two securities, such as credit risk, liquidity,
term coupon, payment characteristics, and other information.
LOANS RECEIVABLE - For certain residential mortgage loans, fair value is
estimated using quoted market prices for similar types of product. The fair
value of other certain types of loans is estimated using quoted market prices
for securities backed by similar loans.
The fair value for loans which could not be reasonably established using the
previous two methods was estimated by discounting future cash flows using
current rates for similar loans. Management adjusts the discount rate to reflect
the individual characteristics of the loan, such as credit risk, coupon, term,
payment characteristics, and the liquidity of the secondary market for these
types of loans.
F-31
<PAGE>
DEPOSITS - For passbook savings, checking and money market accounts, fair value
is estimated at carrying value. For certificates of deposit, fair value is
estimated by discounting future cash flows at the currently offered rates for
deposits of similar remaining maturities.
ADVANCES FROM THE FHLB OF ATLANTA - For adjustable rate advances, fair value is
estimated at carrying value. For fixed rate advances, fair value is estimated by
discounting future cash flows at the currently offered rates for fixed-rate
advances of similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - Fair value is estimated using
carrying value. The securities are repriced on a semiannual basis.
OFF-BALANCE SHEET INSTRUMENTS - The fair value of interest rate exchange
agreements is the net cost to TeleBanc to terminate the agreement as determined
from market quotes.
The fair value of financial instruments as of December 31, 1995 and 1994
(unaudited), is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1995 1994 1994
Carrying Fair Carrying Fair
Value Value Value Value
------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Assets:
Cash and interest-bearing deposits $ 8,853 $ 8,853 $ 5,932 $ 5,932
Federal funds sold 905 905 647 647
Investment securities available-for-sale 40,058 40,058 10,548 10,548
Mortgage-backed securities available-for-sale 234,210 234,210 15,459 15,459
Loans receivable 248,667 261,198 154,742 155,713
Liabilities:
Deposits 306,500 311,476 212,411 213,615
Advances from the FHLB Atlanta 105,500 105,526 96,000 96,000
Securities sold under agreements to repurchase 93,905 93,905 79,613 79,613
Subordinated debt, net 16,496 16,123 16,390 16,390
Off-balance sheet instruments -- 212 -- 2,820
</TABLE>
19. STOCKHOLDERS' EQUITY:
MET Holdings' common shares outstanding consist of Class A and Class B Common
Stock. Voting power is vested exclusively in the holders of Class A Common
Stock. Shares of Class A Common Stock are convertible at the option of the
holder thereof at any time into the same number of shares of Class B Common
Stock. Holders of Class A and Class B Common Stock share ratably in any
dividends or in the event of any dissolution, liquidation or winding up of the
Company.
As mandated by the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), the Director of the OTS requires all thrift institutions to
maintain capital in accordance with capital standards which include maintenance
of: (1) tangible capital equal to
F-32
<PAGE>
at least 1.5 percent of adjusted total assets, (2) core capital equal to at
least 3 percent of adjusted total assets, and (3) core capital equal to at least
4 percent of risk-weighted assets (tier 1 capital ratio), and (4) total capital
including general loan loss allowances equal to at least 8 percent of
risk-weighted assets. There are limitations to the amount of the loan loss
allowance which may be included in regulatory capital. At December 31, 1995,
TeleBanc exceeded all current and fully phased-in capital requirements
promulgated by the OTS. At December 31, 1995, the Bank had tangible capital of
5.36 percent, core capital of 5.31 percent and risk-based capital of 11.74
percent which exceeded the minimum OTS requirements to be adequately
capitalized.
The Federal Deposit Insurance Improvement Act of 1991 ("FDICIA") required each
federal regulatory agency to mandate minimum capital levels at which an
institution is considered "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized", and "critically
undercapitalized." Certain prompt corrective action is required to be taken with
respect to those institutions which fall below minimum regulatory capital
standards. Under the prompt corrective action regulations adopted by the OTS,
which became effective in December 1992, the following capital standards were
required in order to be considered well capitalized: (1) core capital of at
least 5 percent, (2) tier 1 risk-based capital of at least 6 percent, and (3)
risk-based capital of at least 10 percent. TeleBanc is considered to be well
capitalized at December 31, 1995 under the prompt corrective action regulations.
TeleBanc is authorized to issue up to 500,000 shares of preferred stock with a
par value of $1.00 per share. No preferred stock is outstanding at December 31,
1995.
TeleBanc is subject to certain restrictions on the amount of dividends it may
declare without prior regulatory approval in accordance with the OTS. At
December 31, 1995 approximately $7.3 million of retained earnings were available
for dividend declaration without prior regulatory approval.
ARBOR REGULATORY CAPITAL
As a registered broker-dealer, Arbor is subject to the SEC's Uniform Net Capital
Rule 15c3-1 which requires that the Arbor maintain minimum net capital, as
defined, of one fifteenth of aggregate indebtedness, as defined, or $100,000,
whichever is greater. As of December 31, 1995, Arbor had net capital of $303,222
which exceeded the requirements by $203,222. Arbor is exempt from the provisions
of Rule 15c3-3 under Paragraph (k)(2)(ii) because it clears its customers'
securities transactions on a fully disclosed basis through two nonrelated
clearing brokers.
20. COMMITMENTS AND CONTINGENCIES:
In the ordinary course of business, TeleBanc has various outstanding commitments
and contingent liabilities that are not reflected in the accompanying financial
statements. The principal commitments of TeleBanc are as follows:
(a) At December 31, 1995, TeleBanc was obligated under an operating lease for
office space with an original term of ten years. Net rent expense under
operating leases was approximately $127,000 for the year ended December 31,
1995, and $60,000 for the years ended December 31, 1994 (unaudited) and
1993 (unaudited).
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<PAGE>
The projected minimum rental payments under the terms of the lease are as
follows (in thousands):
Year Ended
December 31,
------------
1996 $141,078
1997 159,363
1998 89,274
1999 89,274
2000 and thereafter 461,251
--------
$940,240
========
(b) In 1995, officers and employees were issued 32,000 options to purchase
32,000 shares of TeleBanc common stock at a price of $5.50. Directors and
officers have been issued options in 1994 to purchase 242,730 shares of
common stock of TeleBanc at prices ranging from $6.125 to $7.125. As of
December 31, 1995 and 1994 (unaudited), 114,892 and 56,946 of the shares
were vested at exercise prices ranging from $5.50 to $6.125. The options'
exercise price was the market value of the stock at the date of the
offering. No options have been exercised or canceled.
(c) As of December 31, 1995, TeleBanc had commitments to purchase $24.7 million
of mortgage loans.
(d) The Federal government has considered, but not enacted, a plan to
recapitalize the Savings Association Insurance Fund ("SAIF") with a
one-time assessment on savings institutions. Subsequently, banks would
share with thrifts in proportion to their deposits the interest costs for
the Financing Corporation ("FICO") bonds. The cost to the Bank of the
one-time assessment is estimated to be between $2.2 million and $2.3
million. However, until the legislation is formally enacted management
cannot determine with any certainty the impact of such legislation.
(e) TeleBanc self-insures for a portion of health insurance expenses paid by
TeleBanc as a benefit to its employees. At December 31, 1995 and 1994
(unaudited), the reserve for incurred but not reported claims under this
insurance arrangement was insignificant.
Arbor is obligated under a five-year operating lease for office space expiring
November 30, 1997. In addition to base rent, the lease is subject to escalation
on certain costs incurred by the landlord. Minimum rent commitments under the
terms of the lease are as follows:
Year Ending
December 31,
------------
1996 $124,167
1997 114,583
Arbor has entered into clearing agreements with various brokerage firms for
minimum monthly fees aggregating $7,500. Beginning in March 1996, due to a
change in one of the brokerage firms, the minimum monthly fees will be reduced
to $6,500. These agreements are cancelable upon thirty days with a written
notice from either party.
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<PAGE>
21. SUBSEQUENT EVENTS:
PREFERRED STOCK
Subsequent to December 31, 1995, MET Holdings authorized the issuance of two
classes of Serial Preferred Stock consisting of 5,000 shares of 6 percent Class
A Serial Preferred Stock, and 5,000 shares of 6 percent Class B Serial Preferred
Stock ("Class B"). Both classes of Serial Preferred Stock have a par value of
$0.10 per share. On February 1, 1996, MET Holdings issued 5,000 shares of its
Class B Serial Preferred Stock to certain of the current common shareholders of
the Company at $600 per share. Net proceeds were approximately $3,000,000.
JOINT VENTURES
Subsequent to December 31, 1995, TeleBanc received regulatory approval to
establish and fund 50 percent of the capital commitment for a new entity, AGT
Mortgage Services, LLC ("AGT"). AGT will service performing loans for a fee
(including those held by TeleBank) and perform servicing and workout services
for troubled loans for a fee. AGT commenced operations in May 1996. In addition,
TeleBanc received approval to fund 50 percent of the capital commitment for a
second new entity, AGT-PRA LLC ("AGT PRA"). The primary business of AGT PRA will
be its investment in Portfolio Recovery Associates LLC ("PRA"). PRA will acquire
and collect delinquent consumer debt obligations for its own portfolio and may
also service troubled consumer loans for third parties. PRA commenced operations
on March 30, 1996.
In 1996, Arbor entered into a third joint venture with Angelo Gordon & Co., LP
("Angelo Gordon"), a New York based money management firm, to form AG Arbor
Management, LLC ("AG Arbor" or the Managing Partner), a Delaware limited
liability company. AG Arbor serves as the managing partner for two investment
partnerships, AG Spruce, LP and AGEA Partners, LP (the Funds), and will manage a
combined total of at least approximately $75,000,000 of non-performing and
credit impaired mortgage securities and whole loans. The Company and Angelo
Gordon have committed to invest 10 percent of each Fund's total capital
commitment, subject to a maximum commitment of $2.5 million each for a total of
$5,000,000. These funds were formed on February 1, 1996.
DEPOSITS ACQUISITION
On May 2, 1996, TeleBanc entered into an agreement to assume certain deposit
liabilities with First Commonwealth Savings Bank FSB ("First Commonwealth"),
First Commonwealth Financial Corp., and John York, Jr. Pursuant to this
agreement, TeleBanc assumed certain brokered and telephone solicited deposits
accounts of First Commonwealth, which deposits had a current balance of
approximately $53,100,000 as of April 30, 1996. In the deposit assumption, First
Commonwealth will pay TeleBanc the amount of the deposit liabilities assumed,
plus the amount of the deposit liabilities (less certain renewals) multiplied by
0.25 percent. Also, pursuant to the federal law enacted which may require
payment by TeleBanc of a one-time fee to recapitalize the Savings Association
Insurance Fund, First Commonwealth has agreed to pay the tax effected amount of
the fee attributable to the deposits transferred, up to 0.527 percent of such
deposits.
F-35
<PAGE>
SUPERVISORY AGREEMENTS
In May 1993, the Bank entered into a supervisory agreement with the OTS pursuant
to which the Bank agreed to (i) adopt and implement certain policies and
procedures in connection with investment activities, particularly with respect
to the use of futures transactions and other hedging strategies and activities;
(ii) submit for OTS review a comprehensive business plan with a strategy for
maintaining compliance with Regulatory Bulletin 3a-1 ("RB3a-1") regarding asset
growth restrictions; (iii) adopt and implement certain policies and procedures
regarding executive compensation; (iv) not extend credit or be a party to any
indebtedness of any holding company of the Bank or any affiliate of the Bank,
except upon providing prior notice to the OTS, and otherwise not engage in any
affiliated transactions, except to the extent permitted by applicable law; and
(v) adopt and effect specified loan underwriting and appraisal policies and
procedures. The supervisory agreement also required the Bank to establish
certain valuation allowances, to enter into a tax sharing agreement with
TeleBanc and to continue the disposition of certain investments in the Bank's
service corporation subsidiary. Furthermore, under the supervisory agreement,
the Bank was required to increase the size of its Board of Directors, appoint
independent Board members and classify the terms of such Directors. In February,
1996, TeleBanc nominated a new director to replace a director who had resigned
in January, 1996. The OTS has since approved this nomination. The Board was
required to appoint a compliance committee for monitoring and coordinating the
Bank's adherence to the provisions of the supervisory agreement. The Bank
believed it is substantially in compliance with the supervisory agreement at
December 31, 1995.
On August 8, 1996, the OTS terminated the Supervisory Agreement with TeleBank,
discussed above, subsequent to the completion of a full scope safety and
soundness examination of the Bank.
NEW LEGISLATION
On September 30, 1996, legislation designed to recapitalize the Savings
Association Insurance Fund ("SAIF") with a one-time assessment on savings
institutions such as the Bank was enacted into law. This one-time assessment is
estimated to be approximately 0.657 percent of the savings institution's
SAIF-insured deposits outstanding as of March 31, 1995. The cost of this
one-time assessment to the Bank is estimated to be approximately $1.7 million.
In addition, the assessment is required to be paid no later than November 29,
1996, but will be accrued in the Bank's financial statements as of September 30,
1996.
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<PAGE>
22. CONDENSED FINANCIAL INFORMATION (PARENT
COMPANY ONLY):
Statements of Financial Condition
As of December 31, 1995
($ In Thousands)
ASSETS
Assets:
Cash $ 186
Equity in net assets of bank subsidiary 13,576
Equity in net assets of other subsidiaries 599
Accrued interest receivable 1
Premises and equipment 36
Other assets 115
--------
Total assets $ 14,513
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reverse repurchase agreements and other borrowings $ 2,495
Taxes payable and other liabilities 18
--------
Total liabilities 2,513
========
Stockholders' equity:
Common stock 2
Additional paid in capital 7,205
Retained earnings 4,637
Treasury stock (831)
Unrealized gain/loss on securities available-for-sale 987
--------
Total stockholders' equity 12,000
--------
Total liabilities and stockholders' equity $ 14,513
========
F-37
<PAGE>
Statements of Operations
($ in thousands)
<TABLE>
<CAPTION>
For the Years Ended December31,
1995 1994 1993
------- ------- -------
(Unaudited)
<S> <C> <C> <C>
Interest income $ 171 $ 84 $ 6
Interest expense 150 153 96
------- ------- -------
Net interest income 21 (69) (90)
Non interest income 34 44 6
------- ------- -------
Total income 55 (25) (84)
Non interest expense 79 182 371
------- ------- -------
Net loss before income taxes and undistributed
earnings (24) (207) (455)
Income taxes -- (78) (178)
Equity in undistributed earnings of bank subsidiary 1,733 553 1,377
Equity in undistributed (losses) earnings of other subsidiaries (124) 74 --
------- ------- -------
Net income $ 1,585 $ 498 $ 1,100
======= ======= =======
</TABLE>
Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------------------
1995 1994 1993
------ ---- ------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,585 $ 498 $ 1,100
Adjustments to reconcile net income to net cash provided by
(used in) operating activities-
Equity in undistributed earnings of bank subsidiary (1,733) (553) (1,377)
Equity in undistributed (losses) earnings of other
subsidiaries 124 (74) --
Depreciation and amortization of premises and equipment 13 19 12
Amortization of goodwill and other intangibles -- 22 24
Decrease (increase) in other assets 152 (170) (92)
Increase (decrease) in accrued expenses and other liabilities 8 7 (46)
------ ---- ------
Net cash provided by (used in) operating activities 149 (251) (379)
------ ---- ------
</TABLE>
F-38
<PAGE>
Statements of Cash Flows
($ in thousands)
(Continued)
<TABLE>
<CAPTION>
For the Years Ended December31,
1995 1994 1993
-------- ------- ---------
(Unaudited)
<S> <C> <C> <C>
Cash flows from investing activities:
Investment in bank subsidiary $ -- $ -- $(1,663)
Investment in other subsidiaries (374) 1,332 (233)
Proceeds from sale of investment securities available for sale -- 365 --
Purchase of equipment -- -- (36)
Disposition of equipment 4 -- --
-------- ------- ---------
Net cash (used in) provided by investing activities (370) 1,697 (1,932)
-------- ------- ---------
Cash flows from financing activities:
Proceeds from borrowings -- -- 2,727
Principal payments on borrowings -- (232) --
Adjustment to basis of subsidiary -- (870) --
Purchase of treasury stock -- -- (831)
-------- ------- ---------
Net cash (used in) provided by financing activities -- (1,102) 1,896
-------- ------- ---------
Net (decrease) increase cash and cash equivalents (221) 344 (415)
Cash and cash equivalents, beginning of period 407 63 478
-------- ------- ---------
Cash and cash equivalents, end of period $ 186 $ 407 $ 63
======== ======= =========
</TABLE>
F-39
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Section 145 of the DGCL is set forth as Exhibit 99 to this
Registration Statement and is incorporated herein by reference.
(b) Section 102(b)(7) of the DGCL provides that the certificate of
incorporation of a Delaware corporation may include:
A provision eliminating or limiting the personal liability of
a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided
that such provision shall not eliminate or limit the liability
of a director: (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 ss. 174
of this title; or (iv) for any transaction from which the
director derived an improper personal benefit. No such
provision shall eliminate or limit the liability of a director
for any act or omission occurring prior to the date when such
provision becomes effective. All references in this paragraph
to a director shall also be deemed to refer (x) to a member of
the governing body of a corporation which is not authorized to
issue capital stock, and (y) to such other person or persons,
if any, who, pursuant to a provision of the certificate of
incorporation in accordance with ss. 141(a) of this title,
exercise or perform any of the powers or duties otherwise
conferred or imposed upon the board of directors by this
title.
(c) Section 5.5 of the Registrant's Certificate of Incorporation
provides:
5.5. Limitation of Liability.
No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty of loyalty
to the Corporation or its stockholders; (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; (c)
for the types of liability set forth in Section 174 of the Delaware General
Corporation Law; or (d) for any transaction from which the director derived an
improper personal benefit. Any repeal or modification of this Section 5.5 by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification with respect to
acts or omissions occurring prior to the effective date of such repeal or
modification.
(d) Article 12 of the Registrant's Certificate of Incorporation
provides:
12. INDEMNIFICATION.
To the extent permitted by law, the Corporation shall fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
II-1
<PAGE>
To the extent permitted by law, the Corporation may fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
The Corporation may advance expenses (including attorneys'
fees) incurred by a director or officer in advance of the final disposition of
such action, suit or proceeding upon the receipt of an undertaking by or on
behalf of the director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to indemnification. The
Corporation may advance expenses (including attorneys' fees) incurred by an
employee or agent in advance of the final disposition of such action, suit or
proceeding upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
(e) Article 13 of the Registrant's Certificate of Incorporation
provides:
13. AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
Except as set forth in this Article 13 or as otherwise
specifically required by law, no amendment of any provision of this Amended and
Restated Certificate of Incorporation shall be made unless such amendment has
been first proposed by the Board of Directors of the Corporation upon the
affirmative vote of at least two-thirds of the directors then in office at a
duly constituted meeting of the Board of Directors called for such purpose, and
thereafter approved by the stockholders of the Corporation by the affirmative
vote of the holders of at least a majority of the shares entitled to vote
thereon at a duly called annual or special meeting; provided, however, that if
such amendment is to the provisions set forth in this Article 13 or in Article
5, 6, 7, 8, 9, 10, or 12 hereof, such amendment must be approved by the
affirmative vote of the holders of at least 66-2/3 percent of the then
outstanding shares of stock of the Corporation entitled to vote thereon rather
than a majority; provided, further, that if such amendment is to the provisions
set forth in Article 11 hereof, such amendment must be approved by the
affirmative vote of the holders of at least 80 percent of the shares entitled to
vote thereon rather than a majority.
(f) Article 7 of the Registrant's Bylaws provides:
7. INSURANCE.
The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation (or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
against liability asserted against or incurred by such person in such capacity
or arising from such person's status as such (whether or not the Corporation
would have the power to indemnify such person against the same liability).
II-2
<PAGE>
(g) Article 8 of the Registrant's Bylaws provides:
8. INDEMNIFICATION.
8.1. Indemnification in Actions, Suits or Proceedings
Other Than Those by or in Right of the
Corporation.
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, and any appeal therein, whether civil,
criminal, administrative, arbitrative, or investigative (other than an action by
or in right of the Corporation) by reason of the fact that such person is or was
a director, officer, trustee, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, trustee,
employee, or agent of another corporation, association, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, and any appeal therein, if such person acted in good faith
and in a manner which such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that such conduct was
unlawful. The termination of any action, suit or proceeding, and any appeal
therein, by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such conduct was unlawful.
8.2. Indemnification in Actions, Suits or Proceedings
by or in the Right of the Corporation.
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a director, officer, trustee, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of another corporation, association, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner which such person reasonably believed to be
in or not opposed to the best interests of the Corporation. No such
indemnification shall be made against expenses in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation or against amounts paid in settlement unless and only to the extent
that there is a determination (as set forth in Section 8.3 hereof) that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses or
amounts paid in settlement.
8.3. Authorization of Indemnification.
Any indemnification under this Article 8 shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person or persons have met the applicable standard of
conduct set forth in Sections 8.1 and 8.2 hereof and, if applicable, is fairly
and reasonably entitled to indemnity as set forth in Section 8.2, as the case
may be. Such determination shall be made (a) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by a majority of the stockholders
entitled to vote generally in the election of directors. To the extent, however,
that a director, officer, trustee, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he or she shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith, without
the necessity of authorization in the specific case. No director, officer,
trustee, employee or agent of the Corporation shall be entitled to
indemnification in connection with any action, suit or proceeding voluntarily
initiated by such person unless the action, suit or proceeding was authorized by
a majority of the entire Board of Directors.
II-3
<PAGE>
8.4. Good Faith Defined.
For purposes of any determination under Section 8.3 hereof, a
person shall be deemed to have acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his or her conduct was unlawful, if his or her
action is based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him or her by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 8.4 shall mean
any other corporation or any association, partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent. The provisions
of this Section 8.4 shall not be deemed to be exclusive or to limit in any way
the circumstances in which a person may be deemed to have met the applicable
standards of conduct set forth in Sections 8.1 or 8.2 hereof, as the case may
be.
8.5. Indemnification by a Court.
Notwithstanding any contrary determination in the specific
case under Section 8.3, and notwithstanding the absence of any determination
thereunder, any director, officer, trustee, employee or agent may apply to any
court of competent jurisdiction in the State of Delaware for indemnification to
the extent otherwise permissible under Sections 8.1 and 8.2 above. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because he or she has met the applicable standards of
conduct set forth in Sections 8.1 and 8.2 above, as the case may be. Notice of
any application for indemnification pursuant to this Section 8.5 shall be given
to the Corporation promptly upon the filing of such application. Notwithstanding
any of the foregoing, unless otherwise required by law, no director, officer,
trustee, employee or agent of the Corporation shall be entitled to
indemnification in connection with any action, suit or proceeding voluntarily
initiated by such person unless the action, suit or proceeding was authorized by
a majority of the entire Board of Directors.
8.6. Advancement of Expenses.
The Corporation may advance expenses (including attorneys'
fees) incurred by a director, officer, employee or agent in advance of the final
disposition of such action, suit or proceeding upon the receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that such person is not entitled to indemnification
from the Corporation as authorized in this Article 8.
8.7. Contract, Non-exclusivity and Survival of Indemnification.
The indemnification provided by this Article 8 shall be deemed
to be a contract between the Corporation and each director, officer, employee
and agent who serves in such capacity at any time while this Article 8 is in
effect, and any repeal or modification thereof shall not affect any
II-4
<PAGE>
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts. Further, the
indemnification and advancement of expenses provided by this Article 8 shall not
be deemed exclusive of any other rights to which those seeking indemnification
and advancement of expenses may be entitled under any certificate of
incorporation, bylaw, agreement, contract, vote of stockholders or disinterested
directors or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that, subject to the limitation in Section
8.3 hereof concerning voluntary initiation of actions, suits or proceedings,
indemnification of the persons specified in Sections 8.1 and 8.2 hereof shall be
made to the fullest extent permitted by law. The provisions of this Article 8
shall not be deemed to preclude the indemnification of any person who is not
specified in Sections 8.1 or 8.2 of this Article 8 but whom the Corporation has
the power or obligation to indemnify under the provisions of the law of the
State of Delaware. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article 8 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, trustee, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
8.8. Meaning of "Corporation" for Purposes of Article 8.
For purposes of this Article 8, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, association, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article 8 with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
EXHIBIT NUMBER EXHIBIT DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of May 10, 1996, by and
among TeleBanc Financial Corporation ("TeleBanc") and MET
Holdings Corporation ("MET Holdings") (included in Annex A to
Proxy Statement/Prospectus).
2.2 First Amendment to Agreement and Plan of Merger, dated October
7, 1996, by and among TeleBanc and MET Holdings (included in
Annex A to Proxy Statement/Prospectus).
2.3 Stock Exchange Agreement, dated as of _____________, 1996, by
and among TeleBanc, MET Holdings and William M. Daugherty
(included as Annex D to Proxy Statement/Prospectus).*
5 Opinion of Hogan & Hartson L.L.P. regarding the legality of
securities being issued.
8 Opinion of Arthur Andersen LLP regarding certain tax matters.*
13.1 Annual Report on Form 10-K of TeleBanc for the fiscal year
ended December 31, 1995, filed on March __, 1996 and
incorporated by reference herein.
II-5
<PAGE>
13.2 Quarterly Report on Form 10-Q of TeleBanc for the quarter
ended June 30, 1996, filed on August 14, 1996 and incorporated
by reference herein.
23.1 Consent of Arthur Andersen LLP (MET Holdings and TeleBanc).
23.2 Consent of KPMG Peat Marwick LLP (TeleBanc).
23.3 Consent of Corporate Finance of Washington, Inc.
23.4 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5
hereto).*
99.1 Section 145 of the Delaware General Corporation Law.
99.2 Form of proxy for MET Holdings.
99.3 Form of proxy for TeleBanc.
- ----------
* To be filed by amendment.
II-6
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement 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.
(b) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other Items of the applicable form.
(c) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of section 10(a)(3) of
the Act and is used in connection with an offering of
securities subject to Rule 415 (ss. 230.415 of this chapter),
will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is
effective, and that, for purposes 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.
(d) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other Items of the applicable form.
(e) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of section 10(a)(3) of
the Act and is used in connection with an offering of
securities subject to Rule 415 (ss. 230.415 of this chapter),
will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is
effective, and that, for purposes 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.
(f) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference
into the Proxy Statement/Prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means.
This includes information contained in documents filed
subsequent to
II-7
<PAGE>
the effective date of the Registration Statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved
therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on October 7, 1996.
TeleBanc FINANCIAL CORPORATION
By: /s/ David A. Smilow
--------------------------
David A. Smilow
Chairman of the Board
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below appoints David A. Smilow and Mitchell H. Caplan, jointly and
severally, each in his own capacity, his true and lawful attorneys-in-fact, with
full power of substitution, for him and in his name, place and stead, in any and
all capacities to sign any amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 7, 1996.
/s/ David A. Smilow Chairman of the Board and Chief Executive
- ----------------------------- Officer (Principal Executive Officer)
David A. Smilow
/s/ Mitchell H. Caplan President, Chief Operating Officer and Director
- -----------------------------
Mitchell H. Caplan
/s/ Aileen Lopez Pugh Executive Vice President-Chief Financial
- ----------------------------- Officer/Treasurer (Principal Financial Officer)
Aileen Lopez Pugh
/s/ David DeCamp Director
- -----------------------------
David DeCamp
II-9
<PAGE>
/s/ Arlen Gelbard Director
- -----------------------------
Arlen Gelbard
/s/ Mark Rollinson Director
- -----------------------------
Mark Rollinson
II-10
<PAGE>
EXHIBIT INDEX
PAGE NUMBER IN
SEQUENTIALLY
NUMBERED
REGISTRATION
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT STATEMENT
- -------------- ----------------------- ---------
2.1 Agreement and Plan of Merger, dated as of
May 10, 1996, by and among TeleBanc
Financial Corporation ("TeleBanc") and MET
Holdings Corporation ("MET Holdings")
(included in Annex A to Proxy
Statement/Prospectus).
2.2 First Amendment to Agreement and Plan of
Merger, dated October 7, 1996, by and among
TeleBanc and MET Holdings (included in Annex
A to Proxy Statement/Prospectus).
2.3 Stock Exchange Agreement, dated as of _______,
1996, by and among TeleBanc, MET Holdings and
William M. Daugherty (included as Annex D to
Proxy Statement/Prospectus).*
5 Opinion of Hogan & Hartson L.L.P. regarding
the legality of securities being issued.*
8 Opinion of Arthur Andersen LLP regarding
certain tax matters.*
13.1 Annual Report on Form 10-K of TeleBanc for
the fiscal year ended December 31, 1995,
filed on March __, 1996 and incorporated by
reference herein.
13.2 Quarterly Report on Form 10-Q of TeleBanc
for the quarter ended June 30, 1996, filed
on August 14, 1996 and incorporated by
reference herein.
23.1 Consent of Arthur Andersen LLP (MET Holdings and TeleBanc).
23.2 Consent of KPMG Peat Marwick LLP (TeleBanc).
23.3 Consent of Corporate Finance of Washington,
Inc.
23.4 Consent of Hogan & Hartson L.L.P. (included
in Exhibit 5 hereto).*
99.1 Section 145 of the Delaware General
Corporation Law.
99.2 Form of proxy for MET Holdings.
99.3 Form of proxy for TeleBanc.
- ----------
* To be filed by amendment.
II-11
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
dated July 18, 1996, except with respect to the note labeled "Subsequent
Events", included in the financial statements of MET Holdings Corporation for
the year ended December 31, 1995, as to which the date is September 30, 1996,
which report is included in or made a part of this registration statement. In
addition, we hereby consent to the incorporation by reference in this
registration statement of our report dated February 15, 1996 included in
TeleBanc Financial Corporation's Form 10-K for the year ended December 31, 1995
and to all references to our Firm included in this registration statement.
Arthur Andersen LLP
Washington, D.C.
October 7, 1996
Consent of Independent Public Accountants
The Board of Directors
TeleBanc Financial Corporation:
We consent to the use of our report dated February 24, 1995, relating to the
consolidated statement of financial condition of Telebanc Financial Corporation
and subsidiary as of December 31, 1994 and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the two years
ended December 31, 1994, which report is incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Washington, DC
October 7, 1996
CONSENT OF CORPORATE FINANCE OF WASHINGTON,INC.
We hereby consent to the use of our firm's name in the Form S-4 Registration
Statement of TeleBanc Financial Corporation ("TeleBanc") and amendments thereto
relating to the registration of shares of TeleBanc's common stock to be issued
in connection with the proposed merger of MET Holdings Corporation with and into
TeleBanc. We also consent to the inclusion of our opinion letter dated October
4, 1996, as an Annex to the Proxy Statement/Prospectus included as part of the
Form S-4 Registration Statement, and to the references to our opinion included
in the Proxy Statement/Prospectus.
CORPORATE FINANCE OF WASHINGTON, INC.
Date: October 7, 1996
Section
145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative o investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
<PAGE>
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
REVOCABLE PROXY
MET HOLDINGS CORPORATION
405 Park Avenue, Suite 1104
New York, New York 10022
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR USE ONLY AT THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
_____________, 1996, AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of MET Holdings Corporation
("Company"), hereby appoints __________________________________, as proxy, such
person being duly appointed by the Board of Directors with the power to appoint
an appropriate substitute, and hereby authorizes such proxy to represent the
undersigned at the Special Meeting of Stockholders of the Company to be held at
the Company's principal executive office at 405 Park Avenue, Suite 1104, New
York, New York 10022 on _____________, _____________, 1996 at 11:00 a.m., local
time, and at any adjournment of said meeting, and thereat to act with respect to
all votes that the undersigned would be entitled to cast, if then personally
present, in accordance with the following instructions.
1. Proposal to approve and adopt the Agreement and Plan of
Merger, by and among TeleBanc Financial Corporation and the
Company, as amended, and the merger provided for therein.
FOR[ ] AGAINST[ ] ABSTAIN[ ]
(CONTINUED AND TO BE SIGNED AND DATED ON THE REVERSE SIDE)
<PAGE>
(CONTINUED FROM REVERSE SIDE)
2. To vote, in its discretion, upon such other business that may
properly come before the Special Meeting or any adjournment
thereof. Except with respect to procedural matters incident to
the conduct of the meeting, management is not aware of any
other matters which should come before the Special Meeting.
The undersigned hereby acknowledges receipt of a Notice of Special
Meeting of Stockholders of MET Holdings Corporation, called for ____________,
1996, and a Proxy Statement/Prospectus prior to signing this Proxy.
Dated: ________________________________, 1996
I plan to attend the meeting. [ ] Signature____________________________________
Signature____________________________________
Note: Please sign exactly as your name
appears on this proxy. Only one signature is
required where the stock is held jointly.
When signing in a representative capacity,
please give title.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
OTHERWISE MADE, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1 AT THE DISCRETION OF THE PROXY.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR
TO THE TIME IT IS VOTED AT THE SPECIAL
MEETING.
REVOCABLE PROXY
TeleBanc FINANCIAL CORPORATION
1111 North Highland Street
Arlington, Virginia 22201
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR USE ONLY AT THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
________________, 1996, AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of TeleBanc Financial Corporation
("Company"), hereby appoints ______________________________, as proxy, such
person being duly appointed by the Board of Directors with the power to appoint
an appropriate substitute, and hereby authorizes such proxy to represent the
undersigned at the Special Meeting of Stockholders of the Company to be held at
the Company's principal executive office at 1111 North Highland Street,
Arlington, Virginia 22201 on _____________, _____________, 1996 at 11:00 a.m.,
local time, and at any adjournment of said meeting, and thereat to act with
respect to all votes that the undersigned would be entitled to cast, if then
personally present, in accordance with the following instructions.
1. Proposal to approve and adopt the Agreement and Plan of
Merger, by and among the Company and MET Holdings Corporation,
as amended, and the merger provided for therein.
FOR[ ] AGAINST[ ] ABSTAIN[ ]
2. Proposal to amend the Company's Amended and Restated
Certificate of Incorporation to increase the number of
authorized shares of common stock, par value $.01 per share,
from 3,500,000 to 5,000,000, and preferred stock, par value
$.01 per share, from 500,000 to 5,000,000.
FOR[ ] AGAINST[ ] ABSTAIN[ ]
(CONTINUED AND TO BE SIGNED AND DATED ON THE REVERSE SIDE)
<PAGE>
(Continued from reverse side)
3. To vote, in its discretion, upon such other business that may
properly come before the Special Meeting or any adjournment
thereof. Except with respect to procedural matters incident to
the conduct of the meeting, management is not aware of any
other matters which should come before the Special Meeting.
The undersigned hereby acknowledges receipt of a Notice of Special
Meeting of Stockholders of TeleBanc Financial Corporation, called for
___________, 1996, and a Proxy Statement/Prospectus prior to signing this Proxy.
Dated:_________________________________, 1996
I plan to attend the meeting. [ ] Signature____________________________________
Signature____________________________________
Note: Please sign exactly as your name
appears on this proxy. Only one signature is
required where the stock is held jointly.
When signing in a representative capacity,
please give title.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
OTHERWISE MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2 AT THE DISCRETION OF THE
PROXY. THIS PROXY MAY BE REVOKED AT ANY TIME
PRIOR TO THE TIME IT IS VOTED AT THE SPECIAL
MEETING.
