UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
__________________
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file numbers 33-89818, 33-96568 and 333-08041
CLUB CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
NEVADA 75-1311242
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification no.)
3030 LBJ FREEWAY, SUITE 700 DALLAS, TEXAS 75234
(Address of principal executive offices) (ZIP CODE)
Registrant's telephone number, including area code: (214) 243-6191
Former name, former address and former fiscal year,
if changed since last report: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No.
The number of shares of the Registrant's Common Stock outstanding as of June
30, 1996 was 85,594,866.
<PAGE>
CLUB CORPORATION INTERNATIONAL
Index
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Auditors' Review Report
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows
Condensed Notes to Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. OTHER INFORMATION
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Club Corporation International:
We have reviewed the consolidated balance sheet of Club Corporation
International and subsidiaries (ClubCorp) as of June 30, 1996 and 1995 and the
related consolidated statements of operations for the three months and six
months ended June 30, 1996 and 1995 and stockholders' equity and cash flows
for the six months ended June 30, 1996 and 1995. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of ClubCorp as of December 31, 1995,
and the related statements of operations, stockholders' equity and cash flows
for the year then ended (not presented herein); and in our report dated
February 23, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1995, is fairly
presented, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Our report dated February 23, 1996 on the consolidated financial statements of
ClubCorp as of and for the year ended December 31, 1995 refers to a change in
its method of accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of.
KPMG Peat Marwick LLP
Dallas, Texas
August 7, 1996
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
(Unaudited)
JUNE 30, December 31, June 30,
Assets 1996 1995 1995
- ---------------------------------------------------------- ----------- -------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 68,202 $ 55,910 $ 64,466
Membership and other receivables, net 69,461 66,402 67,096
Inventories 14,273 12,926 13,711
Other assets 17,449 16,557 19,504
----------- -------------- -----------
Total current assets 169,385 151,795 164,777
Property and equipment, net 669,788 652,441 668,640
Notes receivable - related parties 3,707 11,506 12,601
Other assets 102,473 110,763 108,578
Financial services assets 725,082 917,056 1,114,987
----------- -------------- -----------
$1,670,435 $ 1,843,561 $2,069,583
=========== ============== ===========
Liabilities and Stockholders' Equity
- ----------------------------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 45,541 $ 53,779 $ 45,714
Long-term debt - current portion 90,982 79,652 87,885
Other liabilities 54,282 43,772 60,127
----------- -------------- -----------
Total current liabilities 190,805 177,203 193,726
Long-term debt 229,897 233,809 226,865
Other liabilities 50,539 50,669 57,488
Membership deposits 367,293 362,330 345,733
Financial services liabilities 685,271 877,345 1,061,448
Redemption value of common stock held by benefit plan 37,560 35,414 37,102
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,594,866,
85,667,032 and 85,926,248 outstanding at June 30, 1996,
December 31, 1995 and June 30, 1995, respectively 902 902 902
Additional paid-in capital 10,379 10,075 9,989
Foreign currency translation adjustment (6) (51) (49)
Unrealized gains or losses on investments in debt and
equity securities (250) (11,812) (575)
Retained earnings 170,455 176,834 205,224
Treasury stock (34,850) (33,743) (31,168)
Redemption value of common stock held by benefit plan (37,560) (35,414) (37,102)
----------- -------------- -----------
Total stockholders' equity 109,070 106,791 147,221
----------- -------------- -----------
$1,670,435 $ 1,843,561 $2,069,583
=========== ============== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
JUNE 30, June 30, JUNE 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues $ 186,173 $ 186,719 $ 333,016 $ 329,546
Operating costs and expenses 157,185 160,549 292,696 292,904
Selling, general and administrative expenses 15,300 14,405 29,273 28,315
---------- ---------- ---------- ----------
Income from operations 13,688 11,765 11,047 8,327
Gain (loss) on divestitures (1,234) (172) 3,276 708
Interest and investment income 2,837 2,285 4,913 4,001
Interest expense (6,348) (5,605) (13,184) (12,040)
---------- ---------- ---------- ----------
Income from continuing operations before
income taxes and minority interest 8,943 8,273 6,052 996
Income tax (provision) benefit (450) 199 (736) (98)
Minority interest 98 (1,154) 98 (1,154)
---------- ---------- ---------- ----------
Income (loss) from continuing operations 8,591 7,318 5,414 (256)
Discontinued operations:
Income from operations of discontinued financial services
segment, net of income tax provision of $137 and $1,326
for the three months ended, and $15 and $1,584 for the
six months ended June 30, 1996 and 1995 1,011 1,995 1,544 2,378
Loss on disposal of financial services segment, net of
income tax benefit of $8,631 for the three and six
months ended June 30, 1996 (13,402) - (13,402) -
---------- ---------- ---------- ----------
(12,391) 1,995 (11,858) 2,378
Income (loss) before extraordinary item (3,800) 9,313 (6,444) 2,122
Extraordinary item - gain on extinguishment of debt,
net of income taxes - - 65 -
---------- ---------- ---------- ----------
Net income (loss) $ (3,800) $ 9,313 $ (6,379) $ 2,122
========== ========== ========== ==========
Earnings per share:
Income from continuing operations $ .10 $ .09 $ .06 $ -
Discontinued operations (.14) .02 (.13) .03
Extraordinary item - gain on extinguishment of debt - - - -
---------- ---------- ---------- ----------
Net income (loss) $ (.04) $ .11 $ (.07) $ .03
========== ========== ========== ==========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1996 and 1995
(Dollars in thousands, except share amounts)
(Unaudited)
Common stock (100,000,000 shares
authorized, par value $0.01 per share)
-------------------------------------------
Foreign
Treasury Additional Currency
Shares Stock Shares Par Paid-in Translation
Issued Shares Outstanding Value Capital Adjustment
---------- ---------- ------------ ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 90,219,408 4,096,353 86,123,055 $ 902 $ 9,383 $ 172
Net income - - - - - -
Purchase of treasury stock - 364,248 (364,248) - - -
Stock issued in connection with bonus plans - (167,441) 167,441 - 606 -
Foreign currency translation adjustment - - - - - (221)
Market adjustment - - - - - -
Change in redemption value - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at June 30, 1995 90,219,408 4,293,160 85,926,248 $ 902 $ 9,989 $ (49)
========== ========== ============ ====== =========== =============
Balances at December 31, 1995 90,219,408 4,552,376 85,667,032 $ 902 $ 10,075 $ (51)
NET LOSS - - - - - -
PURCHASE OF TREASURY STOCK - 206,392 (206,392) - - -
REISSUANCE OF TREASURY STOCK - (24,258) 24,258 - 71 -
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - (109,968) 109,968 - 233 -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - 45
MARKET ADJUSTMENT - - - - - -
CHANGE IN REDEMPTION VALUE - - - - - -
---------- ---------- ------------ ------ ----------- -------------
BALANCES AT JUNE 30, 1996 90,219,408 4,624,542 85,594,866 $ 902 $ 10,379 $ (6)
========== ========== ============ ====== =========== =============
Unrealized Redemption
Gains or Value of
Losses on Common
Investments in Stock Total
Debt and Retained Treasury Held by Stockholders'
Equity Securities Earnings Stock Benefit Plan Equity
------------------- ---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $ (2,766) $ 203,102 $ (28,675) $ (37,112) $ 145,006
Net income - 2,122 - - 2,122
Purchase of treasury stock - - (3,691) - (3,691)
Stock issued in connection with bonus plans - - 1,198 - 1,804
Foreign currency translation adjustment - - - - (221)
Market adjustment 2,191 - - - 2,191
Change in redemption value - - - 10 10
------------------- ---------- ---------- -------------- ---------------
Balances at June 30, 1995 $ (575) $ 205,224 $ (31,168) $ (37,102) $ 147,221
=================== ========== ========== ============== ===============
Balances at December 31, 1995 $ (11,812) $ 176,834 $ (33,743) $ (35,414) $ 106,791
NET LOSS - (6,379) - - (6,379)
PURCHASE OF TREASURY STOCK - - (2,103) - (2,103)
REISSUANCE OF TREASURY STOCK - - 183 - 254
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - - 813 - 1,046
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - 45
MARKET ADJUSTMENT 11,562 - - - 11,562
CHANGE IN REDEMPTION VALUE - - - (2,146) (2,146)
------------------- ---------- ---------- -------------- ---------------
BALANCES AT JUNE 30, 1996 $ (250) $ 170,455 $ (34,850) $ (37,560) $ 109,070
=================== ========== ========== ============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
SIX MONTHS ENDED
----------------------
JUNE 30, June 30,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ (6,379) $ 2,122
Adjustments to reconcile net income (loss)
to cash flows provided from operations:
Depreciation and amortization 22,721 20,018
Gain on divestitures (3,276) (708)
Extraordinary item - gain on extinguishment of debt (81) -
Minority interest in net earnings (losses) of subsidiary (98) 1,154
Equity in (earnings) losses and write-downs of investments
in partnerships and joint ventures 364 (1,013)
Decrease in land held for sale 5,219 8,138
Increase in membership and other receivables, net (2,146) (483)
Decrease in accounts payable and accrued liabilities (5,962) (4,372)
Increase in deferred membership dues 4,565 1,177
Other 1,800 393
Net change in operating assets of discontinued operations 11,869 4,608
---------- ----------
Cash flows provided from operations 28,596 31,034
Cash flows from investing activities:
Additions to property and equipment (18,914) (34,904)
Development of real estate ventures (8,448) (2,483)
Acquisition of facilities (5,512) (20,529)
Sales of investment securities 2,648 6,279
Proceeds from divestitures, net - 1,300
Investment in joint ventures (697) (1,000)
Other 1,331 802
Investing activities of discontinued operations 169,412 56,460
---------- ----------
Cash flows provided from investing activities 139,820 5,925
Cash flows from financing activities:
Borrowings of long-term debt 11,515 51,913
Repayments of long-term debt (7,372) (25,861)
Increase in membership deposits 11,005 11,425
Treasury stock transactions, net (1,849) (3,691)
Financing activities of discontinued operations (193,251) (51,355)
---------- ----------
Cash flows used by financing activities (179,952) (17,569)
---------- ----------
Total net cash flows (11,536) 19,390
Net cash flows from discontinued operations (23,828) 12,091
---------- ----------
Net cash flows from continuing operations $ 12,292 $ 7,299
========== ==========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
CLUB CORPORATION INTERNATIONAL
Condensed Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
- -------------
The consolidated financial statements include the accounts of Club Corporation
International (Parent) and its subsidiaries (collectively ClubCorp) except for
certain subsidiaries of Franklin Federal Bancorp, a Federal Savings Bank
(Franklin). In the first quarter of 1996, Franklin's Board of Directors passed
a resolution to solicit offers to sell Franklin. This resolution was
subsequently approved by the Board of Directors of First Federal Financial
Corporation, the parent company of Franklin and a subsidiary of Parent. Thus,
Franklin is classified as a discontinued operation (Note 2 and Note 6) and
Franklin's assets, liabilities, income (loss) from operations and cash flow
activity are segregated in the accompanying financial statements. The prior
year financial information has also been restated to reflect the discontinued
operation.
Interim presentation
- ---------------------
The accompanying consolidated financial statements have been prepared by
ClubCorp and are unaudited. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been omitted from the
accompanying statements. ClubCorp's management believes the disclosures made
are adequate to make the information presented not misleading. However, the
financial statements should be read in conjunction with the financial
statements and notes thereto of ClubCorp for the year ended December 31, 1995
which were a part of ClubCorp's Form 10-K.
In the opinion of ClubCorp management, the accompanying unaudited consolidated
financial statements reflect all adjustments necessary to present fairly the
consolidated financial position of ClubCorp as of June 30, 1996 and 1995 and
the consolidated results of operations and cash flows for the interim periods
then ended. Interim results are not necessarily indicative of fiscal year
performance because of the impact of seasonal and short-term variations.
Fiscal periods
- ---------------
ClubCorp operates on a calendar year ended December 31; however, the
subsidiaries comprising the hospitality segment are primarily on a 52/53 week
fiscal year and the accounts of those subsidiaries are included for the 12
weeks and 24 weeks ended June 12, 1996 and June 14, 1995, respectively.
Acquisitions, divestitures and other material transactions of the hospitality
segment during the period from June 12, 1996 to June 30, 1996 and June 14,
1995 to June 30, 1995 have been recorded in these statements.
Earnings per share
- --------------------
Earnings per share is computed using the weighted average number of shares
outstanding of 85,639,419 and 86,243,303 for the three months ended, and
85,708,131 and 86,312,422 for the six months ended June 30, 1996 and 1995,
respectively.
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current period presentation.
NOTE 2. DISCONTINUED OPERATIONS
The financial services assets, financial services liabilities and income
(loss) from discontinued operations are segregated in the accompanying
financial statements, net of minority interest. The condensed balance sheet
and statement of operations of the discontinued segment are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Balance Sheet
JUNE 30, December 31, June 30,
1996 1995 1995
--------- ------------- ----------
<S> <C> <C> <C>
Assets
- ---------------------
Cash and cash
equivalents $ 27,655 $ 51,484 $ 48,372
Mortgage-backed
securities 199,819 379,527 529,840
Loans receivable, net 421,140 406,883 417,931
Other assets 76,468 79,162 118,844
--------- ------------- ----------
$ 725,082 $ 917,056 $1,114,987
========= ============= ==========
Liabilities and
Stockholders' Equity
- ---------------------
Deposits $ 544,408 $ 566,083 $ 553,517
Federal Home Loan
Bank advances 105,465 280,400 468,100
Other liabilities 25,445 20,934 32,696
Stockholders' equity 49,764 49,639 60,674
--------- ------------- ----------
$ 725,082 $ 917,056 $1,114,987
========= ============= ==========
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
JUNE 30, June 30, JUNE 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net interest income $ 4,913 $ 4,111 $ 9,503 $ 9,050
Other income (loss) (20,743) 5,002 (19,737) 5,968
Other expenses 8,426 5,294 13,204 10,462
Income tax (provision)
benefit 8,768 (1,326) 8,616 (1,584)
---------- ---------- ---------- ----------
Net income (loss) (15,488) 2,493 (14,822) 2,972
---------- ---------- ---------- ----------
Minority interest (3,097) 498 (2,964) 594
---------- ---------- ---------- ----------
ClubCorp's interest $ (12,391) $ 1,995 $ (11,858) $ 2,378
========== ========== ========== ==========
</TABLE>
During the second quarter of 1996, Franklin's Board of Directors made a
decision to sell the fixed-rate mortgage-backed securities and use the funds
to prepay the Federal Home Loan Bank (FHLB) advances. This decision was based
on the Board's commitment to improve interest rate risk and the fact that the
pending sale of Franklin (Note 6) will exclude the fixed-rate mortgage-backed
securities and FHLB advances. As of June 30, 1996, $148,200,000 in fixed-rate
mortgage-backed securities had been sold and an additional $117,500,000 had
been committed for sale. A write down valuation on the remaining portfolio
was made due to the decision to sell the fixed-rate mortgage-backed securities
and the decline in their value deemed other than temporary. Losses recognized
as of June 30, 1996 on the sale of fixed-rate mortgage-backed securities and
write down valuations on the remaining securities to be sold totaled
$22,000,000. The proceeds on the sale of these investments allowed Franklin to
prepay a significant portion of the FHLB advances as of June 30, 1996.
NOTE 3. ACQUISITIONS
ClubCorp's acquisitions in 1996 and 1995 were accounted for using the purchase
method and, accordingly, the acquired assets and liabilities were recorded
based on their estimated fair values at the dates of acquisition.
During the first six months of 1996, ClubCorp purchased substantially all the
assets of two country clubs and two golf clubs.
The following unaudited proforma financial information assumes the
acquisitions occurred at the beginning of their acquisition year. This
proforma summary does not necessarily reflect the results of operations as
they would have occurred or the results which may occur in the future (dollars
in thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JUNE 30, June 30,
1996 1995
---------- ---------
<S> <C> <C>
Operating revenues $ 334,573 $ 343,131
========== =========
Income (loss) before extraordinary item $ (6,110) $ 1,699
========== =========
Net income (loss) $ (6,045) $ 1,699
========== =========
Net income (loss) per share $ (.07) $ .02
========== =========
</TABLE>
<PAGE>
NOTE 4. LONG-TERM DEBT
At June 30, 1996 and subsequently, certain subsidiaries were not in compliance
with debt covenants principally relating to financial ratios for long-term
debt totaling $7,034,000. This amount is included in the current portion of
long-term debt in the accompanying balance sheet.
NOTE 5. COMMITMENTS AND CONTINGENCIES
ClubCorp is subject to certain pending or threatened litigation and other
claims. Management, after review and consultation with legal counsel,
believes ClubCorp has meritorious defenses to these matters and that any
potential liability from these matters would not materially affect ClubCorp's
consolidated financial statements.
NOTE 6. SUBSEQUENT EVENT
On August 7, 1996, Franklin entered into an agreement in which Norwest
Corporation will purchase certain assets and assume certain liabilities of
Franklin. The sale is pending regulatory approval and, although no assurances
can be given, management anticipates that the required approvals will be
received within six months. The sales price is defined as $45,500,000 plus
the net assets of Franklin to be acquired, which Franklin guarantees to be no
less than $40,000,000, as of the approval date. Proceeds of $4,000,000 will
be escrowed which equals the maximum contractual obligation of Franklin under
any claims which could be asserted by Norwest Corporation against Franklin
based on the representations, warranties, and covenants provided in the
agreement. Due to the contingencies involved, management cannot determine the
ultimate amount of the gain to be recognized; however, ClubCorp's estimated
net gain on this transaction, net of taxes and minority interest, is expected
to be within a range of $15,000,000 to $23,000,000.
After consideration of the loss on the liquidation of the fixed-rate
mortgage-backed securities (Note 2) and the transaction above, the estimated
net gain on the disposal of the financial services segment, net of taxes and
minority interest, is expected to be within a range of $2,000,000 to
$10,000,000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Company has operated in two distinct business segments,
hospitality and financial services. Hospitality operations include owning,
operating and managing country clubs, city clubs, city/athletic clubs,
athletic clubs, resorts, golf clubs, public golf courses and related real
estate. The Company has committed to dispose of its financial services
segment; therefore, this segment is presented as discontinued operations. The
following discussion for the hospitality segment excludes the Company's
holding company activities which include corporate general and administrative
expense, certain investment income (loss) items, consolidated provision for
income taxes and stockholders' equity transactions. This discussion of the
Company's financial condition and results of operations for the three and six
months ended June 30, 1996 and 1995 should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, as
filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
The following table sets forth operating revenues by product line
and by type and certain operating expenses and certain other income and
expense items (excluding holding company income and expense items) for the
periods indicated with percentage change based on comparisons between periods
(dollars in millions):
<TABLE>
<CAPTION>
Percentage change from
12 weeks ended 24 weeks ended comparable prior period
--------------------- -------------------- --------------------------------
12 weeks 24 weeks
ended ended
June 12, 1996 June 12, 1996
June 12, June 14, June 12, June 14, vs. vs.
1996 1995 1996 1995 June 14, 1995 June 14, 1995
---------- ---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues by product line:
Private clubs $ 123.8 $ 120.9 $ 232.1 $ 228.1 2.4 % 1.8 %
Golf clubs 5.8 5.0 11.1 10.1 16.0 9.9
Public golf 8.6 8.6 12.7 12.6 - 0.8
Resorts 39.0 36.3 62.9 60.7 7.4 3.6
Realty 6.4 13.7 10.2 14.2 (53.3) (28.2)
Corporate services and eliminations 2.6 2.2 4.0 3.8 18.2 5.3
---------- ---------- ---------- ---------- -------------- --------------
Total operating revenues $ 186.2 $ 186.7 $ 333.0 $ 329.5 (0.3) % 1.1 %
========== ========== ========== ========== ============== =============
Operating revenues by type:
Membership dues and fees $ 58.9 $ 57.3 $ 117.2 $ 114.1 2.8 % 2.7 %
Food and beverage 57.0 56.7 101.9 103.8 0.5 (1.8)
Golf and other recreation 44.3 38.6 71.6 62.7 14.8 14.2
Lodging 12.0 11.0 18.1 17.2 9.1 5.2
Other (1) 14.0 23.1 24.2 31.7 (39.4) (23.7)
---------- ---------- ---------- ---------- -------------- --------------
Total operating revenues $ 186.2 $ 186.7 $ 333.0 $ 329.5 (0.3) % 1.1 %
========== ========== ========== ========== ============== ==============
Costs and expenses and general
administrative expenses:
Direct operating costs $ 118.6 $ 122.0 $ 217.1 $ 219.3 (2.8) % (1.0) %
Facility rentals, operation 27.1 28.1 52.9 53.6 (3.6) (1.3)
and maintenance
Selling, general and administrative 14.6 13.9 28.1 27.3 5.0 2.9
Depreciation and amortization 11.5 10.5 22.7 20.0 9.5 13.5
---------- ---------- ---------- ---------- -------------- --------------
Total costs and expenses $ 171.8 $ 174.5 $ 320.8 $ 320.2 (1.5) % 0.2 %
Income from continuing operations $ 14.4 $ 12.2 $ 12.2 $ 9.3 18.0 % 31.2 %
Interest expense, net (4.7) (3.9) (9.9) (8.5) 20.5 16.5
Other (0.4) 0.3 (0.4) 0.2 * *
Gain (loss) on divestitures (1.2) (0.2) 3.3 0.7 * *
---------- ---------- ---------- ---------- -------------- --------------
Income from continuing operations
before income tax provision, minority
interest, and extraordinary item $ 8.1 $ 8.4 $ 5.2 $ 1.7 (3.6) % 205.9 %
========== ========== ========== ========== ============== ==============
____________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
(1) Includes primarily management fees, corporate services revenues to third parties, resort telephone, transportation and
audio-visual revenues, club special events income, equity in earnings of primarily real estate joint ventures, real
estate sales and rental income.
* Percentages not meaningful.
</TABLE>
12 WEEKS ENDED JUNE 12, 1996 COMPARED TO 12 WEEKS ENDED JUNE 14, 1995
Operating revenues decreased 0.3% to $186.2 million for the 12 weeks
ended June 12, 1996 from $186.7 million for the 12 weeks ended June 14, 1995.
Operating revenues of mature properties (i.e., those for which a comparable
period of activity exists, generally those owned for at least eighteen months
to two years) increased from $160.0 million to $164.9 million, an increase of
3.1%. Revenues from properties added, net of revenues lost from properties
divested, in 1996 and 1995 represent an increase of $1.1 million. Sales of
land held for resale in Colorado decreased $9.3 million for the 12 weeks ended
June 12, 1996 while sales of real estate in South Carolina increased $1.7
million.
Operating revenues from mature private club properties increased 1.5% to
$113.8 million in 1996 from $112.1 million due to improving membership trends
and usage revenues offset by real estate sales in California of $1.1 million.
Mature private clubs membership dues increased 2.6% to $51.7 million from
$50.4 million in 1995 due to improving membership trends in 1996. Usage
revenues for mature private club properties (i.e., food and beverage, golf,
lodging, and other recreation) increased 2.7% to $61.3 million in 1996 from
$59.7 million in 1995, also due to improving membership trends in 1996.
Operating revenues from golf clubs grew 16.0% from $5.0 million to $5.8
million resulting primarily from acquisitions in 1995. Mature golf clubs
operating revenues increased to $5.5 million for the 12 weeks ended June 12,
1996 from $5.0 million for the 12 weeks ended June 14, 1995 or 10.0%,
reflecting an increase of 36.4% in rounds played partially offset by a
decrease of 27.0% in revenue per round.
Resort operating revenues increased 7.4% from $36.3 million to $39.0
million in 1996. Operating revenues from mature owned resorts increased from
$35.1 million in 1995 to $38.1 million in 1996, an increase of 8.5%, due
primarily to the opening of a new course and related income at one resort.
Realty revenues decreased from $13.7 million to $6.4 million, or 53.3%,
due to decreased real estate sales of land held for resale in Colorado of $9.3
million partially offset by an increase in real estate sales in South
Carolina.
Golf and other recreation income increased 14.8% to $44.3 million for the
12 weeks ended June 12, 1996 from $38.6 million in 1995 primarily due to
acquisitions and developing properties in 1996 and 1995 and the opening of new
courses at mature properties.
Other operating revenues decreased 39.4% from $23.1 million for the 12
weeks ended June 14, 1995 to $14.0 million in 1996, due to decreased real
estate sales of land held for resale in Colorado of $9.3 million.
Depreciation and amortization expense increased 9.5% to $11.5 million
from $10.5 million. The increase relates mainly to acquisitions in 1996 and
1995 and developing properties. Depreciation and amortization at mature
facilities remained constant at $8.9 million for the 12 weeks ended June 12,
1996 and June 14, 1995.
Interest expense, net increased 20.5% to $4.7 million in 1996 from $3.9
million in 1995, reflecting higher leveraged acquisition activity. Interest
expense related to properties added in 1996 and 1995 and developing properties
was $0.5 million. Mature properties' interest expense increased from $4.0
million to $4.2 million, a 5.0% increase.
24 WEEKS ENDED JUNE 12, 1996 COMPARED TO 24 WEEKS ENDED JUNE 14, 1995
Operating revenues increased 1.1% to $333.0 million for the 24 weeks
ended June 12, 1996 from $329.5 million for the 24 weeks ended June 14, 1995.
Operating revenues of mature properties (i.e., those for which a comparable
period of activity exists, generally those owned for at least eighteen months
to two years) increased from $286.6 million to $291.5 million, an increase of
1.7%. Revenues from properties added, net of revenues lost from properties
divested, in 1996 and 1995 represent an increase of $3.3 million. Sales of
land held for resale in Colorado decreased $7.5 million for the 24 weeks ended
June 12, 1996.
Operating revenues from mature private club properties remained static at
$212.6 million in 1996 from $211.1 million for the 24 weeks ended June 14,
1995, due to adverse membership trends in 1995 and 1994 resulting principally
from limitations on the deductibility of dues and business meals and
entertainment expenses included in 1993 tax legislation which affected usage
revenues. Mature private clubs membership dues increased 1.7% to $102.2
million in 1996 from $100.5 million in 1995, due to a shrinking membership
base in 1995. Membership enrollment at mature clubs for the 24 weeks ended
June 12, 1996 was 18.0%, which is higher than attrition rates of 17.5% during
the same period. Usage revenues for mature private club properties (i.e.,
food and beverage, golf, lodging, and other recreation) increased only 1.1% to
$108.7 million in 1996 from $107.5 million in 1995, also due to a shrinking
membership base in 1995.
Operating revenues from golf clubs grew 9.9% from $10.1 million in 1995
to $11.1 million in 1996 resulting primarily from acquisitions in 1995.
Mature golf clubs operating revenues increased 4.0% to $10.5 million from
$10.1 million in 1995, reflecting an increase of 34.6% in rounds played offset
by a decrease of 22.4% in revenue per round.
Resort operating revenues increased 3.6% from $60.7 million to $62.9
million. Operating revenues from mature owned resorts increased from $54.2
million in 1995 to $57.0 million in 1996, an increase of 5.2%, reflecting an
increase of 3.6% in the average daily revenue per available room and an
increase of 12.5% in the average daily room rate per occupied room offset by a
decrease of 3.4% in occupancy rates.
Realty revenues decreased from $14.2 million to $10.2 million, or 28.2%,
due to decreased real estate sales of land held for resale in Colorado
partially offset by an increase in real estate sales in South Carolina and
Ohio.
Golf and other recreation income increased 14.2% to $71.6 million from
$62.7 million primarily due to acquisitions and developing properties in 1996
and 1995 and the opening of new golf courses at certain mature properties.
Other operating revenues decreased 23.7% from $31.7 million for the 24
weeks ended June 14, 1995 to $24.2 million in 1996, due to decreased real
estate sales of land held for resale in Colorado of $7.5 million.
Depreciation and amortization expense increased 13.5% to $22.7 million
from $20.0 million for the 24 weeks ended June 14, 1995. The increase relates
mainly to acquisitions in 1996 and 1995 and developing properties.
Depreciation and amortization at mature facilities increased from $17.3
million for the 24 weeks ended June 14, 1995 to $18.0 million for the 24 weeks
ended June 12, 1996, a 4.0% increase.
Interest expense, net increased 16.5% to $9.9 million in 1996 from $8.5
million for the 24 weeks ended June 14, 1995, reflecting higher leveraged
acquisition activity. Interest expense related to properties added in 1996 and
1995 was $0.7 million. Mature properties' interest expense increased from
$8.2 million to $8.7 million, a 6.1% increase.
SEASONALITY
The Consolidated Financial Statements of the Company are presented on a
calendar year basis. The subsidiaries of the hospitality group operate
primarily on a 52/53 week fiscal year. The first three quarters consist of 12
weeks each and the fourth quarter includes 16 weeks. The timing of fiscal
quarter ends, seasonal weather conditions and other short-term variations
cause financial performance to vary by quarter. The Company has historically
generated a disproportionate amount of its operating revenue in the second,
third and fourth quarters of each year. Acquisitions, divestitures and other
material transactions of the hospitality segment occurring between fiscal
quarter end and calendar quarter end are included in the Company's
Consolidated Financial Statements. The timing of new operating properties
purchases or leases and investment gains and losses also cause the Company's
results of operations to vary significantly from quarter to quarter.
INFLATION
The Company has not experienced a significant overall impact from
inflation. As operating expenses increase, the Company, to the extent the
value of services rendered to members is not adversely impacted, recovers
increased costs by increasing price.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital expenditures
primarily through cash flows from operations, membership deposits and
long-term debt. Most capital expenditures other than capital replacements are
considered discretionary and could be curtailed in periods of low liquidity.
Capital replacements are planned expenditures made each year to maintain high
quality standards of facilities for the purpose of meeting existing members'
expectations and to attract new members. Capital replacements have ranged from
4.4% to 6.1% of operating revenues during the last three years. The Company
distinguishes capital expenditures made to refurbish and replace existing
property and equipment (i.e., capital replacements) from other discretionary
capital expenditures such as the expansion of existing facilities (i.e.,
capital expansions) and acquisition or development of new facilities.
Long-term debt is generally incurred on a property specific basis and is
non-recourse to any corporations other than the subsidiary incurring the debt.
Membership deposits represent non-interest-bearing advance initiation deposits
paid by members when they join a club and are generally due and payable 30
years from the date of acceptance. Management does not consider maturities of
membership deposits over the next five years to be material. Due to the
utilization of long-term operating leases and membership deposits, the
hospitality segment's leverage ratio (i.e., long-term debt to total capital)
has been maintained at manageable levels which allow for adequate capability
to finance future growth with long-term debt.
The Company relies on its low leverage position and maintenance of
positive relationships with existing and potential lenders to arrange
financing as needed for general corporate purposes or for specific projects.
Consequently, the Company maintained no committed lines of credit at June 30,
1996. At June 30, 1996, certain hospitality subsidiaries of the Company were
not in compliance with outstanding loan agreements relating to long-term debt
totaling $7.0 million. Such noncompliance relates primarily to financial ratio
covenants and not to payments due under the terms of such agreements.
The provisions of certain subsidiary lending and other agreements limit
the amount of dividends that may be paid to the parent. At June 30, 1996, cash
balances of $9.2 million were not available for dividends by subsidiaries due
to those restrictions.
At June 30, 1996, the Company's subsidiaries maintained $15.7 million of
unused letters of credit primarily to guarantee payment of potential insurance
claims paid under workers' compensation and general liability programs and to
guarantee the payment of development costs of residential lots for resale in
Aspen, Colorado. In addition, a subsidiary of the Company has guaranteed the
payment of loans with an outstanding balance of $10.9 million as of June 30,
1996. Commitments to fund future capital expenditures were not material as of
June 30, 1996.
All of the assets of the ClubCorp Stock Investment Plan (the "Plan") are
invested in shares of ClubCorp's common stock, $.01 par value per share (the
"Common Stock"), except for temporary investments of cash pending investment
in Common Stock. All distributions from the Plan are made in cash. As a means
of providing liquidity to the trustees of the Plan to meet their fiduciary
obligations to distribute cash to participants requesting withdrawals,
ClubCorp has provided the trustees the right (the "Redemption Right") to cause
the Company to redeem Common Stock, held in trust on behalf of the Plan, at
the most recent appraised price as necessary to meet certain requirements.
Withdrawals by participants and terminations by and/or resignations from the
Company of participants in excess of anticipated levels could give rise to the
exercise of withdrawal rights in substantial amounts and place significant
demands on the liquidity of the Company. In such an event, the resources
available to meet business expansion or other working capital needs could be
adversely affected. As of June 30, 1996, the value of the Redemption Right was
$37.6 million. The most recent appraised price of the Common Stock is $10.46
as of June 30, 1996. The aggregate market value of the Common Stock at June
30, 1996 is $895.3 million. The Redemption Right has never been exercised by
the Plan, although the Company from time to time has repurchased Common Stock
into treasury from certain stockholders. The Company does not believe that the
Redemption Right will be exercised to any material extent by the Plan to meet
any of its fiduciary obligations.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Several legislative proposals have been approved by Congress that could,
if enacted into law, significantly increase the Company's direct operating
costs. The first proposal would increase the minimum wage to $4.75 per hour
on October 1, 1996 with a second increase in the minimum wage to $5.15 per
hour occurring on September 1, 1997. A second legislative proposal would
impact the eligibility waiting period and/or pre-existing condition
requirements for health insurance coverage. It is likely that these proposals
will become law. Management has not yet evaluated the financial impact of
these proposals.
Over the last three years, attrition rates among members of the Company's
mature clubs have ranged from approximately 17.5% to 22.4%. In certain areas,
the Company has experienced decreased levels of usage of its private clubs and
public golf facilities. Membership enrollment at mature clubs for the 24 weeks
ended June 12, 1996 was 18.0%, which is higher than attrition rates of 17.5%
during the same period. During 1993, President Clinton signed into law
certain amendments to the Internal Revenue Code that had an adverse effect on
the Company's hospitality business from 1993 to 1995. During the last three
years the net enrollment rate for mature clubs has decreased from 1.4% to
(3.7%). In response to these adverse trends, the Company continues to focus
its efforts on membership and quality service as its top priority for 1996.
For the 24 weeks ended June 12, 1996, the net enrollment rate increased to
0.5%. While management believes that many of its members maintain membership
at the Company's clubs for their recreational and entertainment enjoyment,
many other club members use the Company's clubs for business purposes and have
deducted membership dues and certain club expenses for income tax purposes.
For these members, the tax code changes had the effect of increasing the cost
of club related expenditures. For the last several years, the Company has
focused on efforts to retain existing members, attract new members and
increase club usage through various programs and membership activities,
including increasing member participation by implementing member survey
suggestions and increasing the involvement of member boards of governors in
planning day-to-day activities. It is uncertain how trends in membership and
club usage will develop in the future, or whether any of the Company's efforts
in this area will be successful.
As of August 13, 1996, the Company was negotiating the acquisition of, or
had reached preliminary agreements to acquire, one property and to build four
properties. Subsequent to June 30, 1996 the Company reached final agreements
to acquire one additional property and to build three additional properties.
The Company is considering several ownership structures for the properties to
be built including lease arrangements, sole ownership, and partial ownership
(including joint venture interests). The consummation of the acquisition and
construction of these properties is expected to require approximately $54.0 to
$58.0 million in capital expenditures, to be funded primarily with external
bridge financing of Club Corporation of America ("CCA"), property specific
external financing, and developer financing. The bridge financing arrangement
is a "guidance line", styled as a promissory note, with a bank and is due on a
short-term basis up to a maximum of $75.0 million. Borrowings are generally
renewed as they become due; therefore, CCA does not expect to be required to
repay the outstanding borrowings within the next 12 months. As of June 30,
1996 and August 13, 1996, $60.9 million was outstanding under this financing
arrangement. Due to its short-term nature, the amount outstanding, excluding
letters of credit and loan guarantees, at June 30, 1996 is considered current
for financial reporting purposes. Additional credit arrangements could be made
if considered necessary. The eventual outcome of the acquisition negotiations
cannot be accurately predicted at this time.
The Company has acquired 54 properties since January 1, 1991 through
purchase, lease agreement or joint venture arrangements. Actual returns from
these properties have been significantly less than projected returns. The
success of each property depends on different factors; however, some of the
more common risk factors include a high dependency on real estate sales for
new membership growth, slower progress than anticipated in repositioning
properties and slower than anticipated turnarounds of prior operating
deficits. Additional purchase consideration was paid for premier properties,
strategically positioned properties, and properties in markets with
significant barriers to entry reflecting both the tangible and intangible
value of the property. The Company has also experienced greater than expected
development costs at three properties built and opened since January 1, 1991.
Under-performing and cash flow deficit properties recently acquired are being
carefully analyzed by executive management to determine an optimum business
plan allowing for the highest possible return to the Company. The Company
continually seeks to improve financial performance of existing facilities and
divest properties when management determines that properties will be unable to
provide a positive contribution to profitability. The Company is currently
evaluating several of its properties for ownership and/or financial
restructure or divestiture which could, depending on the outcome of
restructure or divestiture negotiations, limit its short-term ability to grow
revenues and cash flows at historical levels. Executive management believes
that its focus on, and investment in, training and development at the property
manager level could improve performance in the future. Recently, executive
management began developing a risk and reward-based screening model to
evaluate specific risk and reward factors against projected yields for all
proposed acquisitions and certain other significant capital investments of the
Company. In addition, the Company has implemented a "team approach" to
acquisitions including all facets of operations, development, and regional
support teams to improve the transition of ownership.
DISCONTINUED OPERATIONS
In the first quarter of 1996, the Board of Directors of Franklin Federal
Bancorp, a Federal Savings Bank ("Franklin") passed a resolution to solicit
offers to sell the financial services segment. On August 7, 1996, Franklin
entered into an agreement in which Norwest Corporation will purchase certain
assets and assume certain liabilities of Franklin. The sale is pending
regulatory approval and, although no assurances can be given, management
anticipates that the required approvals will be received within six months.
As the Company has committed to dispose of its financial services segment, the
segment is presented as discontinued operations.
Franklin's assets decreased from $917.1 million at December 31, 1995 to
$725.1 million at June 30, 1996. The decline in assets and corresponding net
loss during the six months ended June 30, 1996 was primarily the result of
sales of mortgage-backed securities classified as available for sale. These
securities were sold in connection with the sale of the financial services
segment.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
INTEREST INCOME. Total interest income amounted to $15.3 for the three
months ended June 30, 1996, a $4.2 million or 21.5% decline from the
comparable period in 1995. While the yield on all earning assets increased
from 7.2% for the three months ended June 30, 1995 to 7.5% for the same period
in 1996, the average outstanding balances of earning assets decreased 23.9%
from $1,082.5 million for the first three months of 1995 to $824.0 million for
the comparable period in 1996. The decline in average balance is primarily
attributable to a $240.6 million decrease in mortgage-backed securities and a
decrease in covered assets of $56.4 million. The decrease in mortgage-backed
securities resulted from repayments of principal and the sale of a significant
portion of the bond portfolio. The decrease in covered assets resulted from
the termination of an assistance agreement between Franklin, First Federal
Financial Corporation ("FFFC"), Club Corporation International, and The
Federal Savings and Loan Insurance Corporation ("Assistance Agreement"), in
the fourth quarter of 1995. The increase in yield for the period was due to
generally higher interest rates on adjustable rate assets and to the sale of
lower yielding fixed-rate mortgage-backed securities in the fourth quarter of
1995 and the second quarter of 1996 combined with the disposition of lower
yielding covered assets in the third and fourth quarters of 1995.
INTEREST EXPENSE. Total interest expense amounted to $10.6 million for
the three months ended June 30, 1996, a $4.4 million or 29.3% decline from the
comparable period in 1995. Most interest-bearing liabilities increased by an
average of nine basis points for the three months ended June 30, 1996 over the
same period in 1995, however, the average outstanding balances of
interest-bearing liabilities decreased 23.1% from $1,045.0 million for the
second quarter of 1995 to $803.3 million for the comparable period in 1996.
The decline in average balance is primarily attributable to the early
retirement of $98.0 million in FHLB advances in the fourth quarter of 1995 and
$175.0 million in the second quarter of 1996. In addition, average deposits
for the second quarter of 1995 decreased $52.1 million from $605.3 million to
$553.2 million for the comparable period in 1996. The total cost of funds for
interest-bearing liabilities actually decreased 47 basis points from 5.8% in
June 1995 to 5.3% in June 1996. The decrease in the cost of interest-bearing
liabilities is attributable largely to the decrease in FHLB borrowings which
changed the mix of interest-bearing liabilities.
PROVISION FOR LOAN LOSSES. The provision for loan losses of $0.2 million
for the three months ended June 30, 1996 decreased $0.6 million from the
comparable period in 1995. The credit to the provision reflected in 1996 was
primarily attributable to the regrading of all loans and a decrease in
classified or scheduled assets.
NON-INTEREST INCOME. Non-interest income (expense) amounted to ($20.7)
million for the three months ended June 30. 1996, compared to $5.0 million for
the comparable period in 1995. This decrease is primarily due to losses
recognized of $22.0 million on the sale of fixed-rate mortgage-backed
securities and the decline in their value deemed other than temporary on the
remaining fixed-rate mortgage-backed securities. Additionally, a gain of $3.9
million was recognized in the same quarter of 1995 on the sale of Franklin's
Mission, McAllen and Lockhart branches. Subsequent to June 30, 1996, Franklin
sold mortgage-backed securities with a carrying value of $117.5 million at
estimated gains of $0.8 million.
NON-INTEREST EXPENSE. Non-interest expense amounted to $8.4 million for
the three months ended June 30, 1996, an increase of $3.1 million or 58.5%
from the comparable period in 1995. This increase is primarily attributable
to the prepayment penalties and accelerated commitment fees totaling $3.4
million associated with the prepayments of the FHLB advances.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
INTEREST INCOME. Franklin's total interest income amounted to $31.4
million for the six months ended June 30, 1996, a $7.7 million or 19.7%
decline from the comparable period in 1995. While the yield on all earning
assets increased from 7.2% for the six months ended June 30, 1995 to 7.4% for
the same period in 1996, the average outstanding balances of earning assets
decreased 22.6% from $1,096.3 million for the first six months of 1995 to
$848.8 million for the comparable period in 1996. The decline in average
balance is primarily attributable to a $223.6 million decrease in
mortgage-backed securities and a decrease in covered assets of $58.7 million.
The decrease in mortgage-backed securities resulted from repayments of
principal and the sale of a significant portion of the bond portfolio. The
decrease in covered assets resulted from the termination of the Assistance
Agreement in the fourth quarter of 1995. The increase in yield for the period
was due to generally higher interest rates on adjustable rate assets and to
the sale of lower yielding fixed-rate mortgage-backed securities in the fourth
quarter of 1995 and the second quarter of 1996 combined with the disposition
of lower yielding covered assets in the third and fourth quarters of 1995.
INTEREST EXPENSE. Total interest expense amounted to $22.1 million for
the six months ended June 30, 1996, a $7.2 million or 24.6% decline from the
comparable period in 1995. While the cost of most interest-bearing
liabilities increased by an average of 15 basis points for the six months
ended June 30, 1996 over the same period in 1995, the average outstanding
balances of interest-bearing liabilities decreased 23.4% from $1,010.5 million
for the first six months of 1995 to $774.2 million for the comparable period
in 1996. The decline in average balance is primarily attributable to the
early retirement of $98.0 million in FHLB advances in the fourth quarter of
1995 and $175.0 million in the second quarter of 1996. The total cost of
funds for interest-bearing liabilities decreased 10 basis points from 5.9% in
June 1995 to 5.8% in June 1996. The decrease in the cost of interest-bearing
liabilities is attributable largely to the decrease in FHLB borrowings which
changed the mix of interest-bearing liabilities.
PROVISION FOR LOAN LOSSES. Total provision for loan losses as of June
30, 1996 was ($0.2) million, $1.0 million less than the comparable period in
1995. This is due to the annual revision of credit loss experience factors
and a reduction in problem asset levels.
NON-INTEREST INCOME. Non-interest income (expense) amounted to ($19.7)
million for the six months ended June 30, 1996, compared to $6.0 million for
the comparable period in 1995. This decrease is primarily due to losses
recognized of $22.0 million on the sale of fixed-rate mortgage-backed
securities and the decline in their value deemed other than temporary on the
remaining fixed-rate mortgage-backed securities. In addition, a gain of $3.9
million was recognized in the second quarter of 1995 on the sale of Franklin's
Mission, McAllen and Lockhart branches. Subsequent to June 30, 1996, Franklin
sold mortgage-backed securities with a carrying value of $117.5 million at
estimated gains of $0.8 million.
NON-INTEREST EXPENSE. Non-interest expense amounted to $13.2 million for
the six months ended June 30, 1996, an increase of $2.7 million or 25.7% from
the comparable period in 1995. This increase is primarily attributable to
prepayment penalties and accelerated commitment fees totaling $4.4 million
associated with prepayments of FHLB advances.
CAPITAL RESOURCES AND LIQUIDITY
On September 29, 1995, Franklin was advised by the Office of Thrift
Supervision ("OTS") that it had been deemed "well capitalized" under existing
regulations and its capital plan was terminated.
Franklin's assets have declined from $917.1 million at December 31, 1995
to $725.1 million at June 30, 1996. The recent decline in assets is the
result of maturity proceeds received on mortgage-backed securities and sales
of these securities. Since December 31, 1995, the investment portfolio has
declined approximately $180.0 million. Franklin's regulatory capital at June
30, 1996 exceeded all three regulatory capital requirements. Tangible and
core capital ratios were 6.47% and 6.47% respectively, compared to respective
requirements of 1.5% and 4.0%. Total regulatory capital to risk-adjusted
assets ratio was 11.7% compared to the requirement of 8.0%. Although Franklin
meets all regulatory capital requirements at June 30, 1996, such compliance
was achieved primarily through asset reduction rather than through the
retention of earnings. In the second quarter of 1996, Franklin's Board of
Directors made a decision to sell the fixed-rate mortgage-backed securities
and use those funds to prepay the FHLB advances. The pending sale of Franklin
impacted the decision to liquidate the fixed-rate mortgage-backed securities.
Other considerations were the Board's commitment to improve interest rate risk
and the possibility of rising interest rates which could adversely affect the
investment portfolio's market value in the future.
Franklin is required by the OTS to maintain average daily balances of
liquid assets and short-term liquid assets (as defined) in amounts equal to
5.0% and 1.0% respectively, of net withdrawable deposits and borrowings
payable in one year or less to assure its ability to meet demand for
withdrawals and repayment of short-term borrowings. The liquidity
requirements may vary from time to time at the direction of the OTS depending
upon economic conditions and deposit flows. Franklin generally maintains a
liquidity ratio of between 5.0% and 6.0%. Franklin's average monthly
liquidity ratio for the month ended June 30, 1996 was 5.5%.
Franklin's primary sources of funds consist of savings deposits and time
deposits bearing market rates of interest, FHLB advances, and principal
payments on mortgage-backed securities. Franklin uses its funding sources
principally to meet its ongoing commitments to fund maturing deposits and
deposit withdrawals, repay FHLB advances, fund existing and continuing loan
commitments, maintain its liquidity and meet operating expenses. At June 30,
1996, Franklin had binding commitments to originate or purchase loans totaling
$29.0 million and had $26.0 million of undisbursed loans in process.
Scheduled maturities of certificates of deposit during the 12 months following
June 30, 1996 total $204.8 million. Management believes that Franklin has
adequate resources to fund all its commitments.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
On August 7, 1996, Franklin entered into an agreement in which Norwest
Corporation will purchase certain assets and assume certain liabilities of
Franklin. The sale is pending regulatory approval and, although no assurances
can be given, management anticipates that the required approvals will be
received within six months. The sales price is defined as $45.5 million plus
the net assets of Franklin to be acquired, which Franklin guarantees to be no
less than $40.0 million, as of the approval date. Proceeds of $4.0 million
will be escrowed which equals the maximum contractual obligation of Franklin
under any claims which could be asserted by Norwest Corporation against
Franklin based on the representations, warranties, and covenants provided in
the agreement. Due to the contingencies involved, management cannot determine
the ultimate amount of the gain to be recognized; however, the Company's
estimated net gain on this transaction, net of taxes and minority interest, is
expected to be within a range of $15.0 to $23.0 million.
In conjunction with the pending sale, a decision was made to sell the
fixed-rate mortgage-backed securities and prepay the FHLB advances. As of
June 30, 1996, $148.2 million in fixed-rate mortgage-backed securities had
been sold and an additional $117.5 million had been committed for sale. A
write down valuation on the remaining portfolio was made due to the decision
to sell the fixed-rate mortgage-backed securities and the decline in their
value deemed other than temporary. The proceeds on the sale of these
investments allowed Franklin to prepay a significant portion of the FHLB
advances as of June 30, 1996, resulting in prepayment penalties totaling $3.2
million and accelerated commitment fees totaling $0.2 million. Based on the
losses incurred in June 1996, Franklin recorded $8.6 million in FSLIC/RF tax
benefits (or net operating loss carryforwards). Management believes that it
will realize this benefit.
Franklin entered into a supervisory agreement with the OTS on July 5,
1995 requiring the reduction of interest rate risk to acceptable levels by
December 31, 1997 and the implicit maintenance of higher levels of capital.
Club Corporation International's executive management also provided the OTS
with a Board of Directors resolution reflecting their intention to keep
Franklin properly capitalized. The OTS rescinded the supervisory agreement
with Franklin on April 5, 1996.
Franklin is party to financial instruments with off-balance sheet risk
and risk of credit loss in the normal course of business primarily in the form
of commitments to extend additional credit of approximately $98.0 million at
June 30, 1996. These credit risks are controlled through credit approvals,
limits, collateral requirements and various monitoring procedures.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note 5 to Condensed Notes to Consolidated Financial
Statements at page 7.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Refer to Note 4 to Condensed Notes to Consolidated Financial
Statements at page 7.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Agreement among Club Corporation
International, First Federal Financial Corporation,
Franklin Federal Bancorp, a Federal Savings
Bank ("Franklin"), and Norwest Corporation
regarding the sale of certain assets and
assumption of certain liabilities of Franklin.
15.1 - Letter from KPMG Peat Marwick LLP regarding
unaudited interim financial statements.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarterly period ended June 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C> <C>
CLUB CORPORATION INTERNATIONAL
Date : August 14, 1996 By: /s/ John H. Gray
-------------------------------
John H. Gray
Executive Vice President and
Chief Administrative Officer
(chief accounting officer)
</TABLE>
Exhibit 15.1
Club Corporation International
Dallas, Texas
Ladies and Gentlemen:
Re: Registration Statements Nos. 33-89818, 33-96568 and 333-08041
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated August 7, 1996 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG Peat Marwick LLP
Dallas, Texas
August 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 68,202 64,446
<SECURITIES> 0 4,059
<RECEIVABLES> 77,967 84,008
<ALLOWANCES> 3,952 2,831
<INVENTORY> 14,273 13,711
<CURRENT-ASSETS> 169,385 164,777
<PP&E> 932,602 913,572
<DEPRECIATION> 262,814 244,932
<TOTAL-ASSETS> 1,670,435 2,069,583
<CURRENT-LIABILITIES> 190,805 193,726
<BONDS> 0 0
0 0
0 0
<COMMON> 902 902
<OTHER-SE> 108,168 146,319
<TOTAL-LIABILITY-AND-EQUITY> 1,670,435 2,069,583
<SALES> 101,874 103,836
<TOTAL-REVENUES> 333,016 329,546
<CGS> 90,887 93,417
<TOTAL-COSTS> 321,969 321,219
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,582 1,788
<INTEREST-EXPENSE> 13,184 12,040
<INCOME-PRETAX> 6,052 996
<INCOME-TAX> 736 98
<INCOME-CONTINUING> 5,414 (256)
<DISCONTINUED> (11,858) 2,378
<EXTRAORDINARY> 65 0
<CHANGES> 0 0
<NET-INCOME> (6,379) 2,122
<EPS-PRIMARY> (0.07) 0.03
<EPS-DILUTED> (0.07) 0.03
</TABLE>
EXHIBIT 10.1
AGREEMENT
This AGREEMENT ("AGREEMENT"), dated as of August 7, 1996, is entered into by
and among CLUB CORPORATION INTERNATIONAL, a Nevada corporation ("PARENT"),
FIRST FEDERAL FINANCIAL CORPORATION, a Texas corporation ("FFFC"), FRANKLIN
FEDERAL BANCORP, A Federal Savings Bank (the "BANK"), and NORWEST CORPORATION,
a Delaware corporation ("BUYER"). The Bank, FFFC and Parent are collectively
referred to herein as "Sellers" and sometimes individually as a "Seller."
R E C I T A L S :
A. Parent owns all of the capital stock of FFFC.
B. FFFC owns all of the issued and outstanding capital stock of the Bank.
C. The FDIC holds warrants entitling it to purchase 20 percent of the
shares of capital stock of the Bank.
D. Buyer desires to acquire certain of the assets, properties, and
business of the Bank and assume certain liabilities of the Bank related to
such assets, all of which assets and liabilities, taken together, constitute
substantially as an entirety a going concern, pursuant to and in accordance
with the terms and conditions of this Agreement, and Sellers desire to cause
the Bank to sell and transfer to a wholly-owned bank or thrift subsidiary
owned or to be acquired or formed by Buyer (the "Purchaser") certain of the
assets, properties, and business of the Bank, pursuant to and in accordance
with the terms and conditions of this Agreement (such asset purchase and
liability assumption pursuant to the terms of this Agreement being referred to
as the "Purchase and Assumption").
In consideration of the mutual promises and covenants contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following definitions
shall apply:
"ACDC" means Austin Community Development Corporation.
"AFFILIATE" means any Person directly or indirectly controlling, controlled
by, or under common control with, the subject entity through the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such entity whether through the ownership of voting
securities, by contract, or otherwise. Without limiting the foregoing, the
ownership, direct or indirect, of a 25 percent interest in such entity shall
be deemed to be control.
"AFFILIATED GROUP" means any affiliated group within the meaning of Section
1504 of the Code or any similar group defined under a similar provision of
state, local or foreign law, including any consolidated, unitary, or combined
group of companies.
"AGREEMENT" means this Agreement by and among Sellers and Buyer, as amended or
supplemented, together with all Exhibits and Schedules, incorporated by
reference or referred to herein.
"APPLICABLE LAW" means any domestic, federal, state, or local statute, law,
ordinance, rule, administrative interpretation, regulation, order, writ,
injunction, directive, judgment, decree, policy, guideline, or other
requirement of any Governmental Entity applicable to Buyer, Purchaser,
Sellers, or the Subsidiaries.
"ASSISTANCE AGREEMENT" means that certain Assistance Agreement dated September
30, 1988, by and among the Federal Savings and Loan Insurance Corporation, on
the one hand, and First Federal Financial Corporation, Club Corporation
International and Franklin Federal Bancorp, A Federal Savings Bank, on the
other hand.
"ASSUMED LIABILITIES" means (i) all deposits, short-term FHLB advances,
securities sold under agreement to repurchase, treasury tax and loan notes,
interest payable (other than interest payable to affiliates), capital lease
liabilities related to capitalized leases included in the Purchased Assets,
deferred fee income, unearned fee income, accrued rent escalation expense,
accrued step lease reserves, long-term lease reserves, reserves for obsolete
and missing fixed assets, net FAS 91 deferred expense, and other liabilities
of the Bank that the Purchaser agrees to assume, (ii) the liabilities and
obligations of the Bank that accrue on or after the Closing Date under all
Contracts included in the Purchased Assets and under all letters of credit and
federal funds back-up lines of credit, and other credit commitments (other
than commitments to repurchase loans) outstanding on the Closing Date, (iii)
except for losses from the sale of Investment Segment Assets, all liabilities
and obligations of the Bank for non-credit operating losses, fee income
reversals and related liabilities based on acts or omissions occurring prior
to the Closing Date, but only to the extent all liabilities and obligations
described in this clause do not exceed $250,000 in the aggregate, (iv)
liabilities associated with the Bank's enhanced severance plan described on
Schedule 1.1(a), (v) liabilities associated with (A) the SAIF Assessment,
(B) the BISYS Contract, and (C) the Franklin Plaza Lease, and (vi) the
liabilities as of the Closing Date reflected in the categories of Assumed
Liabilities as set forth in the Assumed Liabilities Schedule attached as
Schedule 1.1. The Assumed Liabilities outstanding as of the Closing Date
shall be recorded on the Final Adjustment Schedule.
"ASSUMPTION AGREEMENT" means the assumption agreement in substantially the
form of Exhibit A.
"ATM" means all automated teller machines owned and currently being used by
the Bank.
"BANK REGULATOR" means one or more of the following, as applicable: the OTS,
the FDIC, the Federal Reserve Board, and the Office of the Comptroller of the
Currency.
"BILL OF SALE" means the bill of sale in substantially the form of Exhibit B.
"BISYS CONTRACT" means those certain Services Agreements (i) by and between
Franklin Federal Bancorp, A Federal Savings Bank and Automatic Data
Processing, Inc. and its wholly-owned subsidiary ADP-BIS, Inc., dated June
30, 1989, including an Addendum thereto, dated July 1, 1993, by and between
BISYS, Inc. and Franklin Federal Bancorp, A Federal Savings Bank, and a Second
Addendum thereto, dated May 2, 1994, between BISYS, Inc. and Franklin Federal
Bancorp, A Federal Savings Bank, and (ii) by and between BISYS Document
Processing, Inc. and Franklin Federal Bancorp, A Federal Savings Bank dated as
of September 1, 1993, as amended by a First Addendum dated April 26, 1996
and a Second Addendum dated June 3, 1996.
"BRANCHES" mean each of the branches, loan production offices, other banking
offices, and ATMs of the Bank, all of which are listed on Schedule 1.1(b).
"BUSINESS DAY" means any day other than a Saturday, a Sunday, or a day on
which banks in the states of Texas or Minnesota are generally closed for
regular banking business.
"CLOSING" means the consummation of the transactions contemplated by this
Agreement.
"CLOSING DATE" means the date and time of the Closing.
"CLOSING STATEMENT" has the meaning given it in Section 2.3.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRACT" or "CONTRACTS" means any rights and interests arising under or in
connection with any agreement, arrangement, bond, commitment, franchise,
guarantee, indemnity, indenture, instrument, lease, license, or understanding,
whether written or oral, that will be included in the Purchased Assets.
"DEPOSITS" mean all of the Bank's deposits as defined in Section 3(1) of the
Federal Deposit Insurance Act, as amended (12 USC Section 1831(1)).
"DPC PROPERTY" means any voting securities, other personal property or real
property acquired by the Bank by foreclosure or otherwise, in the ordinary
course of collecting a debt previously contracted in good faith, retained with
the object of sale for a period not longer than the applicable statutory
holding period and recorded in the Bank's business records as such.
"EMPLOYEE BENEFIT PLANS" mean all employee benefit plans (as defined in
Section 3(3) of ERISA) maintained or contributed to by the Bank and in
which the Employees participate, all of which are listed on Schedule 1.1(a).
"EMPLOYEE PROGRAMS" mean all of the Bank's payroll practices, personnel
policies, contracts, plans, and arrangements, if any, providing for bonuses,
deferred compensation, retirement payments, profit sharing, incentive pay,
commissions, vacation pay, or other benefits in which any Employees or their
dependents participate, and all employment, severance, or other agreements
with any director of the Bank or any Employee, all of which are listed on
Schedule 1.1(a).
"EMPLOYEES" mean employees of the Bank (including any such employees on leave
or disability who return to work within three months after the initial date of
leave or disability).
"ENCUMBRANCE" means any lien, pledge, security interest, claim, charge,
easement, limitation, commitment, encroachment, restriction, or encumbrance of
any kind or nature whatsoever.
"ENHANCED SEVERANCE PLAN" means that certain severance plan adopted by
Franklin Federal Bancorp, A Federal Savings Bank as of February 23, 1996, for
the purpose of providing severance benefits to the Bank's Employees in the
event of a sale of the Bank, all as more fully described in Schedule 1.1(a).
"ENVIRONMENTAL LAW" means the Federal Clean Water Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Superfund Amendments and Reauthorization
Act, the Safe Drinking Water Act, and the Toxic Substances Control Act, each
as amended to the date hereof or any regulations thereunder, or any other
Applicable Law relating to (a) the discharge, spill, disposal, emission, or
other release of any Hazardous Substance; (b) any injury to or death of
individuals or damage to or loss of property caused by or resulting from the
presence of Hazardous Substances; or (c) the generation, storage, handling,
location, disposal or arranging for disposal of Hazardous Substances.
"EQUITY INTERESTS" mean capital stock, partnership interests (limited or
general), joint venture interests, or other equity interests or any securities
or other equity interests convertible into or exchangeable for any of the
foregoing or any other rights, warrants, or options to acquire or vote any of
the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"EXCLUDED ASSETS" means collectively: (i) any rights, claims, refunds,
credits, or overpayments with respect to (A) the Termination Agreement or (B)
any Taxes paid or incurred by the Bank and its Affiliates, or any related
interest received from the relevant taxing authority for periods ending prior
to the Closing Date, and the appropriately prorated portion thereof for
periods commencing prior to the Closing Date and ending on or after the
Closing Date; (ii) the rights of the Sellers under this Agreement and the
Related Documents, including, but not limited to, the right to receive the
Purchase Price; (iii) any tax sharing agreement between the Bank on the one
hand and Parent or FFFC or the Excluded Subsidiaries on the other hand and any
other Contract (except depository contracts between the Bank and Sellers and
the Excluded Subsidiaries) between the Bank on the one hand and Sellers and
the Subsidiaries on the other hand and any claims of the Bank thereunder; (iv)
the Excluded Subsidiaries; (v) the assets and liabilities reflected on
Schedule 1.1(c); (vi) the Bank's charter, non-transferable franchises,
licenses, permits, authorizations and memberships, corporate seals, minute
books, stock books, and other corporate records having to do with the
corporate organization and capitalization of the Bank and all income tax
records of the Bank; provided, however, that copies of such corporate and tax
reports shall be provided to Buyer at Buyer's reasonable request and expense
for a period of four years after the Closing Date; (vii) the Bank's books of
accounts; provided, however, that copies of such books of accounts for
calendar years 1991, 1992, 1993, 1994, 1995, and 1996 shall be provided to
Buyer at Buyer's request; (viii) the Contracts and unrecorded assets listed
on Schedule 1.1(d); (ix) all corporate records of the Bank with respect to
the Excluded Assets set forth in clauses (i) through (ix) hereof; and (x) the
Investment Segment Assets.
"EXCLUDED CONTRACTS" means the Contracts listed on Schedule 1.1(d).
"EXCLUDED SUBSIDIARIES" means FFB Mortgage Capital Corporation, FFB Realty
Corp, Franklin Securities Corporation, and any other Subsidiary of the Bank.
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal Reserve
System.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHLB" means the Federal Home Loan Bank of Dallas.
"FILINGS" mean all reports, returns, registrations, and statements, together
with any amendments required to be made with respect thereto, that were
required to be filed by the Bank with (a) the OTS, including, but not limited
to, thrift financial reports, annual reports and proxy statements, but
excluding reports made under any Regulatory Agreement, (b) the FDIC, other
than those relating to the Assistance Agreement or the Termination Agreement,
and (c) any other applicable Governmental Entity, including taxing
authorities, except where the failure to file such reports, returns,
registrations, and statements has not had and is not reasonably expected to
have a material adverse effect on the Bank taken as a whole.
"FINAL ADJUSTMENT SCHEDULE" has the meaning given it in Section 2.3.
"FINAL TERMINATION DATE" means March 31, 1997.
"FINANCIAL STATEMENTS" mean the financial statements of the Bank and the
Subsidiaries described in Section 4.5.
"FRANKLIN PLAZA LEASE" means that certain Lease Agreement dated as of October
26, 1989, by and between ZML-Franklin Plaza Limited Partnership and Franklin
Federal Bancorp, A Federal Savings Bank and as more particularly described on
Schedule 1.1(e).
"GAAP" means generally accepted accounting principles as used in the United
States of America as in effect at the time any applicable financial statements
were prepared or any act requiring the application of GAAP was performed.
"GOVERNMENTAL ENTITY" means any court, administrative agency or commission, or
other governmental authority or instrumentality, including, without
limitation, each Bank Regulator and the SEC.
"HAZARDOUS SUBSTANCES" mean (a) "hazardous substances," "hazardous
materials," "hazardous wastes," or "toxic substances" as defined by, or any
other substance regulated under, any applicable Environmental Law; (b) oil,
petroleum or petroleum-derived substances and drilling fluids, produced
waters, and other wastes associated with the exploration, development, or
production of crude oil, natural gas, or geothermal resources; (c) any
flammable substances or explosives or any other materials or pollutants which
pose a hazard; and (d) asbestos-containing materials or polychlorinated
biphenyls in excess of 50 parts per million.
"INTELLECTUAL PROPERTY" means all Marks used in connection with the conduct of
business in the ordinary course at any Branch or Operating Site and listed on
Schedule 1.1(f).
"INTEREST RATE" has the meaning given it in Section 2.3.
"INTERIM ADJUSTMENT SCHEDULE has the meaning given it in Section 2.3.
"IRS" means the Internal Revenue Service.
"INVESTMENT SEGMENT ASSETS" mean the fixed-rate securities of the Bank that
are not intended to be Purchased Assets and as more particularly described on
Schedule 1.1(g).
"KPMG" has the meaning given it in Section 2.3.
"LEASE" means any of the real estate leases, or a sublease of the Bank's
interest thereunder, for a Branch or any Operating Site.
"LOANS" mean loans originated by the Bank or purchased by the Bank, including
loan commitments and the unfunded portion of existing commitments.
"LOSS" means any actual cost, expense, or liability, including, but not
limited to, penalties, fines, damages, legal and other professional fees and
expenses reasonably incurred in the investigation, collection, prosecution and
defense of claims and amounts paid in settlement, that are imposed upon or
otherwise incurred or suffered by the relevant party.
"MARK" means any brand name, copyright, patent, service mark, trademark, trade
name, state or federal common law usages, and all registrations or
applications for registration of any of the foregoing.
"MATERIAL CONTRACTS" mean all Contracts or offers that would become binding
upon acceptance by a third party (a) that obligate the Bank to pay or forego
receipt of an amount of $25,000 or more in any 12-month period, other than (i)
any Branch Deposit or (ii) any Loan made in the ordinary course of business;
(b) that bind the Bank and contain a covenant by the Bank not to compete; (c)
that bind the Bank or any of its properties and contain a right of first
refusal in favor of a third party; (d) that relate to Technology Systems; (e)
that grant a power of attorney or similar authorization to act on behalf of
the Bank to any Person; (f) any agreement or commitment with respect to the
Community Reinvestment Act or similar law with any state or Federal regulatory
authority or any other party; or (g) that are otherwise material to the Bank.
All Material Contracts as of the date hereof are listed on Schedule 1.1(h).
"MORTGAGE" means, with respect to a Mortgage Loan, a mortgage, deed of trust,
or other security instrument creating a lien upon real property and any other
property described therein which secures a Mortgage Note, together with any
assignment, reinstatement, extension, endorsement, or modification of any
thereof.
"MORTGAGE LOAN" means any interest in a Loan secured by a Mortgage.
"MORTGAGE NOTE" means, with respect to a Mortgage Loan, a promissory note or
notes, or other evidence of indebtedness, with respect to such Mortgage Loan
secured by a Mortgage or Mortgages, together with any assignment,
reinstatement, extension, endorsement, or modification thereof.
"NET ASSET VALUE" has the meaning given it in Section 2.3.
"NON-COMPETITION AGREEMENT" means the agreement between the Bank, Parent,
FFFC, Purchaser, and Buyer in substantially the form of Exhibit C.
"OPERATING SITES" mean the headquarters building, warehouse and other
non-Branch offices of the Bank, all of which are listed on Schedule 1.1(i).
"OTS" means the Office of Thrift Supervision.
"PERMITTED ENCUMBRANCES" mean all Encumbrances that are:
(a) disclosed in any title reports, opinions, or insurance binders
delivered or made available to Buyer prior to the execution of this Agreement;
(b) for Taxes or assessments, special or otherwise, either not due and
payable or being contested in good faith and fully accrued or adequately
provided for;
(c) representing mechanics', materialmen's, carriers', warehousemen's,
landlords', and other similar or statutory liens arising in the ordinary
course of business and fully accrued or adequately provided for; or
(d) rights of parties lawfully in possession and any other defect,
exception to title, or easement or claim of easement which in all cases does
not materially impair the use, operation or value of the property to which it
relates.
"PERSON" means any individual, corporation, company, partnership (limited or
general), joint venture, association, limited liability company, trust, or
other entity.
"PRE-SALE CONVERSION ACTIVITY" has the meaning given it in Section 11.12.
"PURCHASE AND ASSUMPTION PURCHASE PRICE" OR "PURCHASE PRICE" means the
purchase price set forth in Section 2.3.
"PURCHASED ASSETS" means all of the assets, properties, rights, and business
of the Bank of every type and description, real, personal and mixed, tangible
and intangible, wherever located and whether or not reflected on the books and
records of the Bank, other than the Excluded Assets. Such assets and property
shall include, without limitation, all right, title, and interest of the Bank
in all lands, branches, offices, buildings (together with improvements,
appurtenances, licenses, and permits), motor vehicles, equipment, furniture
and fixtures, supplies, stationery, cash, loans, the allowance for loan losses
, accrued interest, securities, certificates of deposit, accounts receivable,
cash management accounts, servicing rights, leases of real and personal
property, prepaid expenses, deposits, licenses and permits, agreements and
contracts (except Excluded Contracts), claims against third parties (including
warranty claims relating to goods, equipment or real property sold to the
Bank), authorizations and approvals of any third party, the right to receive
mail, payments on loans and accounts receivable and other communications,
prepaid FDIC insurance and assessments and other prepaid expenses incurred in
the ordinary course of business and not related to the Excluded Assets,
computer software used in connection with personal computers (the "Software"),
other files and business records, advertising materials, customer application
forms, the right to use the Bank's ABA transit numbers and other intangible
properties and rights to, refunds and prepayments under Contracts, Marks, but
shall not include the Excluded Assets. The Purchased Assets shall include,
without limitation, the assets included in the categories of assets shown on
the list of assets attached as Schedule 1.1(j) (the "Asset List") and owned by
the Bank on the day before the Closing Date.
"REAL PROPERTY" means all real property of the Bank, including fee, leasehold,
and other interests in real property (including real property that is DPC
Property, but excluding any interest in real property held solely as a trustee
or beneficiary under a deed of trust or mortgagee under a mortgage).
"REALTY CORP" means FFB Realty Corp.
"RECORDS" mean all records and original documents which pertain to and are
utilized by the Bank to administer, reflect, monitor, evidence, or record
information respecting the business or conduct of the Bank, including all such
records maintained on electronic or magnetic media in the Technology Systems.
"REGULATORY AGREEMENT" means, with respect to the Bank, any cease-and-desist
or other order issued by, or any written agreement, consent agreement, or
memorandum of understanding with, or any order or directive by, or any
extraordinary supervisory letter from, or any board resolutions adopted at the
request of any Bank Regulator or other Governmental Entity that restricts the
conduct of the Bank's business or that in any manner relates to its capital
adequacy, its credit policies, its management or its business.
"RELATED DOCUMENTS" means the Bill of Sale, Non-Competition Agreement, and the
Assumption Agreement.
"REQUISITE REGULATORY APPROVALS" mean all approvals or consents of or filings
with any Governmental Entity required in order to consummate the transactions
contemplated by this Agreement, all of which are listed in Schedule 1.1(k).
"RETAINED LIABILITIES" means all obligations and liabilities of the Bank,
whether actual or contingent, or known or unknown, not consisting of Assumed
Liabilities, including all obligations and liabilities that arise on or after
the Closing Date based on an Act or omission occurring before the Closing
(except to the extent specifically constituting an Assumed Liability).
"SAIF ASSESSMENT" means the one-time Savings Association Insurance Fund
assessment as and if imposed on Bank.
"SEC" means the United States Securities and Exchange Commission.
"SOFTWARE" means all computer programs, software, firmware, and related
documentation used in the operation of the Technology Systems.
"SUBSIDIARY" means any Person, more than 10 percent of the voting power or
equity interests of which are owned directly or indirectly by the Bank, all of
which are listed on Schedule 1.1(l).
"TAXES" means all federal, provincial, territorial, state, municipal, local,
foreign, or other taxes, imposts, rates, levies, assessments, and other
charges including, without limitation, all income, franchise, gains, capital,
real property, goods and services, transfer, value added, gross receipts,
windfall profits, severance, ad valorem, personal property, production,
sales, use, license, stamp, documentary stamp, mortgage recording, excise,
employment, payroll, social security, unemployment, disability, estimated or
withholding taxes, and all customs and import duties, together with any
interest, additions, fines, or penalties with respect thereto or in respect of
any failure to comply with any requirement regarding Tax Returns and any
interest in respect of such additions, fines or penalties.
"TAX RETURN" means any return, report, information statements, Schedule or
other document (including any related or supporting information) with respect
to Taxes, including any document required to be retained or provided to any
Governmental Entity pursuant to 31 USC 5311-5328 and regulations
promulgated thereunder.
"TECHNOLOGY SYSTEMS" mean all electronic data processing, communications,
telecommunications, disaster recovery services, and other computer systems
which are material to the operation of the Branches and the Operating Sites,
and to the servicing of the Loans including (a) any computer hardware and
Software owned, leased, or licensed by the Bank that is used in the operation
of the Technology Systems, and (b) any Contracts pursuant to which the Bank
is granted rights which are used in the operation of the Technology Systems,
including Software licenses and similar agreements.
"TERMINATION AGREEMENT" means that certain Termination Agreement dated as of
December 31, 1995 by and among the Federal Deposit Insurance Corporation as
manager of the FSLIC Resolution Fund, on the one hand, and Club Corporation
International, First Federal Financial Corporation and Franklin Federal
Bancorp, A Federal Savings Bank, on the other hand, and as more particularly
described on Schedule 1.1(m).
1.2 Construction and Interpretation.
(a) When used to modify a statement with respect to the Bank or Sellers,
"material," "materially," "material adverse effect," or similar phrases refer
to matters which are material to the business, condition (financial or
otherwise), or operations of the Bank; provided, however, that such terms
shall not include (i) changes in Applicable Law, GAAP, or regulatory
accounting principles, or thrift laws or regulations, or interpretations
thereof, that affect the thrift industry generally or changes in the general
level of interest rates unless such change affects the Bank (and,
specifically, the Purchased Assets and Assumed Liabilities) to a materially
greater extent than thrift institutions generally, (ii) any assessment
imposed on the Bank in connection with the recapitalization of the Savings
Association Insurance Fund of the FDIC; or (iii) the write-off of any
goodwill on the books of the Bank as a result of the execution and delivery of
this Agreement.
(b) Any reference to the "ordinary course of business" shall refer to the
ordinary course of the business of the Bank and the Subsidiaries prior to
March 31, 1996.
ARTICLE 2.
PURCHASE AND ASSUMPTION
2.1 Assets to Be Sold. Subject to the terms and conditions of this
Agreement, at the Closing, the Bank will sell to Purchaser, and Purchaser will
purchase from the Bank the Purchased Assets. Such sale, conveyance,
assignment, transfer and delivery shall be effected by delivery by the Bank to
the Purchaser at the Closing of (i) the duly executed Bill of Sale, (ii)
good and sufficient warranty deeds, in recordable or registrable form, with
respect to all Real Property owned by the Bank and included among the
Purchased Assets, (iii) assignments of mortgages or deeds of trust, security
agreements and security interests and assignments of notes, in recordable
form, if applicable, relating to the Purchased Assets, and (iv) such other
instruments of conveyance and transfer as the Purchaser shall reasonably
request.
2.2 Assumed Liabilities. On the Closing Date, Purchaser shall not
assume the obligations and liabilities of the Bank, except that it agrees to
assume as of the Closing Date the Assumed Liabilities. Such assumption shall
be effected by delivery by the Purchaser to the Bank at the Closing of (i)
the duly executed Assumption Agreement, and (ii) such other instruments and
supporting documents as Sellers, the Bank or any applicable third party may
reasonably request. The Purchaser shall not assume or be liable for the
Retained Liabilities.
2.3 Purchase and Assumption Price.
(a) The purchase price ("Purchase Price") shall be delivered to the Bank
at the Closing by wire transfer to an account designated by Sellers in an
amount in cash equal to the sum of (A) the value of all Purchased Assets
reflected on the Closing Statement plus (B) $45,500,000 less (C) the amount
of all Assumed Liabilities reflected on the Closing Statement (prepared as
described in paragraph (f) below); provided, however, for purposes of this
Section 2.3, the liabilities associated with the Enhanced Severance Plan, the
Franklin Plaza Lease, the BISYS Contract, and the SAIF Assessment shall not be
included in the calculation of Assumed Liabilities.
(b) Not later than 30 calendar days after the Closing Date, the Purchaser
shall prepare or cause to be prepared, in the manner described in paragraph
(e) below, and shall deliver to the Bank an Interim Adjustment Schedule
("Interim Adjustment Schedule"). Not later than 90 days after the Closing
Date, the Purchaser shall prepare in the same manner and shall deliver to the
Bank a revised Interim Adjustment Schedule (the "Final Adjustment Schedule").
The Bank and its representatives shall have full access to the accounting
records from which the Interim Adjustment Schedule and the Final Adjustment
Schedule were prepared.
(c) Subject to Section 2.3(d), the Bank shall pay to the Purchaser the
Adjustment Amount (as defined below) if such amount is a negative number, and
the Purchaser shall pay to the Bank the Adjustment Amount if such amount is a
positive number, in either event promptly after its determination, by wire
transfer of immediately available funds equal to the excess, together with
interest thereon for each day after the Closing Date to the date of such
payment at four (4) percent per annum (the "Interest Rate"), to an account to
be designated in writing by the Purchaser or the Bank, as the case may be.
"Adjustment Amount" means a positive or negative number equal to (i) the
amount of all Purchased Assets minus the amount of all Assumed Liabilities
(the "Net Asset Value") as reflected on the Interim Adjustment Schedule or the
Final Adjustment Schedule (as modified pursuant to Section 2.3(d), if
appropriate), as the case may be, minus (ii) the Net Asset Value reflected on
the Closing Statement (in the case of the Interim Adjustment Schedule) or the
Interim Adjustment Schedule (in the case of the Final Adjustment Schedule).
(d) If, within 30 calendar days after the delivery of the Final Adjustment
Schedule to the Bank pursuant to Section 2.3(b), the Bank determines in good
faith that the Net Asset Value reflected therein is inaccurate, the Bank shall
give notice to the Purchaser within such 30-day period (i) setting forth the
Bank's determination of the Net Asset Value, and (ii) specifying in
reasonable detail the Bank's basis for its disagreement with the Purchaser's
computation of the Net Asset Value. The failure by the Bank so to express its
disagreement within such 30-day period shall constitute acceptance of the Net
Asset Value reflected on the Final Adjustment Schedule. If the Bank and the
Purchaser are unable to resolve their disagreement within 30 days after
receipt by the Purchaser of notice of such disagreement, the items in dispute
shall be referred to the Austin and Minneapolis offices of KPMG Peat Marwick
("KPMG") for a joint determination (or if KPMG is not available, another Big
Six Accounting Firm acceptable to Purchaser and Sellers). KPMG shall make a
determination (which shall not constitute an audit or valuation with respect
to the Final Adjustment Schedule or any item thereon) as to each of the items
in dispute, which determination shall be (A) in writing, (B) furnished to
each of the Bank and the Purchaser as promptly as practicable after the items
in dispute have been referred to KPMG, and (C) final, conclusive, and binding
upon each of the parties hereto. The Final Adjustment Schedule shall
thereupon be modified in accordance with KPMG's determination. The fees and
expenses of KPMG shall be shared equally by Sellers and Buyer. Within three
(3) Business Days after either (i) the expiration of the 30-day period
referred to in this Section 2.3(d) if the Bank does not within such period
give the notice of disagreement provided for above, or (ii) the date on which
KPMG furnished to the Bank and the Purchaser such firm's written
determination, the appropriate party shall make payment in accordance with
Section 2.3(c) hereof.
(e) The Interim Adjustment Schedule and the Final Adjustment Schedule
shall be prepared by the Purchaser after consulting with the Bank and shall
reflect the Purchased Assets and the Assumed Liabilities that would be
reflected as of the Closing Date on a balance sheet of the Bank prepared in a
manner consistent with the financial statements as of March 31, 1996.
(f) The Closing Statement shall be prepared by the Bank in the same manner
as the Interim Adjustment Schedule but as of a date no more than five (5)
Business Days prior to Closing and as if the Closing had occurred on such
earlier date. The Closing Statement shall be delivered to the Purchaser no
less than two (2) Business Days prior to the Closing Date.
ARTICLE 3.
THE CLOSING
3.1 Closing. The Closing shall take place (a) at the offices of
Buyer, Norwest Center, Sixth and Marquette, Minneapolis, Minnesota 55479,
within fifteen (15) Business Days following the satisfaction or waiver of all
of the conditions in Article 7 (other than those designating instruments,
opinions, certificates or other documents to be delivered at the Closing)
("Date of Satisfaction of Conditions"), or (b) at such other place and time
as the parties hereto shall agree; provided that Buyer may designate, upon
written notice given to Sellers after the Date of Satisfaction of Conditions,
the date of the Closing Date within said fifteen (15) Business Day Period.
3.2 Delivery by Sellers and the Bank. On the Closing Date, Sellers
shall deliver or cause to be delivered the following to Buyer and Purchaser:
(a) copies of resolutions duly adopted by the Board of Directors and
shareholders of each Seller authorizing this Agreement and the transactions
contemplated hereby, certified as of the Closing Date by the Secretary or
Assistant Secretary of such party; and
(b) the documents required to be delivered by Sellers pursuant to Section
7.2 and such other documentation as may be required by this Agreement.
3.3 Deliveries by Buyer and Purchaser. On the Closing Date, Buyer and
Purchaser shall deliver or cause to be delivered the following to Sellers:
(a) copies of resolutions duly adopted by the Board of Directors and (if
applicable) shareholders of Buyer and Purchaser authorizing this Agreement and
the transactions contemplated hereby, certified as of the Closing Date by a
Secretary or Assistant Secretary of such party;
(b) an amount equal to the Purchase and Assumption Purchase Price by wire
transfer in immediately available funds to an account designated in writing to
Buyer and Purchaser by the Bank; and
(c) the documents required to be delivered by Buyer and Purchaser pursuant
to Section 7.3 and such other documents as may be required by this Agreement.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Parent, FFFC, and the Bank individually, and not for or on behalf of each
other, make the following representations and warranties to Buyer, with each
representation and warranty being made by Parent, FFFC, or the Bank as the
context and substance of the particular representation and warranty indicates:
4.1 Organization and Related Matters.
(a) Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. FFFC is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Texas. All of the Bank Stock is owned by FFFC, beneficially and of record,
free and clear of all Encumbrances, other than net worth maintenance and
similar obligations to Bank Regulators, and, other than the warrants held by
the FDIC, there are no other outstanding Equity Interests of the Bank.
(b) The Bank is a federal savings bank duly organized, validly existing
and in good standing under the provisions of the Home Owners' Loan Act, as
amended (12 USC 1461), and is a member in good standing of the Federal
Home Loan Bank System through the FHLB. The Branch Deposits are insured to
applicable limits by the Savings Association Insurance Fund of the FDIC. The
Bank has the corporate power and authority to carry on its business as now
being conducted and to own, lease and operate its properties.
(c) Except for the Subsidiaries and as set forth on Schedule 4.1, neither
the Bank nor any Subsidiary has a direct or indirect Equity Interest in any
Person, other than DPC Property.
(d) Other than the warrants held by the FDIC, the Bank is not a party to,
and is not obligated by, any commitment, plan or arrangement to issue or to
sell any Equity Interests of the Bank or to sell or otherwise transfer any
significant portion of their assets, except the transactions contemplated by
this Agreement and there are no outstanding subscriptions, contracts,
conversion privileges, options, warrants, calls, or preemptive or other rights
requiring the Bank to sell, dispose of, purchase, redeem, or otherwise acquire
the capital stock of the Bank.
4.2 Authority; No Violation.
(a) Each Seller has full corporate power and authority to execute and
deliver this Agreement and the Related Documents to which it is a party and to
consummate the transactions contemplated hereby. Except for the approval of a
majority of the outstanding shares of Parent's common stock, the execution and
delivery of this Agreement and the Related Documents to which it is a party
and the consummation of the transactions contemplated hereby have been or will
be duly and validly approved by all requisite corporate action on the part of
Sellers, and, except for a meeting of the shareholders of Parent and corporate
actions to be taken in connection with the transfer of the Excluded
Subsidiaries, no other corporate proceedings on the part of Sellers or the
Bank are necessary to approve this Agreement and the Related Documents to
which it is a party and to consummate the transactions contemplated hereby.
This Agreement and the Related Documents to which it is a party have been or
will be duly and validly executed and delivered by Sellers and the Bank and
(assuming the due authorization, execution and delivery of this Agreement by
Buyer and the Related Documents by Purchaser) constitute a valid and binding
obligation of Sellers, enforceable against Sellers in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency,
moratorium, reorganization, or similar laws affecting creditors' rights
generally and except as may be limited by general principles of equity whether
applied in a court of law or a court of equity.
(b) Except as set forth on Schedule 4.2(b), neither the execution and
delivery of this Agreement by Sellers or the Related Documents to which they
are a party nor the consummation by Sellers of the transactions contemplated
hereby, nor compliance by Sellers with any of the terms or provisions hereof,
will (i) violate any provision of the respective articles of incorporation or
charter and By-Laws of Sellers, or (ii) assuming that the Requisite
Regulatory Approvals and the consents and approvals referred to in Section
4.3 are duly obtained, (x) violate in any material respect any Applicable Law
with respect to the Sellers, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Encumbrance upon any of the respective
properties or assets of either Seller under, any of the terms, conditions or
provisions of any Material Contract to which Sellers are a party, or by which
Sellers, or any of their respective properties or assets, may be bound or
affected, except for (i) such violations which arise from the legal or
regulatory status of Buyer or its Affiliates or the businesses in which they
are or propose to be engaged, and (ii) such consents and approvals the
failure of which to obtain will not, individually or in the aggregate, have a
material adverse effect on the Purchased Assets or Assumed Liabilities.
4.3 Consents and Approvals. Except for the Requisite Regulatory
Approvals to be obtained by Sellers and Buyer, the consents and approvals to
be obtained by Buyer and Purchaser and the matters set forth on Schedule 4.3,
no consents or approvals of or filings, notices or registrations with any
Governmental Entity or with any Person who is a party to a Material Contract
are necessary in connection with the execution and delivery by Sellers of this
Agreement or the consummation by Sellers of the transactions contemplated
hereby (including, without limitation, the consummation of the Purchase and
Assumption).
4.4 Title to Property.
(a) The Bank owns or has the right to use all property used in the
operation of their business. The Bank has furnished to Buyer Schedule 4.4(a)
that sets forth a description (including the character of the interest of the
Bank) of all Real Property. Except as set forth on Schedule 4.4(a), the Bank
has good and indefeasable title to all Real Property owned in fee and all
material items of personal property reflected as owned on its books, in each
case free and clear of all Encumbrances, except Permitted Encumbrances.
(b) All furniture, fixtures, and equipment of the Bank that are material
to the business, financial condition, results of operations, or prospects of
the Bank, are in a good state of maintenance and repair, except for ordinary
wear and tear, and are adequate for the conduct of the business of the Bank as
presently conducted. Except as set forth in Schedule 4.4(a), (i) the Bank
has not entered into any Contract containing a material obligation to improve
any Real Property, (ii) to Seller's knowledge, each Lease and other Contract
under which the Bank is a lessee or holds or operates any material property
(real, personal, or mixed) owned by any third party is in full force and
effect and is a valid and legally binding obligation of the Bank and, to
Sellers' knowledge, each other party thereto; (iii) the Bank and, to Sellers'
knowledge, each other party to any such Lease or other Contract have performed
in all material respects all the obligations required to be performed by them
to date under such Lease or other Contract and are not in default in any
material respect under any such Lease or other Contract and, to Sellers'
knowledge, there is no pending or threatened proceeding that would interfere
with the quiet enjoyment of such leasehold or such material property by the
Bank; and (iv) to Sellers' knowledge and except as would not reasonably be
expected to have a material adverse effect on the Bank, (1) no Hazardous
Substances have been generated, used, handled, transported, treated, stored,
released, or disposed by the Bank or its agents in material violation of any
Environmental Law; (2) neither the Real Property nor any real property the
Bank operates or owns or formerly operated or owned (including as a beneficial
owner or in a fiduciary capacity) has been the site of a release of any
Hazardous Substance that has required or would reasonably be expected to
require removal, remediation, or restoration under any Environmental Law, (3)
the Bank has not received any notice of violation of or liability under any
Environmental Law, and (4) no underground storage tanks exist on or in any
Real Property.
(c) Sellers have provided Buyer access to copies of all Leases included on
Schedule 4.4(a) and all appraisals and title insurance policies relating to
Real Property.
4.5 Financial Statements. Sellers have previously delivered or made
available to Buyer: (a) the audited consolidated statement of financial
condition of the Bank and the Subsidiaries as of December 31, 1995 and
related audited consolidated statements of operations and cash flows for the
year ended on such date, including in each case the related notes and
Schedules thereto, together with the related opinion of KPMG, independent
certified public accountants to the Bank; and (b) the unaudited consolidated
statement of financial condition of the Bank and the Subsidiaries as of March
31, 1996 and June 30, 1996. The Financial Statements referred to in clause
(a) above (including the related notes and Schedules thereto), subject to
qualifications, if any, noted in the accompanying opinion, have been prepared
in accordance with GAAP or applicable regulatory accounting principles
consistently applied during the periods involved and fairly present the
consolidated financial condition, consolidated results of operations and
consolidated changes in financial position of the Bank and the Subsidiaries as
of the date thereof and for the periods covered thereby. Except for changes
in the financial accounting standards as set forth in Schedule 4.5, the
Financial Statements referred to in clause (b) above have been prepared on a
consolidated basis in accordance with GAAP or applicable regulatory accounting
principles applied on a basis consistent with those at December 31, 1995,
except for the omission of normal recurring year-end audit adjustments (if
any) and notes thereto and fairly present the consolidated financial
condition of the Bank and the Subsidiaries as of the date thereof.
4.6 Material Contracts. Except as set forth on Schedules 1.1(h) or
4.4(a), (a) each Material Contract is a valid and binding obligation of the
Bank; (b) the Bank has duly performed all material obligations under the
Material Contracts to be performed by it to the extent that such obligations
to perform have accrued; and (c) to Sellers' knowledge, there are no
breaches, violations or defaults or allegations or assertions of such by any
party under any Material Contract. True copies of all Material Contracts,
including all amendments and supplements thereto, have been made available to
Buyer.
4.7 Legal or Other Proceedings. Except as set forth in Schedule 4.7,
as of the date of this Agreement, the Bank is not a party to any, and there
are no pending or, to Sellers' knowledge, threatened, legal, administrative,
arbitral, or other proceedings, claims, actions, or governmental or regulatory
investigations of any nature against or affecting the Bank or any of its
properties or assets or challenging the validity or propriety of the
transactions contemplated by this Agreement and there is no injunction, order,
judgment, or decree imposing ongoing obligations upon the Bank or the
properties or assets of the Bank. Except for customary ongoing quality
control reviews or as set forth in Schedule 4.7, no audit, investigation,
complaint, or inquiry of the Bank by any Agency or Insurer is pending or, to
the knowledge of Sellers, threatened.
4.8 Undisclosed Liabilities. Sellers have furnished to Buyer Schedule
4.8 which sets forth all liabilities of the Bank or any of the Subsidiaries
that are material to the Bank and the Subsidiaries taken as a whole,
contingent or otherwise, that are not reflected or reserved against in the
Financial Statements dated as of March 31, 1996, except for liabilities
incurred or accrued since March 31, 1996 in the ordinary course of business,
none of which, individually or in the aggregate, has had or may reasonably be
expected to have a material adverse effect on the Bank and the Subsidiaries
taken as a whole.
4.9 Reports and Filings. Since January 1, 1993, the Bank has filed
all Filings. The Bank has made (or will make) available to Buyer all Filings
filed by the Bank since January 1, 1993, together with copies of any orders
or other administrative actions taken in connection with such Filings to the
extent permitted to do so by Applicable Law. As of their respective dates,
each of such Filings (a) was true and complete in all material respects (or
was amended so as to be so following discovery of any discrepancy); (b)
complied in all material respects with Applicable Law (or was amended so as to
be so following discovery of any such noncompliance); and (c) 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. Any
Financial Statement contained in any of such Filings that was intended to
present the financial position of the Bank fairly presented the financial
position of the Bank and was prepared in accordance with GAAP or applicable
regulatory accounting principles consistently applied, except as stated
therein, required by Applicable Law during the periods involved or as
otherwise set forth in Section 4.5.
4.10 Absence of Certain Changes or Events. Except as set forth on
Schedule 4.10, since March 31, 1996, the Bank has not declared, set aside or
paid any dividend or other distribution with respect to, or repurchased any
Equity Investments in, the Bank. Except as set forth in Schedule 4.10 or as
consented to by Buyer in writing, during the period from March 31, 1996 to the
Closing Date, (a) the Bank has not: (i) mortgaged, pledged, or subjected to
any Encumbrance or lease any of the Real Property, or permitted or suffered
any such asset to be subjected to any Encumbrance or lease, except in the
ordinary course of business; (ii) other than in the ordinary course of
business, (A) increased the wages, salaries, compensation, pension, or other
fringe benefits or perquisites payable to any executive officer, Employee, or
director from the amount in effect as of March 31, 1996, or granted any
severance or termination pay, (B) entered into any contract to make or grant
any severance or termination pay, or (C) paid any bonus to any such person;
(iii) suffered any strike, work stoppage, slow-down, or other labor
disturbance at the Branches or Operating Sites; (iv) amended, canceled or
terminated any agreement relating to Technology Systems, Software or
Intellectual Property, except in the ordinary course of business; (v) changed
its accounting principles, practices or methods except as required by any
change in Applicable Law, GAAP or regulatory accounting principles; (vi)
engaged in any material sale or purchase of assets, entered into, amended, or
terminated any Material Contract, or engaged in any other material transaction
other than for fair value in the ordinary course of business; or (vii)
incurred any damage, destruction, or loss to any of the assets of the Bank
which has had or may be reasonably expected to have, individually or in the
aggregate, a material adverse effect on the Bank; and (b) no event has
occurred or has failed to occur which has had or is reasonably expected to
have, individually or in the aggregate with any other event(s), a material
adverse effect on the Bank and the Subsidiaries taken as a whole.
4.11 Taxes and Tax Returns. Except as set forth in Schedule 4.11,
there is no audit, examination, deficiency, refund litigation, tax claim,
notice of assessment, notice of proposed assessment or any other matter in
controversy with respect to any Taxes that is reasonably likely to result in a
determination materially adverse to the Purchased Assets or Assumed
Liabilities.
4.12 Compliance with Applicable Law. The Bank holds, and has at
all times held, all material licenses, franchises, permits, and other
authorizations necessary for the lawful ownership and use of its assets and
the conduct of its business and has complied with and is not in default in any
material respect under any Applicable Law material to the Bank.
4.13 Insurance. All insurance policies and indemnity bonds as of
the date of this Agreement providing coverage for the Bank are listed on
Schedule 4.13. As of the date hereof each such insurance policy or bond is
in full force and effect, and, as of the date hereof the Bank has not received
written notice or any other indication from any insurer or agent of any intent
to cancel any such insurance policy or bond.
4.14 Agreements with Regulatory Agencies. The Bank is not subject
to any Regulatory Agreement, nor has the Bank been advised by any Bank
Regulator or other Governmental Entity that it is considering issuing or
requesting any Regulatory Agreement. Schedule 4.14 lists all Regulatory
Agreements to which the Bank has been subject over the last five years.
4.15 Affiliate Transactions. Except as set forth on Schedule
4.15, no Person who is an executive officer, director, or Affiliate of the
Bank is an obligor or guarantor on any Loan, a lessor with respect to any
Lease, or otherwise has any interest in any asset of, the Bank. Except as set
forth on Schedule 4.15, the Bank and the Subsidiaries on a consolidated basis
do not have any other liabilities or obligation of any kind to either Seller
or any Affiliate, other than the Bank. Except as set forth on Schedule 4.15,
there are no intercompany payables owed by or intercompany receivables owed to
the Bank on a consolidated basis to or from Sellers or their Affiliates.
4.16 Intellectual Property.
(a) Schedule 1.1(f) contains a true and complete list of all
Intellectual Property owned by the Bank and any licenses or similar agreements
pursuant to which the Bank is granted rights with respect to Intellectual
Property.
(b) Except as set forth in Schedule 1.1(f), the Bank has the unrestricted
right to use the Intellectual Property, free and clear of any claims, by any
Person (other than the claims of any licensors under licensing or similar
agreements), and the consummation of the transactions contemplated by this
Agreement will not alter or impair any such right. No claims have been
asserted to either Sellers or the Bank by any Person with respect to the use
by the Bank of any Intellectual Property or challenging or questioning the
validity or effectiveness of any license or similar agreement with respect
thereto, and, to the knowledge of Sellers, there is no basis for any such
claim. Except as set forth in Schedule 1.1(f), no Intellectual Property is
subject to any outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by the Bank.
4.17 Loan Portfolio.
(a) Schedule 4.17 sets forth a description, as of March 31, 1996, of (i)
by type and classification, if any, each Loan or Lease by the Bank in excess
of $500,000; and (ii) by type and classification, all Loans or Leases of the
Bank of $500,000 or more, that have been classified by its bank examiners,
auditors (external or internal), or credit administration personnel as
"Special Mention," "Substandard," "Doubtful," "Loss," or any comparable
classification.
(b) To the Bank's ' knowledge, each Loan owned or held by the Bank
complied at the time it was made or, if such Loan was acquired and not
originated by the Bank, complied at the time it was originated, and remains in
compliance, in all material respects with Applicable Law, including the
federal Truth-in-Lending Act and other consumer protection laws, usury, equal
credit opportunity, disclosure, and recording laws.
(c) Except in the case of Loans which individually and in the aggregate
are not material or for deficiencies which can be cured without the incurrence
of unreasonable expenditures in the circumstances, to Sellers' knowledge, each
Loan included in the Financial Statements as of March 31, 1996, or acquired
since that date (i) is the legal, valid and binding obligation of the obligor
thereunder, enforceable in accordance with its terms, except (A) as
enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting creditors' rights generally and
except as may be limited by general principles of equity whether applied in a
court of law or a court of equity, and (B) to the extent Applicable Law
requires the holder of the note with respect to the Loan to foreclose against
the collateral for such note before seeking recovery on such note, or
prohibits a deficiency judgment or other recovery on such note against the
mortgagor or the grantor of such security interest or any guarantor of such
Loan, (ii) arose in the Bank's ordinary course of business and (iii) is
secured by a valid and legally enforceable security interest to the extent
reflected in the loan records with respect thereto except (x) as enforcement
may be limited by bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting creditors' rights generally and except as may be
limited by general principles of equity whether applied in a court of law or a
court of equity, and (y) subject to any requirement of Applicable Law that
the holder of the note with respect to the Loan foreclose against the
collateral for such note before seeking recovery on such note, or prohibiting
a deficiency judgment or other recovery on such note against the mortgagor or
the grantor of such security interest or any guarantor of such Loan.
4.18 Minute Books. The copies of the articles of association and
bylaws, including amendments, of the Bank which have been delivered or made
available to Buyer are true, correct and complete. The minute books of the
Bank made available to Buyer are true, correct, and complete, and accurately
reflect all material actions duly taken to date by its respective shareholder
or owner, board of directors, and committees.
4.19 Employee Benefit Plans and Employment and Labor Contracts.
(a) Sellers have furnished to Buyer Schedule 1.1(b) that sets forth all
Employee Benefit Plans and any collective bargaining agreements, labor
contracts and Employee Programs in which the Bank participates, or by which it
is bound. Except as set forth in Schedule 1.1(b), (i) the Bank is in
compliance in all material respects with the applicable provisions of ERISA
and the regulations and published authorities thereunder currently in effect
with respect to all such Employee Benefit Plans and Employee Programs; (ii)
the Bank has performed all of its obligations under all such plans and
programs; and (iii) there are no actions, suits or claims (other than routine
claims for benefits) pending or, to the knowledge of Sellers, threatened
against any such Employee Benefit Plans or the assets of such plans, and to
the knowledge of Sellers, no facts exist which could give rise to any actions,
suits or claims (other than routine claims for benefits) against such plans
or the assets of such plans that might have a material adverse effect on such
plans. True copies of all of the Employee Benefit Plans and Employee Programs
referred to in Schedule 1.1(b), including all amendments and supplements
thereto, and all related summary plan descriptions have been made available to
Buyer.
(b) The Employee Benefit Plans have been duly authorized by the board of
directors of the Bank. Each such plan and associated trust intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service and Sellers have no
knowledge of any circumstances likely to result in revocation of any such
determination letter. No event has occurred that will or could subject any
such Employee Benefit Plans to tax under Section 511 of the Code. All costs
of any Employee Benefit Plans subject to Title IV of ERISA have been provided
for on the basis of consistent methods in accordance with actuarial
assumptions and practices. Subject to amendments that are required by the Tax
Reform Act of 1986 and later legislation, since the last valuation date for
each Employee Benefit Plan subject to Title IV of ERISA, there has been no
amendment or change to such Employee Benefit Plan that would increase the
amount of benefits thereunder. Sellers have made (or will make) available to
Buyer for each of the Employee Benefit Plans, to the extent applicable, (i) a
copy of the Form 5500 which was filed in each of the most recent three plan
years, including, without limitation, all Schedules thereto and all financial
statements with attached opinions of independent accountants; (ii) the most
recent determination letter from the IRS; (iii) the statement of assets and
liabilities as of the most recent valuation date; and (iv) the statement of
changes in fund balance and in financial position or the statement of changes
in net assets available for benefits under each Employee Benefit Plan for the
most recently ended plan year. The documents referred to in subdivisions
(iii) and (iv) fairly present the financial condition of each of said
Employee Benefit Plans as at such dates and the results of operations of each
of said plans, all in accordance with GAAP or applicable regulatory accounting
principles applied on a consistent basis.
(c) Neither the Bank nor any entity with which the Bank has been treated
as a single employer under Section 4001(b) of ERISA sponsors or
participates, or has sponsored or participated, in any Employee Benefit Plan
that is a "multiemployer plan" (within the meaning of Section 3(37) of
ERISA) that would subject such Person to any liability with respect to any
such Employee Benefit Plan.
(d) To the Bank's knowledge, all group health plans of the Bank (within
the meaning of Section 5000(b)(1) of the Code) have been operated in
compliance in all material respects with the group health plan continuation
coverage requirements of Section 4980B of the Code and Section 601 through
609 of ERISA, to the extent such requirements are applicable.
(e) To the Bank's knowledge, there have been no acts or omissions by the
Bank that have given rise to or may give rise to fines, penalties, taxes, or
related charges under Sections 502(c), 502(i), 502(1), or 4071 of ERISA or
Chapter 43 of the Code which would be material to the Bank.
(f) Schedule 1.1(b) sets forth the name of each director, officer, or
employee of the Bank entitled to receive any benefit or any payment of any
amount (including, without limitation, severance, unemployment compensation,
golden parachute, or otherwise) under any existing employment agreement,
severance plan, or other benefit plan as a result of the consummation of any
transaction contemplated in this Agreement, and with respect to each such
person, the nature of such benefit or the amount of such payment, the event
triggering the benefit or payment, and the date of, and parties to, such
employment agreement, severance plan, or other benefit plan.
4.20 Investments. The Bank has furnished to Buyer Schedule 4.20
that, except for investments that have matured or been sold, sets forth all of
the investments reflected in the consolidated balance sheet of the Bank that
are Purchased Assets, contained in the Financial Statements dated March 31,
1996, and all of the investments made since March 31, 1996 to the date
hereof. Except as set forth in Schedule 4.20, (i) all such investments are
legal investments under Applicable Law for federal savings associations, and
(ii) none of such investments is subject to any restriction, contractual,
statutory or other, that would materially impair the ability of the Bank
holding such investment to dispose freely of any such investment at any time,
except restrictions on the public distribution or transfer of such investments
under the Securities Act of 1933, as amended, or state securities laws.
4.21 Broker's or Finder's Fees. Except for the fees of Service
Asset Management Company, to be paid by Bank, no agent, broker, investment, or
commercial banker, or other Person acting on behalf of either Seller, will
have any claims against Buyer, the Bank or Purchaser for any broker's or
finder's fee or any other commission or similar fee directly or indirectly in
connection with any of the transactions contemplated in this Agreement.
4.22 Bank Accounts. Schedule 4.22 sets forth an accurate list of
each bank, trust company, savings association, or other financial institution
with which the Bank has an account or safe deposit box and the names and
identification of all persons authorized to draw thereon or to have access
thereto.
4.23 Deposits. Except as set forth in Schedule 4.23, none of the
Bank's Branch Deposits is a Brokered Deposit. Except as set forth in Schedule
4.23, no portion of the Branch Deposits represents a deposit by any Affiliate
of the Bank. "Brokered Deposits" shall mean all deposits of the Bank for
which the Bank has paid a commission or an interest rate substantially above
that paid by the Bank to the general depositors of the Bank at the time of
issuance of the deposit.
4.24 Assets and Services. To the Bank's best knowledge, except
for the Excluded Contracts and except for the Contracts listed on Schedule
4.2(b) and terminated as a result of the Purchase and Assumption, and subject
to the receipt of the consents and approvals listed on Schedule 4.3, there is
no service provided by a third party that was material to the conduct of the
business of the Bank as of March 31, 1996 that will not be available to
Purchaser after the Closing Date pursuant to a Contract included among the
Purchased Assets.
4.25 Austin Community Development Corporation. Realty Corp shall
use its best efforts to obtain any necessary consents and take all other
actions to allow the sale by Realty Corp to Purchaser of the shares of capital
stock of ACDC owned by Realty Corp.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers and the Bank as follows:
5.1 Organization and Related Matters. Buyer is a corporation duly
organized and validly existing in good standing under the laws of the state of
Delaware. The Purchaser will, at the time of Closing, be a bank or savings
bank duly organized and validly existing under the laws of the jurisdiction of
its organization and will have the requisite power and authority to own,
operate, and lease its properties and to carry on its business.
5.2 Authority; No Violation.
(a) Buyer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby and at
the Closing Date, each of Purchaser and Buyer will have full corporate power
and authority to execute and deliver the Related Documents to which it is a
party and to consummate the transactions contemplated thereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly approved by all requisite
corporate action on the part of Buyer, and no other corporate proceedings on
the part of Buyer are necessary to approve this Agreement or the Related
Documents and to consummate the transactions contemplated hereby and the
transactions contemplated by this Agreement and the Related Documents will be
duly and validly approved by all requisite corporate action on the part of the
Purchaser. This Agreement and the Related Documents have been or will be duly
and validly executed and delivered by Buyer and Purchaser and (assuming the
due authorization, execution and delivery of this Agreement by Sellers and the
Bank) constitute or will constitute a valid and binding obligation of Buyer
and Purchaser, enforceable against Buyer and Purchaser in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and
except as may be limited by general principles of equity whether applied in a
court of law or a court of equity.
(b) Neither the execution and delivery of this Agreement by Buyer or the
Related Documents to which Buyer or Purchaser is a party nor the consummation
by Buyer and Purchaser of the transactions contemplated hereby, nor compliance
by Buyer with any of the terms or provisions hereof will or the execution or
delivery by the Purchaser or Buyer of the Related Documents to which it is a
party (i) violate any provision of the certificate of incorporation or bylaws
of Buyer or Purchaser or (ii) assuming that the Requisite Regulatory
Approvals and consents and approvals referred to in Section 5.3 hereof are
duly obtained, (x) violate in any material respect any Applicable Law
applicable to either Buyer or Purchaser, or any of its respective properties
or assets, or (y) violate, conflict with, result in a breach of any provision
of or the loss of any benefit under, constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any
Encumbrance upon any of the respective properties or assets of Buyer or
Purchaser under, any of the terms, conditions or provisions of any Contract to
which either Buyer or Purchaser is a party or by which either Buyer or
Purchaser, or any of its properties or assets may be bound or affected, except
for such consents and approvals the failure of which to obtain will not,
individually or in the aggregate, materially adversely affect the ability of
either Buyer or Purchaser to consummate the transactions contemplated by this
Agreement.
5.3 Consents and Approvals. Except for the Requisite Regulatory
Approvals to be obtained by Sellers and Buyer, the consents and approvals to
be obtained by Sellers and the matters set forth on Schedule 5.3, no consents
or approvals of or filings or registrations with any Governmental Entity or
with any third party are necessary in connection with the execution and
delivery by Buyer of this Agreement or the consummation by Buyer or Purchaser
of the transactions contemplated hereby (including, without limitation, the
consummation of the Purchase and Assumption ).
5.4 Financing; Capital. Buyer has current assets, irrevocable credit
lines, or guaranties or other financial arrangements such that at the Closing,
Buyer (or Purchaser) will have funds sufficient to enable them to carry out
their obligations under this Agreement. After giving effect to the
transactions contemplated hereby, Buyer (or Purchaser) will have sufficient
shareholders' equity to comply with all regulatory capital adequacy
requirements and will be in compliance, in all material respects, with all
other banking laws, regulations, and guidelines applicable to its respective
business as of the Closing.
5.5 Broker's or Finder's Fees. No agent, broker, investment or
commercial banker or other Person acting on behalf of Buyers will have any
claim against Sellers or the Bank for any broker's or finder's fee or any
other commission or similar fee directly or indirectly in connection with any
of the transactions contemplated in this Agreement.
ARTICLE 6.
COVENANTS
The parties covenant and agree that during the period prior to the Closing or,
to the extent expressly herein provided, thereafter:
6.1 Access. Upon the reasonable request to the Bank, FFFC and the Bank
shall give Buyer and its representatives reasonable access during normal
business hours to all properties, documents, accounts, books, and records of
FFFC and the Bank and furnish Buyer with such financial, operating, and
environmental data and other information with respect to the same as Buyer
shall from time to time reasonably request, and provide Buyer with access to
Sellers' officers, employees, accountants, counsel, and other representatives,
and the officers, employees, accountants, counsel, and other representatives
of the Bank, in each case subject to Applicable Laws relating to the exchange
of information and further to permit Buyer to conduct a full Truth in Lending
and HMDA compliance review. Buyer shall have the right at its own expense to
make copies of the above-described corporate records, reports, and other
documents, subject to Applicable Laws relating to the exchange of information.
In addition, except as may be otherwise agreed by the parties, the Bank shall
provide Buyer, at Buyer's expense, with Phase I environmental reports for
each parcel of Real Property owned by the Bank (excluding residential DPC
Property). Oral reports of such environmental assessments shall be delivered
to Buyer as soon as practicable, provided Sellers shall use their best efforts
to provide such reports no later than six (6) weeks from the date of this
Agreement and written reports shall be delivered to Buyer as soon as
practicable, provided the Bank shall use its best efforts to provide such
reports no later than ten (10) weeks from the date of this Agreement. The
Bank shall also obtain, at Buyer's expense (except as may be otherwise agreed
by the parties), Phase II environmental reports for properties identified by
Buyer on the basis of the results of such Phase I environmental reports. The
Bank shall obtain, at Buyer's expense, a survey and assessment of all
potential asbestos containing material in owned properties (other than DPC
property) and a written report of the results shall be delivered to Buyer as
soon as practicable, provided the Bank shall use its best efforts to obtain a
report within six (6) weeks of execution of this Agreement. During the period
prior to the Closing, Buyer shall furnish to Sellers such relevant information
as Sellers may reasonably request regarding the ability of Buyer to perform
its obligations under this Agreement. The Bank shall obtain, at Buyer's
expense, commitments for title insurance and boundary surveys for all Real
Property (except DPC Property) which shall be delivered to Buyer no later than
four (4) weeks from the date of this Agreement.
6.2 Conduct of Business of the Bank. During the period from the date
of this Agreement and continuing until the Closing Date, except as required by
Applicable Law or as expressly permitted by this Agreement, or with the prior
written consent of Buyer, Sellers shall cause the Bank to carry on its
business in the usual and ordinary course, in accordance with present
practices and policies and Applicable Law, and to use commercially reasonable
efforts to pursue its relationships with customers, suppliers and others
having business dealings with them and to maintain the services of the
Employees. Without limiting the generality of the foregoing, and except as
set forth in Schedule 6.2 or as otherwise expressly permitted by this
Agreement or consented to in writing by Buyer, Sellers shall not permit the
Bank to:
(a) Engage or participate in any material transaction, or incur or sustain
any material obligation, except in the ordinary course of business of the
Bank;
(b) Open, close, or relocate any Branch or Operating Site, or acquire or
sell or agree to acquire or sell any Branch or Operating Site except as
described on Schedule 6.2(b);
(c) Change its interest rate or fee pricing policies, or materially alter
the mix of rate, terms and account types, with respect to Deposits, other than
in the ordinary course of business of the Bank;
(d) Make or agree to make any improvements to the Branches or the
Operating Sites, except with respect to commitments for such made on or before
the date of this Agreement and normal maintenance or refurbishing made in the
ordinary course of business of the Bank;
(e) Amend, terminate or cancel, or take any other action that may result
in an amendment, termination or cancellation of any Lease or any other
Material Contract of the Bank or any other contract identified by Purchaser to
Bank or enter into any Material Contract;
(f) Foreclose upon or otherwise acquire any real property securing any
Loan except in accordance with the Bank's customary policy with respect to any
such Loan;
(g) Deviate in any material respect from policies and procedures existing
as of March 31, 1996 with respect to (i) classification of assets, (ii)
accrual of interest on assets, (iii) underwriting, pricing, originating,
warehousing, selling and servicing or buying or selling rights to service, any
Loans, (iv) hedging (which term includes both buying futures and forward
commitments from financial institutions) its mortgage loan positions or
commitments, and (v) obtaining financing and credit;
(h) Change its method of accounting in effect at March 31, 1996, except as
required by changes in Applicable Law, GAAP or regulatory accounting
principles as concurred to by Buyer's independent auditors;
(i) Except as set forth on Schedule 6.2(i), except for the amendment to
the Enhanced Severance Plan as described on Schedule 1.1(a), as required by
Applicable Law or to maintain qualification pursuant to the Code, and except
as required by Section 6.12 of this Agreement, (i) adopt, amend, renew or
terminate any Employee Benefit Plan or Employee Program, between the Bank and
one or more of its Employees, except that the Bank may hire or terminate one
or more of its Employees in the ordinary course of business, (ii) increase in
any manner the compensation or fringe benefits of any director, officer or
Employee or pay any benefit not required by any Employee Program as in effect
as of the date hereof, except for normal merit increases with respect to
Employees in the ordinary course of business consistent with past practice, or
(iii) enter into or modify any Contract providing for the payment to any
director, officer, or Employee of the Bank of compensation or benefits
contingent, or the terms of which are materially altered, upon the occurrence
of any of the transactions contemplated by this Agreement; or (iv) increase
in any manner the compensation of any Person, except to the extent required by
any Employee Program as in effect on the date hereof or in accordance with
established practices in the ordinary course.
(j) Terminate or unilaterally fail to renew any existing insurance
coverage or bonds, except for policies that are routinely not renewed in the
ordinary course of business and the termination of which would not have a
material adverse effect on the Bank;
(k) Amend or modify its charter or bylaws;
(l) Except as contemplated by Section 6.12, declare or distribute any
dividend, effect any stock split, or authorize, issue, or make any
distribution of its capital stock or any other securities, grant or issue any
right or option to acquire any such additional securities, or effect any
recapitalization, exchange, or reclassification of shares;
(m) Merge with or into, consolidate with any other Person, or sell or
transfer substantially all of the Bank's assets to any other Person;
(n) Except for purchases and sales of FHLB stock in the ordinary course of
business, make any direct or indirect redemption, purchase, or other
acquisition of any of its Equity Interests;
(o) Make, modify, or renew any capital expenditures, including any
capitalized lease obligation, in amounts individually in excess of $10,000 or
in the aggregate in excess of $25,000;
(p) Except for the loans in progress set forth in Schedule 6.2(p), make
any new loan or loans to one borrower in the aggregate amount of $1,000,000 or
more, increase the principal amount of any outstanding loan to $1,000,000 or
more or make any commitment for any such loan or increase; provided, however,
that Buyer shall be deemed to have consented in writing to any such loan,
increase or commitment if it has not declined to give its consent within three
(3) Business Days after receipt by Buyer in San Antonio or Austin, Texas of a
request for such consent, accompanied by all of the credit information used by
the Bank in determining to approve such loan or commitment; provided, that
Sellers will cause the Bank, monthly after the making thereof by the Bank, to
supply Buyer with all reasonably requested information concerning loans (other
than single family mortgage loans subject to take-out commitments) in amounts
less than $1,000,000 but greater than $250,000; provided further that any
request for consent which is received by Buyer by 12:00 noon Austin, Texas
time will be deemed to have been received as of the first Business Day;
(q) Make any investments or enter into any derivative contracts except (i)
investments made in the ordinary course of business for terms of up to one
year and in amounts of $100,000 or less, (ii) investments that are used to
collateralize deposits of public funds or repurchase agreements, (iii)
investments made in the ordinary course of business with terms of ten (10)
Business Days or less; or (iv) investments related to the Investment Segment
Assets;
(r) Authorize or incur any long-term debt (other than deposit liabilities
and Federal Home Loan Bank advances incurred in the ordinary course of
business, consistent with past practices);
(s) Mortgage, pledge or subject to lien or other encumbrance any of its
assets, except in the ordinary course of business;
(t) Except for the sale of the Investment Segment Assets, sell or
otherwise dispose of any of its assets or properties other than (i)
investments that are used to collateralize deposits of public funds or
repurchase agreements, or (ii) in the ordinary course of business;
(u) Make any capital contribution to any Subsidiary;
(v) Engage in the Bank any activity currently conducted in the Bank's
Subsidiaries; or
(w) Agree (by contract or otherwise) to do any of the foregoing.
Buyer shall use its reasonable best efforts to promptly respond to any request
for consent made by Sellers.
6.3 Regulatory Approvals: Consents of Third Parties.
(a) During the period prior to the Closing, Buyer, Purchaser, Sellers, and
the Bank shall cooperate, in preparing, submitting, and filing all
applications for all Requisite Regulatory Approvals, and obtaining such
Requisite Regulatory Approvals and taking such other actions as may be
required by Applicable Laws or court or administrative proceedings with
respect to the transactions contemplated by this Agreement, and shall use all
reasonable efforts to obtain such approvals and to accomplish such actions as
expeditiously as possible. As promptly as practicable after the date of this
Agreement, Buyer and Sellers shall prepare, submit, and file or cause to be
filed the applications for Requisite Regulatory Approvals set forth on
Schedule 1.1(k). Buyer and Sellers shall have the right to review in
advance, and to the extent practicable, each will consult the other on, in
each case subject to Applicable Laws relating to the exchange of information,
all the information which appears in any filing made with, or written
materials submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this Agreement other than any
portion of such filings or submissions that are customarily accorded
confidential treatment. Buyer and Sellers will provide each other with copies
of any final applications (excluding portions for which confidential treatment
is requested) that are filed with any Government Entity. In exercising the
foregoing right, each of the parties hereto shall act reasonably and as
promptly as practicable. The parties hereto agree that they will consult and
cooperate with each other with respect to the obtaining of all Requisite
Regulatory Approvals and consents or approvals of third parties necessary or
advisable to consummate the transactions contemplated by this Agreement and
each party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein. Each of the Sellers and
Buyer shall use reasonable efforts to take, or cause to be taken, all actions
necessary to comply promptly with all legal requirements which may be imposed
on such party or the Bank and the Subsidiaries with respect to the
transactions contemplated hereby and, subject to the conditions set forth in
Article 7 hereof, to consummate such transactions. Buyer will furnish to
Parent all information concerning Buyer and Purchaser required for inclusion
in a proxy statement or statements to be sent to the shareholders of Parent or
in any statement or application made by Parent in connection with obtaining
any Requisite Regulatory Approvals to be obtained by it pursuant to this
Agreement.
(b) Each party shall, upon request, furnish each other with all
information concerning themselves, their subsidiaries, directors, officers,
and shareholders and such other matters as may be reasonably necessary or
advisable in connection with any statement, filing, notice or application made
by or on behalf of any party or any of their respective subsidiaries to any
Governmental Entity in connection with the transactions contemplated by this
Agreement.
(c) The parties shall use all reasonable efforts to obtain all approvals,
waivers and/or consents of third parties required to consummate the
transactions contemplated by this Agreement (it being understood that Sellers
shall be responsible for obtaining all such approvals, waivers and consents
from such parties with whom the Bank or any of the Subsidiaries is in
contractual privity to the extent necessary to consummate the Purchase and
Assumption). If any required consent of or waiver by such third parties
(excluding Governmental Entities) is not obtained prior to the Closing, the
parties, each without cost, expense or liability to the other shall cooperate
in good faith to develop an alternative arrangement to achieve the economic
results intended, and the failure to obtain such consent or waiver shall not
constitute a failure to satisfy any condition to Closing set forth in Article
7 of this Agreement, unless material to the transactions contemplated hereby.
(d) Each party represents that at the date hereof, it does not know of any
facts that would reasonably cause it to believe that all Requisite Regulatory
Approvals could not be obtained and agrees not to take any action or enter
into any agreement or arrangement that reasonably would be expected to delay
or jeopardize its ability to obtain such Requisite Regulatory Approvals;
provided, however, (i) that nothing herein shall require Buyer to agree to
any conditions to the consummation of the Purchase and Assumption imposed by
any Governmental Entity with jurisdiction over the Purchase and Assumption
that are, individually or together with any other conditions, reasonably
deemed by Buyer in good faith to be unreasonably burdensome upon Buyer or the
Purchaser ("Buyer's Burdensome Conditions"), and (ii) that nothing herein
shall require Sellers to agree to any conditions to the consummation of the
transactions contemplated by this Agreement imposed by any Governmental Entity
that are, individually or together with any other condition, reasonably deemed
by Parent in good faith to be unreasonably burdensome upon Sellers or the Bank
("Sellers' Burdensome Conditions"). Buyer, Purchaser, and Sellers agree to
consult with each other concerning the imposition or threatened imposition of
a Buyer's Burdensome Condition or Sellers' Burdensome Condition and to
cooperate in good faith in obtaining the removal by a Governmental Entity of
any such Buyer's Burdensome Condition or Sellers' Burdensome Condition.
(e) To the extent that the assignment of any contract or any license,
permit, approval or qualification issued or to be issued by any government or
agency or instrumentality thereof relating to the business of the Bank or the
Purchased Assets to be assigned to Purchaser pursuant to this Agreement shall
require the consent of any other party, this Agreement shall not constitute a
contract to assign the same if an attempted assignment would constitute a
breach thereof. Sellers and the Bank shall use their reasonable efforts at
the expense of Buyer, and shall cooperate with Purchaser where appropriate, to
obtain any consent necessary to any such assignment. If any such consent is
not obtained, then Sellers and the Bank shall cooperate with Buyer and
Purchaser at the expense of Buyer in any reasonable arrangement requested by
Purchaser designed to provide to Purchaser the benefits under any such
contract, license, permit, approval or qualification, including enforcement of
any and all rights of the Bank against the other party thereto arising out of
breach or cancellation thereof by such other party or otherwise, including the
right to elect to terminate or not renew in accordance with the terms thereof
on the advice of the Purchaser and after the Closing, the Purchaser, to the
extent it received the benefit thereof, will use its best efforts to perform
the obligations of the Bank arising under such leases, contracts, other
agreements, licenses, permits, and approvals. Sellers and the Bank shall
obtain the consent of Buyer before incurring any expense in connection with
the foregoing terminations or consents.
(f) At the reasonable request of Buyer, the Bank will give notice to
terminate any Contract to be included in the Purchased Assets, provided that
the Bank shall not be required to terminate any such Contract (i) if it
believes that such termination may unreasonably disrupt the operation of the
business of the Bank, and (ii) unless it obtains satisfactory indemnification
from Buyer and the Purchaser, which shall survive the termination of this
Agreement, against any related costs or liabilities. Sellers and the Bank
shall obtain the consent of Buyer before incurring any expense in connection
with the foregoing terminations or consents.
6.4 Public Announcements. Parent and Buyer shall consult with each
other before issuing any press releases or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
hereby, and neither of them shall issue or permit any Affiliate to issue any
such press release or make any such public statement prior to such
consultation unless reasonably satisfactory to the other parties hereto,
except as may be required by law or by the rules or regulations of any
Governmental Entity or securities exchange.
6.5 Further Assurances. Subject to the terms and conditions of this
Agreement, Sellers, the Bank, and Buyer shall, and shall cause Purchaser to,
do all things reasonably necessary or desirable and within their control to
effect the consummation of the transactions contemplated hereby and cause
their respective Affiliates to take such action as is contemplated hereby or
required hereunder.
6.6 Notification of Certain Matters. Each party shall give prompt
notice to the other party of (a) the occurrence, or failure to occur, of any
event or existence of any condition that would be likely to cause any of its
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect on the Closing Date, and (b) any failure
on its part to comply with or satisfy, in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement.
6.7 Corporate Records, Contracts and Financial Statements. From the
date hereof through the Closing Date:
(a) The Bank will promptly furnish Buyer with copies of the minutes of
each meeting of the shareholder or directors (including committees) of the
Bank held after the date of this Agreement and any Material Contract entered
into after the date of this Agreement.
(b) The Bank will promptly provide Buyer with copies of all regularly
prepared monthly board reports substantially in the same form as prepared at
the date of this Agreement and quarterly financial statements of the Bank for
each month and quarterly period ending between the date of this Agreement and
the Closing Date. Such financial statements shall be verified by the chief
financial officer of the Bank and will be prepared in accordance with GAAP or
applicable regulatory accounting principles, except for the omission of normal
recurring year-end audit adjustments (if any) and notes thereto.
6.8 Delivery of Records at Closing. At or prior to the Closing, to the
extent not otherwise located at any Branch or Operating Site, Sellers shall
deliver to Buyer all Records (other than corporate minutes and organizational
documents) of the Bank related to the Purchased Assets or Assumed Liabilities.
6.9 Amendment of Contracts. Sellers and the Bank shall use their
reasonable efforts to take such actions as may be necessary to terminate as of
the Closing Date the contracts listed on Schedule 6.9. Sellers shall obtain
the consent of Buyer before incurring any expense in connection with the
foregoing terminations.
6.10 Reconciliations. Prior to Closing, the Bank shall have
written off all unidentified reconciliation items on the Bank Financial
Statements over 60 days old.
6.11 Dividend. Prior to the Closing, the Bank shall cause the
Subsidiaries to distribute by dividend cash in an amount equal to the net
equity of the Subsidiaries as of such date.
6.12 Confidentiality.
(a) Sellers agree to hold in confidence all, and not to disclose to others
for any reason whatsoever any, non-public information received by them from
Buyer, any of Buyer's Subsidiaries, or its or their representatives in
connection with the transactions contemplated by this Agreement except: (i)
as required by law; (ii) for disclosure to officers, directors, Employees,
and representatives of Sellers as necessary in connection with the
transactions and filings contemplated by this Agreement; and (iii) for
information which becomes publicly available other than through Sellers. In
the event the transactions contemplated by this Agreement are not consummated,
Sellers shall return to Buyer all non-public documents and all other material
obtained from Buyer or its representatives in connection with the transactions
contemplated hereby, or shall certify to Buyer that such information has been
destroyed.
(b) Buyer agrees to hold in confidence all, and not to disclose to others
for any reason whatsoever any, non-public information received by it, any of
its Subsidiaries or their representatives from Sellers, any of Sellers'
Subsidiaries or their representatives in connection with the transaction
contemplated by this Agreement, except: (i) as required by law; (ii) for
disclosure to officers, directors, employees, or representatives of Buyer and
its Subsidiaries as necessary in connection with its transactions and filings
contemplated by this Agreement; and (iii) for information which becomes
publicly available other than through Buyer. In the event the transactions
contemplated by this Agreement are not consummated, Buyer shall return to
Sellers all non-public documents and all other material obtained from Sellers,
their Subsidiaries or its or their representatives in connection with the
transactions contemplated hereby, or shall certify to Sellers' that such
information has been destroyed.
6.13 Net Asset Value. The Sellers shall cause the Net Asset Value
as defined in Section 2.3 (exclusive of the SAIF Assessment) to be not less
than $40,000,000 as of the Closing Date.
ARTICLE 7.
CONDITIONS TO CLOSING
7.1 Reciprocal Conditions. The obligations of each of the Sellers, the
Bank, Buyer, and Purchaser to effect the Closing shall be subject to the
following conditions which, to the extent permitted by Applicable Law, may be
waived in writing by such party as a condition to its own obligations:
(a) No legal administrative, arbitration, investigatory, or other
proceedings by any Governmental Entity shall have been instituted and, on what
otherwise would have been the Closing Date, remain pending, to restrain or
prohibit in any material respect the transactions contemplated by this
Agreement, nor shall there be in effect on such date an injunctive order or
decree of a court of competent jurisdiction restraining or prohibiting in any
material respect the transactions contemplated by this Agreement.
(b) All Requisite Regulatory Approvals shall have been obtained or made
and shall remain in full force and effect, and all necessary waiting periods
under Applicable Law shall have expired; except in any case for matters not
material to the transactions contemplated by this Agreement. All other
material statutory or regulatory requirements for the valid consummation of
the transactions contemplated by this Agreement shall have been satisfied,
including any filings required to be made under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the expiration of any
waiting periods thereunder or under the Bank Holding Company Act of 1956, as
amended, or the Savings and Loan Holding Company Act or otherwise.
(c) All approvals or consents of any other third party required in order
to consummate the transactions contemplated by this Agreement shall have been
obtained and remain in full force and effect, except in any case for matters
not material to the transactions contemplated by this Agreement and except to
the extent otherwise provided in Section 6.3(c).
7.2 Conditions to Buyer's Obligations. The obligations of Buyer and
Purchaser to effect the Closing shall be subject to the following additional
conditions which may be waived in writing by Buyer:
(a) The representations and warranties of Sellers contained in this
Agreement shall be true in all material respects as of the date of this
Agreement and on the Closing Date with the same effect and subject to the same
limitations as though made at such time; Sellers and the Bank shall have
performed all material obligations and complied in all material respects with
all covenants and conditions required by this Agreement to be performed or
complied with by them at or prior to the Closing Date; and Sellers and the
Bank shall have delivered to Buyer and Purchaser a certificate dated the
Closing Date and signed in their respective names and on their respective
behalf by their respective chief executive officer and principal financial
officer to the foregoing effect to the best knowledge of such officers;
(b) Opinion of Bracewell & Patterson, counsel to Sellers and the Bank,
covering the matters contemplated by Exhibit D shall have been delivered to
Buyer;
(c) During the period from the date of this Agreement to the Closing Date,
there shall not have been any material adverse change in the Bank, or any
injunctions, orders, judgments, or decrees which are material to the Bank and
Buyer shall have received a certificate dated the Closing Date signed by the
chief executive officer and the chief financial officer of the Bank attesting
to such fact to the best knowledge of such officers;
(d) In connection with any Requisite Regulatory Approvals, no Buyer's
Burdensome Conditions shall be imposed.
(e) The Bank shall have duly authorized, executed, and delivered to the
Purchaser the Bill of Sale dated as of the Closing Date.
(f) The Bank, Parent, and FFFC shall have duly authorized, executed, and
delivered to the Purchaser the Non-Competition Agreement.
(g) The Bank shall not have sustained since March 31, 1996 any material
loss or interference with its business from any civil disturbance or any fire,
explosion, flood, or other calamity, whether or not covered by insurance.
(h) There shall be no reasonable basis for any proceeding, claim, or
action of any nature seeking to impose, or that could result in the imposition
on the Bank of, any liability relating to the release of hazardous substances
as defined under any local, state, or federal environmental statute,
regulation, or ordinance, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
which has had or could reasonably be expected to have a material adverse
effect upon the Bank.
(i) Since March 31, 1996, no change shall have occurred and no
circumstances shall exist which have had or might reasonably be expected to
have a material adverse effect on the financial condition, results of
operations, business or prospects of the Purchased Assets and Assumed
Liabilities.
(j) The Net Asset Value (exclusive of the SAIF Assessment) shall not be
less than $40,000,000.
(k) The Bank shall have taken the actions required under Sections 6.11 and
6.12.
(l) The Bank's Loan Loss Reserve shall be calculated in accordance with
the methodology used as of March 31, 1996, including the percentage
provisions applied to each category of loan.
7.3 Conditions to Sellers' Obligations. The obligation of Sellers and
the Bank to effect the Closing shall be subject to the following additional
conditions which may be waived in writing by Sellers:
(a) The representations and warranties of Buyer contained in this
Agreement shall be true in all material respects as of the date of this
Agreement and on the Closing Date with the same effect and subject to the same
limitations as though made at such time; Buyer and Purchaser shall have
performed all material obligations and complied with all material covenants
and conditions required by this Agreement to be performed or complied with by
them at or prior to the Closing Date; and Buyer shall have delivered to
Sellers a certificate, dated the Closing Date and signed in its name and on
its behalf by its Chief Executive Officer or any Executive Vice President and
principal financial officer or Corporate Secretary or Assistant Corporate
Secretary to the foregoing effect to the best knowledge of such officers;
(b) In connection with any Requisite Regulatory Approvals, no Sellers'
Burdensome Conditions shall be imposed.
(c) The Purchaser shall have duly authorized, executed and delivered to
the Bank the Assumption Agreement and Buyer and Purchaser shall have executed
and delivered the Non-Competition Agreement dated as of the Closing Date.
(d) An opinion of counsel to Buyer covering the matters contemplated by
Exhibit E shall have been delivered to Sellers.
ARTICLE 8.
TAX MATTERS
8.1 Taxes.
(a) Sellers shall pay any and all Taxes (including, without limitation,
any state or federal unemployment or employment taxes), fees, and other
charges which shall become due on or prior to the Closing Date or accrues on
or prior to the Closing Date (i) on account of the operation and conduct of
the Bank's business, or (ii) on account of the Bank's use, acquisition, or
ownership of any of the Purchased Assets. Unemployment and employment taxes
shall be prorated as of the Closing Date. Buyer shall pay all sales,
transfer, documentary and other similar taxes, if any, payable in connection
with sale, assignment, transfer, conveyances, and deliveries to be made to
Buyer pursuant to this Agreement (but shall not in any event be obligated to
pay any income taxes of Sellers).
(b) Taxes shall initially be timely paid as provided by Applicable Law and
the paying party shall be entitled to reimbursement from the non-paying party
in accordance with the obligations of the parties described in this section.
The paying party shall promptly notify the non-paying party in writing of the
payment of any such Tax and the non-paying party shall make such reimbursement
within ten (10) Business Days after it receives such notice. Any dispute
regarding the amount of the tax payment made by the paying party shall be
resolved in accordance with the provisions of Section 11.11 of this
Agreement. Unless a bona fide dispute has occurred with respect to the amount
of the tax payment, any payment not made within such time shall accrue
penalties and interest at the rate levied by the applicable taxing authority
on the paying party.
8.2 Survival. The provisions of this Article 8, and all other
agreements herein relating to Taxes, shall survive the Closing and shall
terminate at the end of the applicable statute of limitations (including
extensions thereof).
8.3 Tax Cooperation. Buyer, Purchaser, and Sellers shall: (a)
cooperate fully in preparing for any audits of or disputes with taxing
authorities regarding, any Taxes imposed on the Bank with respect to matters
arising prior to the Closing Date or Taxes imposed on Sellers as a result of
the consummation of the transactions contemplated hereby; (b) make available
to the Sellers (or to any taxing authority, as reasonably requested by
Sellers), all information, records, and documents relating to Taxes imposed on
the Bank (or any member of its Affiliated Group) with respect to matters
arising prior to the Closing Date or Taxes imposed on Sellers (or any member
of their Affiliated Group) as a result of the consummation of the transactions
contemplated hereby; and (c) provide timely notice to Parent in writing of
any pending or threatened audits or assessments relating to Taxes imposed on
the Bank with respect to matters arising prior to the Closing Date. Sellers,
Purchaser, and Buyer shall each cooperate in the preparation of any Tax
Returns which the other is responsible for preparing and filing.
ARTICLE 9.
TERMINATION/SURVIVAL/INDEMNIFICATION
9.1 Termination. This Agreement may be terminated by either of the
parties, if the Closing has not yet occurred, on the Final Termination Date
(unless the failure of such occurrence shall be due to the failure of the
party seeking to terminate this Agreement to perform or observe all of the
agreements contained herein required to be performed or observed prior to the
Closing), unless extended by the written consent of Sellers and Buyer, and
this Agreement may be terminated at any other time prior to the Closing Date
as follows and in no other manner:
(a) by consent of the parties evidenced by their written agreement;
(b) by Sellers or by Buyer, as the case may be, upon written notice to the
other, if the Bank Regulators, or any other Governmental Entity having
jurisdiction over the transactions contemplated by this Agreement, shall
notify Buyer or Sellers in writing that by its final determination it will
refuse to grant an approval or consent to any material aspect of the
transactions necessary to the consummation thereof, unless within 30 days
after receipt of notice of such action, the party against whom the action was
taken shall agree to submit or resubmit an application to, or appeal the
decision of the Bank Regulator or Governmental Entity which denied or refused
to grant approval thereof;
(c) by Sellers and the Bank upon written notice of termination to Buyer if
any event occurs which makes it impossible to satisfy, by the Final
Termination Date, one or more of the conditions to the obligations of Sellers
set forth in Section 7.1 or 7.3, and such failure is not waived by Sellers;
(d) by Buyer upon written notice of termination to Sellers and the Bank if
any event occurs which makes it impossible to satisfy, by the Final
Termination Date, one or more of the conditions to the obligations of Buyer
set forth in Section 7.1 or 7.2, and such failure is not waived by Buyer.
Any such termination shall be without liability to either party, provided that
no such termination shall relieve a party of liability for default in the
performance of any of its obligations or breach of any of its representations
and warranties.
9.2 Survival of Representations and Warranties. Except for covenants
with respect to obligations to be performed post-Closing (which shall survive
the Closing and remain in effect indefinitely) and except as provided in
Article 8, (i) the representations and warranties of Sellers contained in
Sections 4.1(c), 4.3, 4.4, 4.5, 4.6, 4.10, 4.17, and 4.24 shall survive for
one year after the Closing, (ii) the covenants of Sellers contained in
Sections 6.10 and 6.13 shall survive for 90 days after the Closing, and (iii)
the covenants of Sellers contained in Section 6.2 shall survive for one year
after the Closing. All other representations, covenants, and warranties of
Sellers shall not survive the Closing. Following such termination of such
representations and warranties and covenants, no party shall have any
liability whatsoever with respect thereto; provided that nothing contained
herein shall impair the rights of the Sellers, Buyer, and Purchaser under
Section 2.3(d).
9.3 Indemnification.
(a) Subject to the limitations contained in Section 9.3(g), from and
after the Closing Date, each Seller shall indemnify Buyer and Purchaser and
hold Buyer and Purchaser harmless from and against any and all Loss that Buyer
may suffer, incur, or sustain to the extent arising out of (i) any breach of
any representation or warranty made by such Sellers pursuant to Article 4
of this Agreement, and (ii) any breach of any covenant or other agreement to
be performed by Sellers pursuant to this Agreement (but such indemnification
obligation shall remain in effect only for the period of survival of any such
representation, warranty, or covenant as set forth in Section 9.2).
(b) From and after the Closing Date, Buyer and Purchaser shall indemnify
Sellers and hold them harmless from and against any and all Loss that either
Sellers may suffer, incur, or sustain to the extent arising out of the
Purchased Assets or Assumed Liabilities (except to the extent such Loss is as
a result of a breach of any representation or warranty made by Sellers
pursuant to Article 4 of this Agreement or any breach of any Agreement to be
performed by Sellers pursuant to this Agreement).
(c) From and after the Closing Date, Sellers shall indemnify Buyer and
Purchaser and hold them harmless against any and all Losses relating to or
arising out of the Excluded Assets or Retained Liabilities.
(d) To exercise its indemnification rights under Section 9.3 as the
result of the assertion against it of any claim or potential liability for
which indemnification is provided, the indemnified party shall promptly notify
the indemnifying party of the assertion of such claim, discovery of any such
potential liability or the commencement of any action or proceeding in respect
of which indemnity may be sought hereunder. The indemnified party shall
afford the indemnifying party the opportunity, at the indemnifying party's
sole cost and expense, to defend against such claims for liability. In any
such action or proceeding, the indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall be at
its own expense unless (i) the indemnifying party and the indemnified party
mutually agree to the retention of such counsel, or (ii) the named parties to
any such suit, action, or proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party, and in the reasonable
judgment of the indemnified party, based upon a written opinion of counsel,
representation of the indemnifying party and the indemnified party by the same
counsel would be inadvisable due to conflicts of interests between them.
(e) The indemnified party shall have the right to settle or compromise any
claim or liability subject to indemnification under Section 9.3, and to be
indemnified from and against all Loss resulting therefrom, unless the
indemnifying party, within 30 calendar days after receiving written notice of
the claim or liability in accordance with Section 9.3(d) above, notifies the
indemnified party that it intends to defend against such claim or liability
and undertakes such defense, or, if required in a shorter time than 30
calendar days, the indemnifying party makes the requisite response to such
claim or liability asserted.
(f) The indemnified party shall at all times use its reasonable efforts
(at the indemnifying party's expense) to mitigate the Loss for which the
indemnifying party may be liable pursuant to this Agreement. With respect to
any matter for which the indemnifying party may be liable pursuant to the
provisions of this Agreement, the indemnified party shall (at the indemnifying
party's expense) diligently pursue (including, without limitation, the
commencement and pursuit of litigation) any and all rights and remedies under
agreements and contracts, including, without limitation, insurance policies,
with third parties pursuant to which the indemnified party has rights of
recourse or is indemnified or the beneficiary of a guaranty.
(g) Sellers and the Bank shall not be required to indemnify Buyer or
Purchaser under Section 9.3(a) unless the aggregate of all amounts for which
indemnity would otherwise be payable thereunder by Sellers exceed $250,000,
and in such event Sellers shall be responsible only for the amount in excess
of such $250,000, but Seller shall not be liable for any amounts in excess of
$2,000,000 in the aggregate in the case of Sellers' indemnification
obligations under Section 9.3(a)(i) and not in excess of $2,000,000 in the
aggregate in the case of Sellers' indemnification obligations under Section
9.3(a)(ii) (other than those relating to Sections 6.10 and 6.13), which
amounts shall decrease as provided in Schedule 9.3(g).
(h) Any amounts payable by an indemnifying party hereunder shall be net of
the dollar amount of any insurance proceeds recovered by the indemnified party
with respect to such Loss.
(i) The remedies provided in Article 8 and in this Article 9 shall
constitute the sole and exclusive remedy with respect to the matters set forth
in Section 9.3.
9.4 Insurance Claims.
(a) After the Closing Date, to the extent that any policies of insurance
of Sellers provide defense and/or indemnity for claims or losses which
occurred with respect to the Bank prior to the Closing Date, Buyer, and
Purchaser will have the right to manage such claims/losses and receive any
protection afforded thereunder. Buyer shall promptly notify Parent, FFFC and
the Bank of all material events which have occurred in connection with the
prosecution of such claims.
(b) At the request of Buyer, Sellers shall use their reasonable efforts to
amend any of Sellers' insurance policies in effect on the date hereof which
provide for coverage only on a "claims made" basis to an "occurrence" basis or
to provide for an extended discovery period thereunder (in either case for a
period not less than seven years following the Closing Date) for the Bank
liabilities that are based on acts or omissions occurring on or prior to the
Closing Date, the cost of which shall be the responsibility of Purchaser and
Buyer. In addition, the Bank shall provide to Buyer a certified copy of each
such policy. Sellers shall advise Buyer before incurring any out-of-pocket
expense on Buyer's behalf related to any such amendment.
(c) Nothing in this Article 9 shall be deemed to limit or supersede any
insurance coverage available to or provided on behalf of any party hereto.
9.5 Limitations on Dividends. Sellers shall not take any action with
respect to Bank, including by way of merger, liquidation, consolidation or
transfer of assets ("Reorganization") (other than a Reorganization with FFFC
and/or Parent) the result of which would render Bank unable to satisfy its
indemnification obligations under Sections 9.3(a)(i) or 9.3(a)(ii). Sellers
and Buyer agree to use their best efforts to enter into such other agreements
as may be necessary to accomplish the foregoing.
ARTICLE 10
EMPLOYEE MATTERS
10.1 Employee Benefit Plan. Each person who is an employee of the
Bank as of the Closing Date (the "Bank Employees") shall be eligible for
participation in the employee welfare and retirement plans of Buyer, as in
effect from time to time, as follows:
(a) Employee Welfare Benefit Plans. Each Bank Employee shall be
eligible for participation in the employee welfare benefit plans of Buyer
listed below subject to any eligibility requirements applicable to such plans
(but not subject to any pre-existing conditions or exclusions except for the
Norwest Long Term Care Plan) and shall enter each plan, on the Closing Date in
the event the Closing occurs on the first day of a month or, in the event the
Closing does not occur on the first day of a month, then not later than the
first day of the first calendar month after the Closing Date,provided,
however, that until the effective date of coverage for the Bank Employees
under the Buyers' employee welfare benefit plans listed below, the employee
welfare benefit plans of the Bank, as in effect prior to the Closing Date,
shall be maintained for the benefit of the Bank Employees on the terms and
conditions previously in effect, including with respect to employer
contributions, to ensure that no gap in coverage occurs:
Medical Plan
Dental Plan
Vision Plan
Short Term Disability Plan
Long Term Disability Plan
Long Term Care Plan
Flexible Benefits Plan
Basic Group Life Insurance Plan
Group Universal Life Insurance Plan
Dependent Group Life Insurance Plan
Business Travel Accident Insurance Plan
Accidental Death and Dismemberment Plan
Severance Pay Plan
Vacation Program
To the extent that such employee welfare benefit plans of Bank are maintained
for a period of time between the Closing Date and the effective date of
coverage, Buyer shall reimburse Bank for the costs of maintaining such plans
until the effective date of coverage. Bank Employees who are hired by Buyer
and terminated between the Closing Date and the effective date of coverage
will be entitled to COBRA benefits under Purchaser's welfare benefit plans.
For the purpose of determining each Bank Employee's benefits for the year in
which the Closing occurs under Buyer's vacation program, unused earned
vacation which is paid out to a Bank Employee and vacation taken by a Bank
Employee in the year in which the Purchase and Assumption occurs will be
deducted from the total Buyer's benefit. Unused earned vacation calculated
through the month end in which the Closing occurs will be paid by the Bank to
its Employees immediately prior to the Closing. After the Closing Date, the
Bank Employees will be subject to Buyer's Vacation Program in accordance with
the terms of that Program, with full credit for years of past service to the
Bank and the Bank's Subsidiaries; provided that, in the event the Closing Date
is prior to January 1, 1997, Bank Employees may utilize in calendar year 1996
(on an unpaid basis) any prepaid but unused vacation to which such Bank
Employee was entitled under the Bank's Vacation Program for calendar year
1996. For purposes of the Short Term Disability Plan and Severance Policy,
the Bank Employees will receive full credit for years of past service with the
Bank. Other than the Bank Employees who are eligible to receive a severance
benefit pursuant to the Bank's Enhanced Severance Plan or any contract or
agreement with any Bank Employee providing severance benefits, each Bank
Employee whose employment is terminated on or after the Closing Date shall be
eligible to receive benefits under Buyer's Severance Pay Plan on the terms and
conditions stated therein with full credit for years of past service with the
Bank. Purchaser will maintain the Bank's Enhanced Severance Plan until the
first day of the seventh month after the Closing Date, after which the Bank
Employees will enter the Norwest Severance Plan in the manner provided above.
The Bank Employees shall not be entitled to past service credit with regard to
retiree medical benefits.
(b) Employee Retirement Benefit Plans. Each Bank Employee shall be
eligible for participation in the Norwest Savings Investment Plan (the "SIP"),
subject to any eligibility requirements applicable to the SIP (with full
credit for years of past service to the Bank to the extent such service was
credited in the Bank 401(k) for the purpose of satisfying any eligibility and
vesting periods applicable to SIP), and shall enter the SIP not later than the
first day of the calendar quarter which begins at least 32 days after the
Closing Date .
Each Bank Employee shall be eligible for participation in the Norwest Pension
Plan under the terms thereof as a new hire.
ARTICLE 11.
MISCELLANEOUS
11.1 Expenses; Attorneys' Fees. Except as otherwise expressly
provided herein, each party shall bear its own expenses and all fees and
out-of-pocket expenses of outside counsel, independent public accountants,
investment bankers, brokers, finders and other consultants shall be paid or
provided for by the party employing such person;provided that Buyer shall
be responsible for any additional costs incurred in connection with any
transaction contemplated by Buyer after the Purchase and Assumption and
Sellers shall be responsible for the out-of-pocket expenses of outside
counsel, independent public accountants, investment bankers, brokers, finders
and other consultants incurred prior to the Closing Date by Bank in connection
with this Agreement.
11.2 Amendments. The provisions of this Agreement and any Exhibit
or Schedule attached hereto (or agreement entered into concurrently herewith)
may be amended or waived only in writing by agreement of the parties hereto
except as otherwise provided by law.
11.3 Schedules; Exhibits. Each Schedule and Exhibit delivered in
connection with or pursuant to this Agreement shall be in writing and shall
constitute a part of this Agreement, although such Schedule or Exhibit need
not be attached to each copy of this Agreement. Disclosure of any fact or
item in any Schedule referenced by a particular section of this Agreement
shall be deemed to have been disclosed for any and all purposes under this
Agreement. The specification of any dollar amount in the representations and
warranties contained in this Agreement or the inclusion of any specific items
in any Schedules hereto is not intended to imply that such amounts, or higher
or lower amounts, or the items so included or other items, are or are not
material, and neither party shall use the fact of the setting of such amounts
or the inclusion of any such item in any dispute or controversy between the
parties as to whether any obligation, item or matter not described herein or
included in a Schedule, or otherwise, is or is not material for purposes of
this Agreement. Unless otherwise specified, definitions given to terms in
this Agreement or the Exhibits and Schedules shall apply to all parts of
this Agreement including the Exhibits and Schedules.
11.4 Integration. To the extent provided in Section 9.4, this
Agreement supersedes any and all prior agreements or understandings of the
parties in connection herewith or with respect to the subject matter hereof.
11.5 Governing Law. This Agreement, the legal relations between
the parties and the adjudication and the enforcement thereof shall be governed
by and interpreted and construed in accordance with the internal substantive
laws of the State of Texas, and, to the extent applicable, federal law.
11.6 Notices. All notices hereunder shall be in writing, and
shall be deemed given when (a) delivered in person, (b) transmitted by
telecopy, provided that any notice so given is also mailed as provided in
clause (c), or (c) mailed by certified or registered mail, postage prepaid,
return receipt requested, addressed as follows:
If to Buyer:
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Attention: Secretary
If to Sellers:
Club Corporation International
3030 LBJ Freeway
Suite 700
Dallas, TX 75234
Attention: James P. McCoy, Jr.
Chief Financial Officer
With a copy to:
Sanford M. Brown, Esq.
Bracewell & Patterson, L.L.P.
500 N. Akard
4000 Lincoln Plaza
Dallas, TX 75201
11.7 No Assignment. Neither this Agreement nor any rights
hereunder may be assigned by any party without the written consent of the
other parties hereto; provided, however, that the Buyer and the Purchaser may
assign their respective rights and obligations (other than Buyer's obligation
to pay or cause to be paid the Purchase and Assumption Purchase Price)
hereunder to each other or any of Buyer's direct or indirect subsidiaries;
provided, however, that Buyer shall guarantee, in a form reasonably
satisfactory to Sellers, the performance of the obligations of any of its
assignees under this Agreement or any of the Related Documents.
11.8 Headings. The descriptive headings of the sections of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
11.9 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same agreement.
11.10 Severability. If any provision of this Agreement is
determined to be invalid, illegal or unenforceable by any Governmental Entity,
the remaining provisions of this Agreement shall remain in full force and
effect, provided that the essential terms and conditions of this Agreement for
both parties remain valid, binding, and enforceable.
11.11 Alternative Dispute Resolution. If a dispute arises between
the parties relating to this Agreement, the following procedure shall be
implemented before either party pursues other available remedies, except that
either party may seek injunctive relief from a court, where appropriate, in
order to maintain the status quo while this procedure is being followed:
(a) The parties shall meet within ten days after either party notifies
the other party in writing of the existence of a dispute to attempt in good
faith to negotiate a resolution of the dispute. The meeting shall be attended
by persons with authority to settle the dispute;provided, however, that no
such meeting shall be deemed to vitiate or reduce the obligations and
liabilities of the parties or be deemed a waiver by either party of any
remedies to which such party otherwise would be entitled.
(b) If within 15 days after such meeting, the parties have not succeeded
in negotiating a resolution of the dispute, the dispute shall be determined by
arbitration. The arbitration shall be conducted in accordance with the United
States Arbitration Act (Title 9, U.S. Code) and under the Commercial Rules
of the American Arbitration Association; provided, however, that with respect
to Section 30, failure of any party to appear or respond in the arbitration
proceeding shall result in a default award against such party. The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). The award rendered by the arbitrator(s)
shall set forth findings of the facts and conclusions of law and shall be
final, and the judgment may be entered in any court having jurisdiction
thereof. A failure by the arbitrator(s) to make findings of fact and
conclusions of law shall be grounds for overturning the award.
(c) In any arbitration proceeding, the arbitrator(s) is (are) authorized
to apportion costs and expenses, including investigation, legal and other
expense, which will include, if applicable, a reasonable estimate of allocated
costs and expense or inhouse legal counsel and legal staff. Such costs and
expenses are to be awarded only after the conclusion of the arbitration and
will not be advanced during the course of such arbitration.
(d) Any arbitration hereunder shall take place in the City of Dallas,
Texas, unless otherwise agreed by the parties.
11.12 Cooperation.
(a) Upon the terms and subject to the conditions hereof, the Sellers, on
the one hand, and the Buyer, on the other hand, agree to use their best
efforts to take or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to ensure that the conditions
set forth herein are satisfied and to consummate and make effective the
transactions contemplated by this Agreement and the Related Documents insofar
as such matters are within their respective control.
(b) Except as otherwise expressly provided for in this Agreement, (i)
each of the Buyer and the Sellers shall, and shall cause each of their
respective Affiliates to, use its and their best efforts to obtain at the
earliest practicable date, whether before or after the Closing Date, all
consents required to be obtained by it for the performance of the transactions
contemplated by this Agreement and the Related Documents, and (ii) the Bank
shall use its best efforts to obtain, whether before or after the Closing
Date, any amendments, novations, releases, waivers, consents, or approvals
with respect to all outstanding Contracts of the Bank which are necessary
either to cure any defaults thereunder existing immediately prior to the
Closing Date or for the consummation of the transactions contemplated by this
Agreement and the Related Documents, provided, however, that (A) in
obtaining any such amendments, novations, releases, waivers, consents, or
approvals, no party hereto shall, or shall permit any of its Affiliates to,
agree to any such instrument which imposes any obligation or liability on
another party without the prior written consent of such other party, and (B)
except as otherwise expressly provided by this Agreement, no party hereto
shall be obligated to execute any guarantees or undertakings or otherwise
incur or assume any expense or liability in connection with obtaining any such
release, novation, approval, consent, authorization, or waiver.
(c) The Buyer, on the one hand, and the Seller, on the other hand, shall
provide such information and cooperate fully with each other party hereto in
making such applications, filings, and other submissions which may be required
or reasonably necessary in order to obtain all approvals, consents,
authorizations, and waivers as may be required from any Governmental Agency
and others in connection with the transaction contemplated by this Agreement
and the Related Documents.
(d) Except as otherwise expressly provided for in this Agreement, the
Buyer, on the one hand, and the Bank, on the other hand, shall promptly take
all actions necessary to make each filing, including, without limitation, any
supplemental filing, which either of them may be required to make with any
Governmental Agency as a condition to or consequence of the consummation of
the transactions contemplated by this Agreement or any Related Document,
including any customer notices required by a Governmental Agency, and the
other party hereto shall use its best efforts to assist in making such
required filings. The Bank and Sellers shall cooperate with Buyer to enable
Buyer to take such actions as may be reasonably necessary to convert the
Bank's Branches to Branches of Purchaser as of the Closing Date (which
conversion will include, without limitation, conversion to Purchaser's
products, services and systems, installation and wiring of equipment and
teller platforms, deposit and loan product notices, forms storage and the
training and orientation of Bank's Employees) ("Pre-Sale Conversion
Activity"), at Buyer's expense and in a manner so as to not unduly interfere
with the normal day-to-day operations of Bank (except as otherwise provided in
this Agreement), provided:
(i) In no event shall Buyer or Purchaser take any action with respect to
any Pre-Sale Conversion Activity that results in a breach or alleged breach of
any contractual obligation of the Bank or any of its subsidiaries or any
violation of federal, state, or local law.
(ii) Buyer and Purchaser agree that no consent has been given or will be
given to any Pre-Sale Conversion Activity which cannot be unwound or restored
to substantially the same condition as in effect prior to the commencement of
the Pre-Sale Conversion Activity.
11.13 Installation of Systems, etc. Following receipt of all
Required Regulatory Approvals, the Purchaser shall be entitled to install
signs and other equipment and systems, at the Purchaser's expense (including
any Taxes and costs and expenses related thereto), on such of the Bank's
premises as the Purchaser shall determine with the consent of the Bank (which
consent shall not unreasonably be withheld), provided that Bank's personnel
shall monitor and use reasonable efforts to assist with all such installations
and replacements of existing signs, equipment, and systems, and provided,
further, that the installation and replacement of signs, equipment, and
systems shall be effected in a manner that does not disrupt the operations of
the Bank and complies with all applicable laws. None of the persons
installing or replacing such signs, equipment, and systems shall be deemed to
be employees of or under the control of the Bank, and the Purchaser shall
indemnify the Sellers from and against any Losses arising out of or related to
(i) such installation and replacement, or (ii) any such signs, equipment,
and systems. If this Agreement shall be terminated prior to the consummation
of the transactions contemplated hereby, the Purchaser shall remove any signs,
equipment, and systems that it has installed pursuant to this Section 11.13.
Such removal shall be effected on the instructions of the Bank, and at the
Purchaser's sole expense (including any Taxes and costs and expenses related
thereto), except that if the termination of this Agreement results solely from
a breach by the Bank of its obligations hereunder, all expenses relating to
such removal shall be for the Bank's account.
11.14 Austin Community Development Corporation. Buyer shall cause
Purchaser to make a bona fide offer to purchase from Realty Corp its shares of
stock at its book value in ACDC. Subject to and contingent on the receipt of
all necessary consents and any buy-sell arrangements applicable to such
shares, Buyer shall cause Purchaser and Bank shall cause Realty Corp to enter
into an agreement to sell such stock to Purchaser as of the Closing Date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
CLUB CORPORATION INTERNATIONAL
By _________________________________
Its _________________________________
FIRST FEDERAL FINANCIAL CORPORATION
By _________________________________
Its _________________________________
FRANKLIN FEDERAL BANCORP,
A Federal Savings Bank
By _________________________________
Its _________________________________
NORWEST CORPORATION
By _________________________________
Its _________________________________
<PAGE>
EXHIBIT A
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT made as of __________, 19__ by _________________, an
__________ corporation (the "Purchaser").
WHEREAS, Norwest Corporation has entered into an Agreement, dated as of
_______________, 1996 (the "Purchase Agreement"), among CLUB CORPORATION,
INTERNATIONAL, a Nevada corporation ("Parent"), FIRST FEDERAL FINANCIAL
CORPORATION, a Texas corporation ("FFFC"), and FRANKLIN FEDERAL BANCORP, a
federal savings bank (the "Bank"), which Purchase Agreement provides, inter
alia, for the sale to the Purchaser of the Purchased Assets (as defined in the
Purchase Agreement) and the due execution and delivery of this Assumption
Agreement by the Purchaser at the Closing (as defined in the Purchase
Agreement);
NOW, THEREFORE, the Purchaser hereby agrees as follows:
1. Definitions. Any capitalized term used herein which is not defined
herein but is defined in the Purchase Agreement shall have the meaning
specified in the Purchase Agreement.
2. Assumption. The Purchaser hereby assumes and agrees to pay and
discharge in accordance with their terms the Assumed Liabilities. With
respect to any legal, administrative, arbitral or other proceeding, claim,
action or governmental or regulatory investigation of any nature against or
affecting Bank or any of its properties or assets existing on the date of this
Assumption Agreement or subsequently brought or threatened with respect to or
arising out of, or alleged to be with respect to or arising out of, actions
taken or not taken prior to the date of this Assumption Agreement, other than
with respect to the Retained Liabilities, the Purchaser shall defend and hold
Bank and Sellers harmless.
3. Further Assurances. The Purchaser shall, from time to time after the
delivery of this Agreement, at the Bank's request and without further
consideration, take all steps reasonably necessary to assume the Assumed
Liabilities, and shall execute and deliver such other instruments of
assumption and take such action as the Bank or any applicable third party may
reasonably require more effectively to assume the Assumed Liabilities.
4. Notices. Any notice, request or other document to be given with
respect hereto shall be given in the manner specified in Section 11.6 of the
Purchase Agreement.
5. Severability. If any provision of this Assumption Agreement shall be
declared by any court of competent jurisdiction to be illegal or
unenforceable, the other provisions shall not be affected, but shall remain in
full force and effect.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the Purchaser has caused this Assumption Agreement to be
executed by its duly authorized officer as of the day and year first above
written.
By: ___________________________
Its: ___________________________
<PAGE>
EXHIBIT B
BILL OF SALE
BILL OF SALE made as of __________, 19__ by FRANKLIN FEDERAL BANCORP, a
federal savings bank (the "Bank").
WHEREAS, the Bank has entered into an Agreement, dated as of ________________,
1996 (the "Purchase Agreement"), among the Bank, Norwest Corporation
("Norwest") and others, which Purchase Agreement provides, inter alia, for the
sale by the Bank to ______________________, a wholly-owned bank or thrift
subsidiary of Norwest (the "Purchaser") of the Purchased Assets (as defined in
the Purchase Agreement) and the due execution and delivery of this Bill of
Sale by the Bank to the Purchaser at the Closing (as defined in the Purchase
Agreement);
NOW, THEREFORE, the Bank hereby agrees as follows:
1. Definitions. Any capitalized term used herein which is not defined
herein but is defined in the Purchase Agreement shall have the meaning
specified in the Purchase Agreement.
2. Transfer of the Purchased Assets. The Bank hereby sells, conveys,
assigns, transfers and delivers to the Purchaser, its successors and assigns,
all of the Bank's right, title and interest in and to the Purchased Assets, to
have and to hold, and all of the Purchased Assets are hereby sold, conveyed,
assigned, transferred and delivered to the Purchaser, its successors and
assigns, forever. The only representations and warranties made in connection
with this Bill of Sale are those expressly set forth in, and subject to the
terms of, the Purchase Agreement.
3. Further Assurances. The Bank shall, from time to time after the
delivery of this Bill of Sale, at the Purchaser's request and without further
consideration, take all steps reasonably necessary to put the Purchaser, or
its successors or assigns, in actual possession and control of the Purchased
Assets, and shall execute and deliver such other instruments of conveyance and
transfer, consents, bills of sale, assignments, releases, powers of attorney
and assurances and take such action as the Purchaser may reasonably require
more effectively to sell, convey, assign, transfer and deliver the Purchased
Assets.
4. Notices. Any notice, request or other document to be given with
respect hereto shall be given in the manner specified in Section 11.6 of the
Purchase Agreement.
5. Severability. If any provision of this Bill of Sale shall be
declared by any court of competent jurisdiction to be illegal or
unenforceable, the other provisions shall not be affected, but shall remain in
full force and effect.
6. Governing Law. This Bill of Sale shall be governed by and construed
in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the Bank has caused this Bill of Sale to be executed by
its duly authorized officer as of the day and year first above written.
FRANKLIN FEDERAL BANCORP
By ___________________________
Its ___________________________
<PAGE>
EXHIBIT C
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT, dated as of ___________, 199_, among CLUB
CORPORATION INTERNATIONAL, a Nevada corporation ("CLUB"), FIRST FEDERAL
FINANCIAL CORPORATION, a Texas corporation ("FFFC"), FRANKLIN FEDERAL BANCORP,
a Federal Savings Bank (the "BANK") (collectively, the "SELLERS"), NORWEST
CORPORATION, a Delaware corporation ("PARENT"), and [NORWEST BANK TEXAS], a
___________ association ("PURCHASER").
WHEREAS, the Sellers, the Parent, and the Purchaser have entered into an Asset
Purchase Agreement, dated as of ___________, 199_ (the "Asset Purchase
Agreement"), providing for the acquisition by the Purchaser of beneficial
ownership of certain of the assets, subject to certain of the liabilities, of
the Bank; and
WHEREAS, in order to induce the Parent and the Purchaser to enter into the
Asset Purchase Agreement and to consummate the transactions contemplated
thereby, the Sellers are willing to agree, on the terms and conditions
hereinafter set forth, to refrain from competing in certain respects with the
business transferred to the Purchaser for the period of time specified herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and in the Asset Purchase Agreement, the parties hereby agree
as follows:
1. Confidentiality. Each of the Sellers acknowledge that as the owner
(or affiliate of the owner) of the business being transferred to the Purchaser
(the "Business"), it has had, and may now have, access to proprietary
confidential information obtained from or through the Business or its
operations (and not subsequent to the date hereof (i) developed
independently, (ii) available to others in the industry or generally known to
the public other than as a result of a disclosure not permitted hereunder, or
(iii) lawfully acquired from a third party who is not obligated to the
Purchaser to maintain such information in confidence) that directly relates to
the Business ("Confidential Information"). This information includes, but is
not limited to, information regarding the customers (including customer
lists), marketing strategies and/or plans of the Business, its financial
plans, key personnel, including their compensation, and credit and customer
information. During the period beginning on the date hereof, the Sellers
shall not (nor shall the Sellers permit any of its affiliates, or any of their
respective directors, officers, employees, or agents to) disclose to any
person any Confidential Information, except (A) with the prior written
consent of the Purchaser, (B) information required to be disclosed by
judicial or administrative process, or, in the opinion of the Seller's
counsel, by other requirements of law, and (C) information required to be
disclosed in connection with the performance by the Sellers or any of their
affiliates of their respective obligations under the Asset Purchase Agreement
or any of the Related Documents contemplated thereby. Nothing contained in
this Section 1 shall prevent the Sellers or their affiliates from using any
Confidential Information in connection with their existing or future
businesses, subject to the restrictions contained in Section 2 hereof;
provided that Sellers agree that neither they nor their affiliates will use
any customer list of the Bank for the purposes of solicitation of customers.
2. Agreements Not to Compete. Each of the Sellers agree that during
the period ending on the second anniversary of the date of this Agreement,
Sellers nor any other entity of which the Sellers owns, directly or
indirectly, a majority of the voting stock or other similar equity interests
(collectively, the "Affiliates") will not engage in the business of banking in
any city in which Bank currently operates an office and will not acquire any
corporation or other entity or any assets or business if, as a result of such
acquisition, such Affiliate would own or control an office in Texas in any
city in which the Bank currently conducts the business of banking.
3. Entire Agreement; Modifications. This Agreement contains the entire
agreement among the parties hereto with respect to the matters herein set
forth and may not be modified, amended, or otherwise changed orally, but only
by agreement, in writing, signed by each party hereto. The provision of this
Agreement shall supersede any conflicting provisions of any other agreement or
understanding between Sellers and the Parent.
4. Remedies.
(a) The parties agree and acknowledge that the rights and obligations set
forth under this Agreement are of a unique and special nature and that the
Parent and the Purchaser are, therefore, without an adequate legal remedy in
the event of any violation of the covenants set forth in this Agreement by
Sellers or any of their respective affiliates. The parties, therefore, agree
that the covenants made by Sellers under this Agreement shall be specifically
enforceable in equity in addition to all other rights and remedies, at law or
in equity, that may be available to the other party or parties to this
Agreement.
(b) No right, power, or remedy herein conferred upon or reserved to the
Parent and the Purchaser is intended to be exclusive of any other right,
power, or remedy or remedies, and each and every right, power, and remedy of
the Parent and the Purchaser pursuant to this Agreement or now or hereafter
existing at law or in equity or by statute or otherwise, shall, to the extent
permitted by law, be cumulative and concurrent and shall be in addition to
every other right, power, or remedy pursuant to this Agreement or now or
hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Parent and the Purchaser of any
one or more of such rights, powers, or remedies shall not preclude the
simultaneous or later exercise by the Parent and the Purchaser of any or all
such other rights, powers, or remedies.
5. Notices. All notices, requests, and demands to or upon the
respective parties hereto shall be in writing, including by telecopy, and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made (a) if delivery by hand (including by courier), when delivered,
(b) in the case of mail, three business days after deposit in United States
first class mail, postage prepaid, and (c) in the case of telecopy notice,
when receipt has been confirmed by the transmitting telecopy operator. In
each case, notice shall be sent to the address of the parties to be notified,
as follows, or to such other address as may be hereafter designated by the
respective parties hereto in accordance with these notice provisions:
If to the Purchaser or the Parent, to:
Norwest Corporation
Sixth and Marquette
Minneapolis, Minnesota 55479-1026
Attention: Secretary
If to Sellers, to:
_________________________
_________________________
_________________________
_________________________
and:
_________________________
_________________________
_________________________
_________________________
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Texas.
7. Severability. If any provision of this Agreement shall be declared
by any court of competent jurisdiction to be illegal or unenforceable, the
other provisions shall not be affected, but shall remain in full force and
effect.
8. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
10. Assignment; Successors and Assigns. This Agreement shall be binding
upon, inure to the benefits of, and be enforceable by, the respective
successors and assigns of the parties hereto; provided, however, that the
obligations of any party hereunder may not be assigned without the consent of
the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.
CLUB CORPORATION, INTERNATIONAL
By _________________________
Its _________________________
FIRST FEDERAL FINANCIAL CORPORATION
By _________________________
Its _________________________
FRANKLIN FEDERAL BANCORP
By _________________________
Its _________________________
[NORWEST BANK TEXAS]
By _________________________
Its _________________________
NORWEST CORPORATION
By _________________________
Its _________________________
<PAGE>
EXHIBIT D
MATTERS TO BE COVERED IN OPINION OF COUNSEL TO SELLERS
(SUBJECT TO CUSTOMARY QUALIFICATIONS)
a. The Agreement and Related Documents have been duly authorized by all
necessary corporate action on the part of Sellers and have been duly executed
and delivered by Sellers. The Agreement constitutes a legally valid and
binding obligation of each of Sellers, enforceable against each of them in
accordance with its terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to or affecting
purchasers' or creditors' rights generally (including rights of purchasers or
creditors of depository or insured institutions), and except that the
enforceability of the Agreement is subject to the effect of general principles
of equity including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the possible unavailability
of specific performance or injunctive relief, regardless of whether considered
in a proceeding in equity or at law.
b. The execution and delivery by Sellers of, and performance on or before
the date of the opinion of their respective obligations under, the Agreement
and Related Documents do not (i) violate the articles of incorporation or
bylaws of Sellers or the charter or bylaws of Bank, (ii) violate any Texas or
federal statute, rule, or regulation that such counsel would, in its
experience, reasonably recognize as directly applicable to Sellers or to
transactions of the type contemplated by the Agreement and Related Documents,
(iii) violate, breach or result in a default under, result in the creation or
imposition of any Encumbrance upon any of the assets of Sellers or result in
the ability to accelerate, any Material Contract (after receipt of all
consents referred to in Schedule __), or (iv) breach or otherwise violate
any existing obligation of Sellers under any order, judgment, or decree of any
court or governmental authority binding on Sellers and identified to such
counsel by Sellers in a certificate, a copy of which will be delivered with
the opinion. Such counsel need express no opinion with respect to the effect
of the performance by Sellers of their obligations in the Agreement or Sellers
compliance with financial covenants contained in any of the Material Contracts
referred to above.
c. All Requisite Regulatory Approvals required to be obtained by Sellers
in order to permit the consummation of the Purchase and Assumption have been
obtained and are in full force and effect, and no other orders, consents,
permits, or approvals of any Texas or federal governmental authority that such
counsel would, in its experience, reasonably recognize as directly applicable
to Sellers or to transactions of the type contemplated by the Agreement and
Related Documents are required to be obtained by Sellers for the execution and
delivery by Sellers of, and performance on or before the date of the opinion
of their respective obligations under, the Agreement and Related Documents.
d. Each of Sellers has been duly incorporated and is validly existing in
good standing under the laws of the State of Texas and Nevada, respectively,
with corporate power and corporate authority to enter into and consummate the
transactions contemplated by the Agreement.
e. The Bank has been duly incorporated and is validly existing in good
standing under the laws of the United States and has been authorized by the
Office of Thrift Supervision to conduct the business of a federal savings
bank; the Bank has the corporate power and corporate authority to enter into
and consummate the transactions contemplated by the Agreement and the Purchase
and Assumption; the Bank is a member in good standing of the Federal Home Loan
Bank of Dallas and the savings accounts of the depositors in the Bank are
insured by the Savings Association Insurance Fund of the FDIC in accordance
with the rules and regulations of the FDIC.
<PAGE>
EXHIBIT E
MATTERS TO BE COVERED BY OPINION OF COUNSEL TO BUYER
(SUBJECT TO CUSTOMARY QUALIFICATIONS)
a. Buyer has been duly incorporated and is validly existing under the laws
of the State of Delaware, with corporate power and corporate authority to
enter into and consummate the transactions contemplated by the Agreement.
Purchaser has been duly incorporated and is validly existing under the laws of
the United States [Texas] with corporate authority to consummate the
transaction contemplated by the Agreement.
b. The Agreement and the Related Documents have been duly authorized by
all necessary corporate action on the part of Buyer and Purchaser and have
been duly executed and delivered by Buyer and Purchaser.
c. The execution and delivery by Buyer and Purchaser of, and performance
on or before the date hereof of their obligations under, the Agreement and
Related Documents do not (i) violate the respective certificate of
incorporation or charter or bylaws of Buyer and Purchaser, (ii) violate any
state or federal statute, rule, or regulation that such counsel would, in its
experience, reasonably recognize as directly applicable to Buyer and Purchaser
or to transactions of the type contemplated by the Agreement and Related
Documents, or (iii) breach or otherwise violate any existing obligation of
Buyer and Purchaser under any order, judgment or decree of any court or
governmental authority binding on Buyer and Purchaser and known to such
counsel upon due inquiry of appropriate officers of Buyer and Purchaser.
d. All Requisite Regulatory Approvals required to be obtained by Buyer and
Purchaser in order to permit the consummation of the Purchase and Assumption
have been obtained and are in full force and effect, and no other orders,
consents, permits or approvals of any state or federal governmental authority
that such counsel would, in its experience, reasonably recognize as directly
applicable to Buyer and Purchaser or to transactions of the type contemplated
by the Agreement and Related Documents are required to be obtained by Buyer
and Purchaser for the execution and delivery by Buyer and Purchaser of, and
performance on or before the date of the opinion of its obligations under, the
Agreement and Related Documents.
<PAGE>
Franklin Federal Bancorp
[Letterhead]
August 8, 1996
Mr. Kirk Simpson
Norwest Corporation
Norwest Center
6th and Marquette
Minneapolis, MN 55479
Dear Kirk,
This letter will serve as a supplement to the Purchase and Assumption
Agreement dated as of August 7, 1996, by and between Club Corporation
International, First Federal Financial Corporation, Franklin Federal Bancorp,
A Federal Savings Bank ("Franklin"), and Norwest Corporation (the
"Agreement"). Capitalized terms used in this letter and not otherwise defined
shall have the meanings given to them in the Agreement.
As you are aware, Franklin is considering making three loans for which
adequate information to enable Buyer to evaluate such loans was not yet
available when the Agreement was executed; accordingly, Buyer did not agree to
include these loans as "pipeline loans" on Schedule 6.2(p) of the Agreement.
The loans in question are: (1) a commercial land development loan in the
approximate principal amount of $3,175,000 to JPI Investment Company, L.P.;
(2) a construction and mini-perm loan for three speculative industrial
buildings in the approximate principal amount of $4,400,000 to Barshop &
Oles/Larry Parker: and (3) a construction and mini-perm loan for 50% of the
construction cost for speculative office buildings in the approximate
principal amount of $6,000,000 to Frank Navarro. If Franklin makes any of
these loans and if Buyer does not provide its consent thereto upon a request
for consent by Franklin pursuant to Section 6.2(p) of the Agreement, then the
loans shall be deemed to be Excluded Assets and will not be sold or otherwise
transferred to Buyer at the Closing.
Very truly yours,
/s/ Leonard E. Huber
Leonard E. Huber
President and Chief Executive Officer
<PAGE>
Mr. Kirk Simpson
August 8, 1996
Page 2
ACKNOWLEDGED AND AGREED TO:
Norwest Corporation:
By: ___________________________
Title ___________________________
Club Corporation International
By: /s/James P. McCoy
Title: Chief Financial Officer
First Federal Financial Corporation
By: /s/ James P. McCoy
Title: President
<TABLE>
<CAPTION>
Schedule 1.1
Assumed Liabilities
As of June 30, 1996
<S> <C> <C>
GL # DESCRIPTION 06/30/96
LIABILITIES
DEPOSITS
NON-CERTIFICATE ACCOUNTS
INT BEAR TRANS ACCOUNTS
201000 FRANKLIN FED PLUS 24,307,674.48
201010 FRANKLIN FED CLUB 1,861,226.53
201020 FRANKLIN FED FREEDOM 26,415,223.33
201030 COMMERCIAL I/B CHECKING 5,334,870.76
---------------
TOT INT BEAR TRANSACTION 57,918,995.10
NON-INT BEAR TRANSACTION
205000 CHECKING ACCT-PERS 13,273,721.58
205050 CHECKING ACCT-COMM 39,055,127.08
205100 FRANKLIN CHECKING 2,454.47
205150 FMCC CUSTODIAL P & I 0.01
205160 FMCC CLEARING ACCTS 17,334.46
205200 TT&L REMITTANCE 198,111.53
---------------
TOT NON-INT TRANSACTION 52,546,749.13
---------------
TOTAL TRANSACTION 110,465,744.23
SAVINGS ACCOUNTS
MONEY MARKET DEP ACCOUNTS
210000 MONEY MARKET ACCTS 123,438,050.18
210050 MONEY MKT IRA/KEOGH 2,994,455.24
210075 COMMERCIAL MONEY MARKET 12,617,721.03
---------------
TOT MONEY MKT DEPOSITS 139,050,226.45
PASSBOOK ACCOUNTS
221000 STATEMENT SAVINGS 20,589,175.53
221050 YNG SAVERS STMT SVGS 2,521,953.16
221100 TIME DEP MATURITIES 2,126,532.40
---------------
TOTAL PASSBOOK ACCOUNTS 25,237,661.09
---------------
TOTAL SAVINGS ACCOUNTS 164,287,887.54
---------------
TOTAL NON-CERTIFICATE DEPOSITS 274,753,631.77
FIXED MATURITY DEPOSITS
FIXED RATE CERTIFICATES
230000 FIXED RATE CERTIFICATES 257,550,775.29
---------------
TOTAL FIXED RATE CERTIFICATES 257,550,775.29
VARIABLE RATE CERTIFICATES
231000 VARIABLE RATE CERTIFICATES 12,103,732.14
---------------
TOT VARIABLE RATE CERTIFICATES 12,103,732.14
---------------
TOTAL CERTIFICATES 269,654,507.43
---------------
TOTAL DEPOSITS 544,408,139.20
BORROWED MONEY
OTHER BORROWED MONEY
252030 CUSTOMER REV REPOS 13,129,821.87
---------------
TOT OTH BORROWED MONEY 13,129,821.87
---------------
TOTAL BORROWED MONEY 13,129,821.87
OTHER LIABILITIES
ACCRUED INT PAYABLE
270000 DDA SYSTEM 200,275.76
270010 SAVINGS SYSTEM 1,560,050.21
272030 A/I-CUST REV REPO 83.67
---------------
TOTAL ACCRUED INT 1,760,409.64
ACCOUNTS PAYABLE
281020 ACCR RENTAL EXP 672,118.19
281075 ACCR CURR MONTH EXP 253,502.94
281080 ACCR OTHER EXPENSES 29,462.25
281100 WH EMP PAYROLL TAXES (3.54)
281105 WH EMP SOC SEC TAXES (41.27)
281111 WH EMP 125 ADDL. 9,329.52
281120 WH EMP CAP ACCUM PLN 87.83
281125 WH EMP CHARITY FUNDS 506.30
281130 WH INCOME TAXES-DDA 199.70
281135 WH INCOME TAXES-CD 693.63
281200 BRANCH CHECKS 2,753,819.34
281210 LN DISBURSEMENT CKS 1,111,760.42
281225 INTEREST CHECKS 154,024.49
281230 INTEREST CKS CLRNG 1,579.29
281235 EXPENSE CHECKS 408,758.49
281237 GROUP BENEFIT CHECKS 11,837.76
281238 125 ADDL DISBRSMTS 1,424.45
281250 PAYROLL CHECKS 3,379.33
281255 COV LN DISBURSEMENT 19,234.90
281257 OTHER C/A DISB CKS (429.33)
281330 IOLTA REMITTANCES 1,429.58
281355 A.I.M. CLEARING 20,601.64
281383 VSI TA PAYABLE 5,107.66
281400 ATM SETTLEMENT 1,351.87
---------------
TOTAL ACCOUNTS PAY 5,459,735.44
ADV PAYABLE TO BORROWERS
282000 ADVANCE PAYMENTS TO BWRS 1,284,367.04
282050 FFB PERSONAL ESC-C/L 960,383.70
282060 FFB PERSONAL ESC-I/L (844.37)
---------------
TOT ADV PAYABLE TO BORROWERS 2,243,906.37
OTHER LIABILITIES
288015 REO PROP FUNDS-HLDNG 7,572.39
288020 A-H INS PREMIUM (2.61)
288025 CRED LIFE & ACC PREM 2,409.10
288050 TENANT SECUR DEPOSITS 2,942.21
288065 TERM BANK-A/P 105,386.57
288068 DEALER DRAFTS OUTSTANDING (236,466.97)
288090 COMMITMENT FEES 133,507.65
288095 LOC COMMITMENT FEES 77,256.59
---------------
TOTAL OTHER LIABILITIES 92,604.93
---------------
TOTAL OTHER LIABILITIES 9,556,656.38
---------------
TOTAL LIABILITIES 567,094,617.45
</TABLE>
<PAGE>
SCHEDULE 1.1(A)
EMPLOYEE BENEFIT PLANS
FFB FLEXIBLE BENEFITS PLAN
A salary reduction program which allows the employee portion of group medical
and dental insurance premiums to be made on a pre-tax basis. A qualified
cafeteria plan under IRS Code Section 125.
TPA: First Integrated Health
FFB SUPPLEMENTAL HEALTH CARE PLAN
A Section 125 qualified cafeteria plan allowing employees to receive
reimbursements for out-of-pocket health care expenses from a pre-tax fund
established with employee contributions.
TPA: First Integrated Health
FFB DEPENDENT CARE PLAN
A Section 125 qualified cafeteria plan allowing employees to receive
reimbursements for work-related dependent care expenses from a pre-tax fund
established with employee contributions.
TPA: First Integrated Health
FFB EMPLOYEE ASSISTANCE PROGRAM
Confidential professional counseling services to assist employees and
dependents with health, behavioral, and/or social issues. Fully company
funded.
Carrier: Behavioral Health, Inc.
FFB 401K PLAN
A qualified defined contribution retirement savings plan. Employees may
contribute up to 10% of their base salary on a pre-tax basis; the company
match equals 100% up to 3% of base salary.
Trustee: Fidelity Investments
FFB GROUP TERM LIFE INSURANCE PLAN
Basic group life insurance covering all employees which provides a death
benefit equal to two times base annual salary. Fully company funded.
Carrier: MetLife
FFB SUPPLEMENTAL TERM LIFE INSURANCE PLAN
Optional group term life insurance covering employees and dependents.
Employees may elect to be covered up to an additional two times base annual
salary, spouses may be covered up to 50% of the employee's eligible coverage,
and children may be covered up to $10,000. Employee funded.
Carrier: MetLife
FFB ACCIDENTAL DEATH AND DISMEMBERMENT PLAN
Additional death benefit covering all employees which provides for two times
the basic group life insurance benefit if the cause of death is accidental.
Benefits are also provided for various accidental losses such as hand, foot,
eyesight, or hearing. Fully company funded.
Carrier: MetLife
FFB UNIFIED DISABILITY PLAN
Short-term disability benefit of 66% of base salary up to 13 weeks covering
short-term illnesses and injuries of employees. Long-term disability benefit
of 60% of base salary up to age 65. Fully company funded.
Carrier: MetLife
FFB UNIFIED DISABILITY PLAN (OFFICERS)
Short-term disability benefit of 66% of salary up to 13 weeks covering
short-term illnesses and injuries. Long-term disability benefit of 70% of
base salary up to age 65 for officers elected after January 1, 1996. Fully
company funded.
Carrier: MetLife
FFB LONG-TERM DISABILITY INCOME PLAN
Long-term disability benefit equal to 60% of salary up to age 65. (Please
note: Plan terminated on December 31, 1995).
Carrier: UNUM
FFB LONG-TERM DISABILITY INCOME PLAN (OFFICERS)
Individual long-term disability benefit equal to 20% of base salary up to age
65. Officers elected prior to January 1, 1996 are covered. Fully company
funded.
Carrier: UNUM
FFB GROUP HEALTH PLAN (HMO)
Major medical insurance coverage, including prescriptions and vision care,
provided through a Preferred Provider Organization. Out-of-network
(indemnity) benefits also available. Coverage options include Employee Only,
Employee & Spouse, Employee & Children, and Employee & Family. Employee pays
20-30% of premium, company funds 70-80% of premium.
Carrier: Prudential (PruCare)
FFB GROUP HEALTH PLAN (PPO)
Major medical insurance coverage, including prescriptions and vision care,
provided through a
Preferred Provider Organization. Out-of-network (indemnity) benefits also
available. Coverage options include Employee Only, Employee & Spouse,
Employee & Children, and Employee & Family. Employee pays 20-30% of premium,
company funds 70-80% of premium.
Carrier: Prudential (PruPlus)
FFB GROUP DENTAL PLAN (DMO, TRADITIONAL)
Basic, major and restorative dental insurance provided through either a Dental
Maintenance Organization or a traditional indemnity option. Coverage options
include Employee Only, Employee & Spouse, Employee & Children, and Employee &
Family. Employee pays 14-19% of premium, company funds 81-86% of premium.
Carrier: Prudential
FFB EDUCATION ASSISTANCE PROGRAM
Education reimbursement program assisting employees to enhance their skills
through college courses, professional examinations, and training workshops and
seminars. All employees with a minimum of 90 days employment are eligible.
Fully company funded and administered.
FFB PERFORMANCE BONUS PLAN
A bonus pay program designed to motivate employees to maximize productivity
and exceed the banking segment profit plan. All employees with a minimum of
six months employment are eligible. The bonus pay may equal up to four weeks
salary. Fully company funded and administered.
FFB SALARY CONTINUATION PLAN
A severance pay plan providing salary continuation in lieu of advance notice
upon involuntary termination from employment due to a position elimination or
reduction in work force. Pay equals one week salary per $5,000 of annual base
salary. Fully company funded and administered.
FFB ENHANCED SEVERANCE PLAN
A severance pay program which provides employees with double the Bank's
existing Salary Continuation benefits. Employees covered are those
involuntarily terminated due to the sale of the Bank who do not receive an
offer of employment in the Austin area from the acquiring institution
comparable to their current position in terms of hours and pay. Severance pay
equals two weeks salary per $5,000 of annual base salary. Fully company
funded and administered.
FFB CRITICAL EMPLOYEE INCENTIVE PLAN
An incentive pay program developed to encourage selected employees to remain
with the Bank up to the close of its sale. Employees covered are in critical
functions and positions essential to "keeping the door open." This incentive
will be paid to the employees whether or not they have employment with the
acquiring institution. The incentive pay equals one week salary per $5,000 of
annual base salary. Fully company funded and administered.
FFB VALUE ADDED EMPLOYEE INCENTIVE PLAN
An incentive pay program designed to encourage selected employees to
positively influence the value of the Bank up to the close of its sale. This
incentive will be paid to the employees whether or not they have employment
with the acquiring institution. The incentive pay which is based on net sales
proceeds may be as much as 114.29% of one week salary per $5,000 of annual
base salary. Fully company funded and administered.
<PAGE>
SCHEDULE 1.1(B)
BANKING CENTERS
Airport Banking Center Round Rock Banking Center
5900 Airport Boulevard 505 Round Rock Avenue
Austin, TX 78752 Round Rock, TX 78664
Downtown Banking Center South Congress Banking Center
111 Congress Avenue 2336 South Congress Avenue
Austin, TX 78701 Austin, TX 78704
Far West Banking Center Tarrytown Banking Center
3601 Far West Boulevard 3105 Windsor
Austin, TX 78731 Austin, TX 78703
Jefferson Banking Center The Money Market at Fiesta
3720 Jefferson 3909 North IH-35
Austin, TX 78731 Austin, TX 78722
Lake Creek Banking Center Westlake Banking Center
13729 Research Boulevard 3738 Bee Caves Road
Austin, TX 78750 Austin, TX 78746
Loan Production Offices - There are none.
Other Banking Offices - There are none
ATM LOCATIONS
Airport Banking Center South Congress Banking Center
5900 Airport Boulevard 2336 South Congress Avenue
Austin, TX 78752 Austin, TX 78704
(outdoor) (outdoor)
Downtown Banking Center Tarrytown Banking Center
111 Congress Avenue Austin, TX 78703
Austin, TX 78701 Austin, TX 78703
(1 outdoor and 1 indoor) (outdoor)
Far West Banking Center The Money Market at Fiesta
3601 Far West Boulevard 3903 North IH-35
Austin, TX 78731 Austin, TX 78722
(outdoor) (indoor)
Lake Creek Banking Center Westlake Banking Center
13729 Research Boulevard 3738 Bee Caves Road
Austin, TX 78750 Austin, TX 78746
(outdoor) (outdoor)
Round Rock Banking Center
505 Round Rock Avenue
Round Rock, TX 78664
(outdoor)
<PAGE>
Schedule 1.1(c)
UNRECORDED ASSETS
(i) Refunds due upon amendment of Texas corporate franchise tax reports
for tax years ending 1991, 1992, and 1994; expected to total $150,900
(ii) Claims due from third parties.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1.1(D)
EXCLUDED CONTRACTS
<C> <S>
1 Indemnity Agreement dated May 21, 1990 by First Federal
Financial Corporation as 100% stockholders of Franklin
Federal Bancorp, A Federal Savings Bank
2 Master Lease Agreement dated March 22, 1993 between Kennedy
Welding Supply & Equipment Corporation and Franklin Federal
Bancorp
3 Letter dated May 5, 1993 from Liddell, Sapp, Zivley, Hill &
LaBoon, LLP to Franklin Federal Bancorp, A Federal Savings
Bank
4 Credit Card Processing Agreement dated September 1993
between First USA Merchant Services, Inc. and Franklin Federal
Bancorp, A Federal Savings Bank
5 Dealer Agreement dated February 25, 1993 between Prestige
Chrysler Plymouth, Inc. and Franklin Federal Bancorp, A Federal
Savings Bank
6 Administrator Services Agreement dated May 1, 1991 between
Franklin Securities Corporation and Franklin Federal Bancorp, A
Federal Savings Bank
7 Insurance Services Agreement dated May 28, 1991 between Great
Northern Insured Annuity Corporation and Franklin Securities
Corporation
8 Securities Services Agreement dated June 12, 1991 between GNA
Securities, Inc. and Franklin Securities Corporation
9 Marketing Agreement dated December 1, 1995 between Great
Northern Insured Annuity Corporation and Franklin Insurance
Services, Inc.
10 Indirect Lending Services Agreement dated March 1, 1996
between Ultra Funding Ltd., a Texas limited partnership and
Franklin Federal Bancorp, A Federal Savings Bank
11 Confidentiality Agreement between Ultra Funding, Ltd. and
Franklin Federal Bancorp, A Federal Savings Bank
12 Proposal and Acceptance dated March 13, 1996 between T.L.
Thompson & Associates, Inc. and Franklin Federal Bancorp, A
Federal Savings Bank
13 Agreement dated April 19, 1994 between First Equity Corp. and
Franklin Federal Bancorp, A Federal Savings Bank
14 Purchase Agreement dated October 20, 1994 between John H.
Harland Company and Franklin Federal Bancorp, A Federal
Savings Bank
15 Amended and Restated Employment Agreement dated August 24,
1994 between Franklin Federal Bancorp, A Federal Savings
Bank, and Leonard E. Huber.
16 Bloomberg Agreement dated January 17, 1990 between
Bloomberg L.P. and Franklin Federal Bancorp, A Federal Savings
Bank
17 Tandem Program Service Agreements (2) dated July 29, 1993
between National Revenue Corporation and Franklin Federal
Bancorp, A Federal Savings Bank (System #s 2586R and 4563R)
18 Correspondent Loan Purchase Agreement dated October 13, 1994
between BancBoston Mortgage Corporation and Franklin Federal
Bancorp, A Federal Savings Bank
19 Wholesale Correspondent Agreement dated November 10, 1994
between Home Financing Unlimited, Inc. and Franklin Federal
Bancorp, A Federal Savings Bank
20 Small Business Scoring Service - Credit Desk License Agreement
dated August 29, 1995 between Fair, Isaac and Company, Inc.
and Franklin Federal Bancorp, A Federal Savings Bank
21 Cash Advance Program Participation Agreement dated February
25, 1994 between Discover Card Services, Inc. and Franklin
Federal Bancorp, A Federal Savings Bank
22 Electronic Data Processing Services Agreement dated January 1,
1992 between Computer Power, Inc. and FFB Mortgage Capital
Corporation
23 Electronic Data Processing Services Agreement dated January 1,
1992 between Computer Power, Inc. and Franklin Federal
Bancorp, A Federal Savings Bank
24 Associate Agreement for Merchant Processing Services dated
January 16, 1990 between Bank One, Indianapolis, N.A. and
Franklin Federal Bancorp, A Federal Savings Bank
25 Bank Card Associate Agreement dated July 3, 1989 between
Bank One, Indianapolis, N.A. and Franklin Federal Bancorp, A
Federal Savings Bank
26 Commercial Card Correspondent Bank Agreement dated
September 13, 1995 between First USA Financial Services, Inc.
and Franklin Federal Savings Bank
27 Program Security Agreement dated August 24, 1993 between
VISA USA, Inc. and Franklin Federal Bancorp, A Federal
Savings Bank
28 Any Employee Program or Contractual Employment Agreement
with any Employee of Bank (except for the Enhanced Severance
Plan)
29 Any tax sharing or other agreement between Franklin Federal
Bancorp, A Federal Savings, Bank and any affiliate
</TABLE>
<PAGE>
SCHEDULE 1.1(E)
FRANKLIN PLAZA LEASE
LESSOR:
ZML-Franklin Plaza Limited Partnership
LOCATION:
111 Congress Avenue, part of the first floor and all of the second, third and
fourth floors
AREA:
58,432 square feet
RENT:
$14 per square foot per year, plus 11.3% share of operating costs of building
ASSIGNMENT/SUBLETTING:
May be assigned or sublet to affiliate or successor by merger or purchase and
assumption without landlord's consent; up to 13,000 square feet may be sublet
to non-affiliate without landlord's consent; sublease of more than 13,000
square feet requires landlord's consent and gives landlord option to either
terminate lease with respect to space to be sublet or receive 50% of rent in
excess of tenant's rental
OTHER:
(i) Covered parking: one unreserved space per 600 square feet at $41.25
per month, one unreserved space per 2,000 square feet at $63.75 per month, one
executive space per 10,000 square feet;
(ii) Right of first offer for 16,254 square feet on the plaza level
FRANKLIN PLAZA MOTOR BANK LEASE
LESSOR:
ZML-Franklin Plaza Limited Partnership
LOCATION:
Franklin Plaza, Brazos Street and East First Street
AREA:
14,262 square feet
<PAGE>
TERM:
Beginning October, 1992 and continuing until expiration of Franklin Plaza
lease, but may be terminated by either party effective on or after five years
following commencement on 18 months notice
RENt:
No rent for first five years; rent for remaining term to equal property taxes
assessed against property
ASSIGNMENT/SUBLETTING:
Landlord's consent required for assignment or sublease to non-affiliate
<PAGE>
SCHEDULE 1.1(F)
INTELLECTUAL PROPERTY
The Bank believes it has a common law service mark in the words "Franklin
Federal," to describe a financial institution, and in the use of these words
in conjunction with a picture of Ben Franklin or the Franklin Plaza Building.
Computer Applications Licenses also exist.
<PAGE>
<TABLE>
<CAPTION>
Schedule 1.1(g)
INVESTMENT SEGMENT ASSETS
AS OF JUNE 30, 1996
<S> <C> <C>
INVESTMENT DESCRIPTION: CUSIP # BOOK VALUE
- ------------------------------------------------ ---------- ---------------
MORTGAGE BACKED SECURITIES:
U.S. GOVT & AGENCY MORTGAGE POOLS:
FHLMC #M90140 31282UEM5 2,936,262.86
FNMA #50768 313615MR4 152,206.22
FNMA #222999 31369WUY3 316,224.27
FNMA #50915 313615SC1 178,144.11
---------------
TOTAL U.S. GOVT. & AGENCY MORTGAGE POOLS: $ 3,582,837.46
---------------
PRIVATE MORTGAGE POOLS:
GMAC PC 1990-B1-A N/A 1,403,787.52
AHT 1-4 026709AF2 2,059,270.64
SEARS 1988-B1 812375AJ21 75,274.76
SEARS 1988-B1 812375AJ22 28,987.56
PRU HOME 89-9-A1 74434RAU5 254,342.98
RFC 1987-S4 760920AF5 1,327,198.32
---------------
$ 5,148,861.78
---------------
TOTAL MORTGAGE BACKED SECURITIES: $ 8,731,699.24
---------------
COLLATERAL MORTGAGE OBLIGATIONS:
BEAR 1991-1-A 073912AA5 68,798.54
M. MIDLAND 91-1-A7 568282BV8R 112,236.96
RFC 1992-S33-A3 7609203T3 313,495.30
RFC 93-S27-A4 760944PF9 15,289,129.63
CITICORP 1993-11-A 172921E79 12,469,825.87
PRU HOME 93-44-A1 74434TXQ5 15,647,132.42
SAXON 1993-10-A2 805570CV8 18,068,868.26
COUNTRY 1993-C-A 126690JQ0 31,005,635.60
PRU HOME 93 51 A-8 74434TZW0 24,560,653.57
---------------
TOTAL COLLATERAL MORTGAGE OBLIGATIONS: $117,535,776.15
---------------
TOTAL PORTFOLIO: $126,267,475.39
===============
</TABLE>
<PAGE>
SCHEDULE 1.1 (H)
MATERIAL CONTRACTS
CONTRACTS:
1. Data Processing.
Service Agreement by and between Franklin Federal Bancorp, A Federal Savings
Bank and Automatic Data Processing, Inc. and its wholly-owned subsidiary
ADP-BIS, Inc. dated June 30, 1989, including an Addendum by and between Bisys,
Inc. and Franklin Federal Bancorp, A Federal Savings Bank, dated July 1, 1993,
and a Second Addendum between Bisys, Inc. and Franklin Federal Bancorp, A
Federal Saving Bank, dated May 2, 1994.
Annualized June 30, 1996 Payments $1,250,000
2. Item Processing.
Service Agreement between Bisys Document Processing, Inc. and Franklin Federal
Bancorp, A Federal Savings Bank, dated September 1, 1993, as amended by a
First Addendum dated March 1, 1996, and a Second Addendum dated June 3, 1996.
Annualized June 30, 1996 Payments $800,000
3. Off-Site Storage.
Storage and Services Agreement by and between File Box, Inc. and Franklin
Federal Bancorp, A Federal Savings Bank, dated May 6, 1992, and Addendum dated
August 21, 1992.
Annualized June 30, 1996 Payments $108,000
4. Debit Card Processing.
Electronic Funds Transfer Processing Services Agreement by and between
Specialty Network Services, Inc. and Franklin Federal Bancorp, A Federal
Savings Bank, dated January 1, 1994.
Annualized June 30, 1996 Payments $90,000
5. ATM Servicing.
Maintenance Agreement by and between Diebold, Incorporated and Franklin
Federal Bancorp, A Federal Savings Bank, dated January 10, 1996, including
Multi-Year Addendum, Automatic Teller Machine Unaccompanied Response
Supplement, and Supplement to Maintenance Agreement for Subcontracted Service.
Annualized June 30, 1996 Payments $75,000
6. Relational Database.
Software Support Agreement and License Agreement by and between Information
Empowerment Group, Inc. and Franklin Federal Bancorp, A Federal Savings Bank,
dated August 12, 1993.
Annualized June 30, 1996 Payments $65,000
7. Cleaning Services.
Contract by and between Austin All-Services and Franklin Federal Bancorp, A
Federal Savings Bank, dated January 23, 1996.
Annualized June 30, 1996 Payments $56,000
8. Copy Machine Lease.
Lease Agreement by and between American Business Credit Corporation, A Danka
Company, and Franklin Federal Bancorp, A Federal Savings Bank, dated December
14, 1995; and Equipment Maintenance and Supply Annual Agreement by and between
Danka Industries, Inc. and Franklin Federal Bancorp, A Federal Savings Bank.
Annualized June 30, 1996 Payments $52,000
9. Telephone System.
Maintenance Agreement between ICS Telephones, Inc. and Franklin Federal
Bancorp, A Federal Savings Bank, dated February 15, 1996.
Annualized June 30, 1996 Payments $50,000
10. Computer Output Microfilm Service.
Computer Output Microfilm Service Agreement dated September 7, 1990 between
Dataplex Corporation and Franklin Federal Bancorp A Federal Savings Bank.
Annualized June 30, 1996 Payments $46,000
11. Banking Center Security.
Commercial Sales Proposals/Agreements by and between ADT Security Systems,
Southwest, Inc. and Franklin Federal Bancorp, A Federal Savings Bank, for the
various banking center locations, dated from June 26, 1991 and March 6, 1996.
Annualized June 30, 1996 Payments $32,000
12. Landscape Maintenance.
Grounds Maintenance Agreement by and between The Greenhouse and Franklin
Federal Bancorp, A Federal Savings Bank, dated September 8, 1995.
Annualized June 30, 1996 Payments $25,000
PROPERTY LEASES:
13. Franklin Plaza Lease.
Lease Agreement between ZML-Franklin Plaza Limited Partnership,
successor-in-interest to The Travelers Insurance Company and to One Congress
Plaza, Ltd., a Texas limited partnership, (Landlord), and Franklin Federal
Bancorp, A Federal Savings Bank (Tenant), dated October 26, 1989, as amended
by instruments dated September 1, 1990, November 1, 1991, July 1, 1992, June
30, 1993, September 30, 1993, December 30, 1993, and March 16, 1995.
Annualized June 30, 1996 Payments $2,100,000
14. Franklin Plaza Motor Bank Ground Lease.
Lease Agreement by and between ZML-Franklin Plaza Limited Partnership,
successor-in-interest to The Travelers Insurance Company, (Landlord) and
Franklin Federal Bancorp, A Federal Savings Bank (Tenant), dated October 27,
1992.
Annualized June 30, 1996 Payments $0
15. Lake Creek Ground Lease.
Lake Creek Festival Ground Lease by and between Lake Creek Investors, Ltd. and
Franklin Federal Bancorp, A Federal Savings Bank, dated January 28, 1991, and
First Amendment thereto.
Annualized June 30, 1996 Payments $80,500
16. Westlake Hills Lease.
Lease Agreement by and between Protective Life Corporation and Franklin
Federal Bancorp, A Federal Savings Bank, dated June 19, 1991.
Annualized June 30, 1996 Payments $56,000
17. Airport Lease.
Lease Contract by and between Franklin Federal Bancorp, A Federal Savings
Bank, as successor-in-interest to Franklin Federal Savings and Loan
Association of Austin, and Austin Banking Company, dated February 1, 1971.
Annualized June 30, 1996 Payments $41,000
18. Tarrytown Ground Lease.
Ground Lease Agreement by and between Westenfield Development Company and
Franklin Federal Bancorp, A Federal Savings Bank, as successor-in-interest to
Franklin Savings Association, dated June 21, 1986.
Annualized June 30, 1996 Payments $37,400
19. Fiesta Lease.
Sublicense Agreement by and between National Commerce Bank Services, Inc. and
Franklin Federal Bancorp, A Federal Savings Bank, dated January 21, 1993.
Annualized June 30, 1996 Payments $22,500
20. Wal-Mart ATM Agreement.
Automated Teller Machine (ATM) License Agreement by and between Wal-Mart
Stores, Inc. and Franklin Federal Bancorp, A Federal Savings Bank, dated
August 16, 1995.
Annualized June 30, 1996 Payments $9,600
21. Jefferson Ground Lease.
Lease Agreement by and between Emile Jamail, as sublessor, and Franklin
Federal Bancorp, A Federal Savings Bank, as successor-in-interest to Franklin
Savings Association, as sublessee, dated November 7, 1974.
Annualized June 30, 1996 Payments $2,400
SERVICING AND RELATED AGREEMENTS FOR LOANS SERVICED BY OTHERS:
22. Servicing Agreement dated September 1, 1991 between Franklin Federal
Bancorp, A Federal Savings Bank and Mellon Mortgage Company (as successor to
FFB Mortgage Capital Corporation pursuant to a Mortgage Servicing Purchase and
Sale Agreement by and between FFB Mortgage Capital Corporation and Metmor
Financial, Inc., dated November 30, 1994.)
23. Purchase Price and Terms Letter by and between Kidder Peabody Mortgage
Capital Corporation and Franklin Federal Bancorp, A Federal Savings Bank,
dated December 16, 1993, including the assigned Servicing Agreement by and
between Kidder Peabody Mortgage Capital Corporation and Bluebonnet Savings
Bank FSB, dated November 30, 1993. Servicing subsequently purchased by Bank
United of Texas FSB, effective December 31, 1994.
24. Master Servicing Agreement among Ryland Mortgage Company (Master
Servicer), Franklin Federal Bancorp, A Federal Savings Bank (purchaser), and
Prudential Securities Realty Funding Corporation (Seller), dated July 1, 1993;
regarding loans purchased under a Purchase Price and Terms Letter by and
between Prudential Securities Realty Funding Corporation and Franklin Federal
Bancorp, A Federal Savings Bank, dated April 1, 1993, pursuant to Seller's
Warranties and Servicing Agreements by and between Prudential Securities
Realty Funding Corporation (Initial Purchaser) and: (a) American Residential
Mortgage Corporation (Seller and Servicer) dated January 1, 1994; (b) Arbor
National Mortgage, Inc. (Seller and Servicer) dated May 1, 1992; (c) Main Line
Federal Savings Bank (Seller and Servicer) dated August 1, 1993; (d) ARCS
Mortgage, Inc. (Seller and Servicer) dated February 1, 1994; and, (e) Sunbelt
National Mortgage Corporation (Seller and Servicer) dated August 1, 1993.
Master Servicing subsequently acquired by Norwest Bank, as
successor-in-interest to Ryland Mortgage Company.
25. Purchase Price and Terms Letter by and between Prudential Securities
Realty Funding Corporation and Franklin Federal Bancorp, A Federal Savings
Bank, dated March 5, 1992 as amended, pursuant to a Seller's Warranties and
Servicing Agreement by and between Prudential Securities Realty Funding
Corporation (Purchaser) and America's Lending Network, Inc. (Seller and
Servicer) dated June 1, 1992, as assigned to First Nationwide Mortgage
Corporation by America's Mortgage Servicing, Inc. on behalf of America's
Lending Network, Inc., dated February 7, 1995.
26. Seller's Warranties and Servicing Agreement by and between Lehman
Commercial Paper Incorporated (Purchaser) and Shearson Lehman Hutton Mortgage
Corporation dated July 1, 1993, as assigned by Purchaser to Franklin Federal
Bancorp, A Federal Savings Bank, dated August 2, 1993. Servicing subsequently
acquired by GE Capital Mortgage Servicers.
OTHER:
27. Bankruptcy Reserve Fund Trust Agreement dated as of March 1, 1993 by
and between Franklin Federal Bancorp, A Federal Savings Bank, and State Street
Bank and Trust Company (Trustee), pursuant to: (i) a Pooling and Servicing
Agreement dated March 1, 1993 among Prudential Securities Secured Financing
Corporation (Depositor), Ryland Mortgage Company (Master Servicer),
Countrywide Funding Corporation, America's Lending Network, Inc., Arbor
National Mortgage, Inc. (Servicers), and State Street Bank and Trust Company
(Trustee), relating to the Depositor's Mortgage Pass-Through Certificates,
Series 1993-2, and (ii) an Unaffiliated Seller's Agreement dated April 1, 1993
by and between Prudential Securities Secured Financing Corporation, and
Franklin Federal Bancorp, A Federal Savings Bank.
28. Enhanced Severance Plan adopted by Franklin Federal Bancorp, A Federal
Savings Bank, as of February 23, 1996, as it will be amended to provide for
continuation of benefits for six months following the Closing and for
outplacement services.
29. Financial Institutions Bond issued by Utica Mutual Insurance Company
for annual period ending October 1, 1996.
30. Computing Applications Licenses.
31. Loan Guaranty Agreement (Deferred Participation) by and between Small
Business Administration (SBA), an agency of the United States Government, and
Franklin Federal Bancorp, A Federal Savings Bank, dated June 13, 1994.
32. Corresponding Membership Application and Agreement between Cirrus
Systems, Inc. and Franklin Federal Bancorp, A Federal Savings Bank, dated June
18, 1992.
<PAGE>
Schedule 1.1(i)
Operating Sites
The Bank's corporate headquarters is located at:
111 Congress Avenue
Austin, Texas 78701
The Bank has no other non-Branch offices.
<PAGE>
<TABLE>
<CAPTION>
Schedule 1.1(j)
Purchased Assets
As of June 30, 1996
<S> <C> <C>
GL # DESCRIPTION 06/30/96
- -------------------- ------------------------------- ----------------
ASSETS
CASH & CASH EQUIVALENT
CASH & DUE FROM BANK
100000 FEDERAL RESERVE BANK $ 27,598,002.64
100012 TCB-OPERATIONS 7,664,479.88
100500 CURR & COINS US $- 2,771,131.03
100550 PETTY CASH 250.00
101150 S.C. NATL DR CARD SET 55,271.92
---------------
CASH & DUE FROM BANK $ 38,089,135.47
FLOAT
102120 FIRST USA MERCHANT DEP $ 25,638.94
102130 FIRST USA CS ADV 38,765.00
102140 DR/CR CLRG ACCT 298.79
102200 CASH COLLECTIONS 494,225.39
102210 PAYMENT CLEARING (91,895.51)
102221 COMM LN PMTS IN PROC (54,475.17)
102223 UNAPPLIED CREDIT (7,018.97)
102250 WIRE TRANSFER CLRG (157,336.69)
102300 DDA SYSTEM REJECTS 175,014.20
102303 DDA SYSTEM SUSPENSE (2.77)
102310 SAV SYS REJECTS 39,260.21
102325 POD SUSPENSE (132.50)
102330 M/L & I/L SYS REJECT (1,462.88)
102345 ATM/POS CLEARING 70,649.34
102346 ATM DISPUTED ITEMS 2,603.85
102610 ADJUSTMENTS SUSPENSE 674.11
102615 BOOKEEPING SUSPENSE 188,394.44
102620 TCB/FED ENCODING ADJ 574.38
102810 BRANCH TA (88,000.00)
102825 CONTROLLERS TA (38,283.72)
102840 LOAN SERVICING TA (447,790.03)
102843 ATM T/A 50,000.00
102845 TERM BK - EMERGENCY 58,000.00
102846 TERM BK ATM S CONGRES 47,880.00
102847 TERM BK ATM-HO DT 52,370.00
102848 TERM BK ATM-FIESTA 68,414.73
102849 TERM BK ATM-TT 11,770.00
102850 TERM BK ATM-RR 92,070.00
102851 TERM BK ATM-HO 48,708.45
102852 TERM BK ATM-LC 68,520.00
102853 TERM BK ATM-WL 69,090.00
102854 TERM BK ATM-FW 59,370.00
102855 TERM BK ATM-AP 75,720.00
102856 TERM BK ATM-SHER 46,280.00
102857 TERM BK ATM WM-RSCH 41,000.00
102858 TERM BK ATM WM-NP 52,660.00
102859 TERM BK ATM WM-I35S 36,840.00
102860 TERM BK ATM WM-290W 27,680.00
102870 TERM BK-LN SER 660.17
102908 HOST 9998 CATCH-ALL (24,607.38)
----------------
FLOAT 1,032,126.38
----------------
TOTAL CASH & DUE FROM OTHERS $ 39,121,261.85
FED FUNDS SOLD
110000 FED FUNDS SOLD $ 160,510.84
----------------
TOTAL FED FUNDS SOLD $ 160,510.84
INTEREST BEARING DEPO
DEMAND DEPOSITS
115400 FHLB IB DEMAND $ 8,600,701.37
----------------
DEMAND DEPOSITS $ 8,600,701.37
TIME DEPOSITS
116500 FHLB TIME $ 400,000.00
116525 COMMERCIAL BKS TIME 134,778.00
----------------
TIME DEPOSITS 534,778.00
----------------
TOTAL INTEREST BEARI 9,135,479.37
----------------
TOTAL CASH & CASH EQ $ 48,417,252.06
INVESTMENT SECURITIES
DEBT SECURITIES
122100 OTHER INVESTMENTS $ 30,000,000.00
122101 REMAINING DISC OTHER (110,374.73)
122105 MKT VALUE DEBT 16,564.73
----------------
DEBT SECURITIES $ 29,906,190.00
EQUITY SECURITIES
122060 FNMA STOCK $ 2,397.48
188100 FHLB STOCK 23,652,400.00
188105 MKT VALUE EQUITY 32,442.52
----------------
EQUITY SECURITIES 23,687,240.00
----------------
TOTAL INVESTMENT SECURITIES $ 53,593,430.00
MORTGAGE-BACK SECURITIES
PRIVATE MBS
130330 PVT MBS ARM AFS $ 46,512,891.97
130350 REMAINING PREM MBS AF 369,867.86
130355 PVT MBS ARM UNREAL G/ (537,457.58)
----------------
PRIVATE MBS $ 46,345,302.25
COLLAT MTG OBLIGATIONS
120080 PVT CMO'S ARM AFS $ 26,708,667.23
120082 REMAINING PREM CMO AF 321,606.92
120085 PVT CMO'S ARM AFS UNR (122,698.51)
----------------
COLLAT MTG OBLIGATIONS 26,907,575.64
----------------
TOTAL MORTGAE-BACK SECURITIES $ 73,252,877.89
LOANS RECEIVABLE
MORTGAGE LOANS
CONSTRUCTION MORTGAGES
SINGLE FAMILY
131002 CNST CV SFM PRN C/L $ 5,854,375.44
131010 CNST SFM DEFERRED FEE (243,860.63)
131012 CNST SFM DEFERRED COS 56,013.41
----------------
SINGLE FAMILY $ 5,666,528.22
MULTI-FAMILY
131102 CNST CV MFM PRN I/L $ 2,063,979.13
----------------
MULTI-FAMILY $ 2,063,979.13
NON-RESIDENTIAL
131202 CNST CV NR PRN C/L $ 22,184,865.36
131204 CNST NR PART (4,999,971.44)
----------------
NON-RESIDENTIAL 17,184,893.92
----------------
TOTAL CONSTRUCTION $ 24,915,401.27
PERMANENT MORTGAGES
SINGLE FAMILY
132000 CV FSFM PRM M/L $ 41,497,791.08
132002 CV FSFM PRN C/L 504,964.59
132004 SFM WAREHOUSE 15,512,248.42
132010 CV DEFERRED FEES C/L (8,559.06)
132012 CV DEFERRED COSTS C/L 12,734.68
132016 WAREHOUSE DEF COST 11,455.92
132038 CV FSFM WRAP M/L (1,990.15)
132100 CV ASFM PRN M/L 81,952,220.54
132102 CV ADFM PRN C/L 911,000.00
132200 FHA/VA FSFM PRN M/L 145,046.57
132300 FHA/VA ASFM PRN M/L 58,070.72
132400 SFM GPM PRN M/L 2,446,895.54
132500 SFM FHIL PRN M/L 260,737.00
132504 SFM PRN I/L 250,514.40
132550 SFM AHIL PRN M/L 68,284.26
132620 FSFM DEFERRED FEES (359,692.98)
132622 FSFM DEF COST 156,111.10
132700 PURCH DISC SFM I (2,898,714.31)
132705 PURCH LN DISC (261,193.39)
132760 LOAN PURCH PREM 892,579.21
----------------
SINGLE FAMILY $141,150,504.14
SFM HELD FOR SALE
132650 FIXED RATE PIPELINE $ 712,488.00
132655 DEFERRED FEES (10,628.52)
132657 DEFERRED COSTS 15,441.27
----------------
SFM HELD FOR SALE $ 717,300.75
MULTI-FAMILY
133000 CV FMFM PRN M/L $ 8,518,727.97
133002 CV FMFM PRN C/L 4,139,655.47
133010 CV PERM FMFM DEF FEES (298,263.98)
133012 CV PERM FMFM DEF COST 131,508.64
133100 CV AMFM PRN M/L 9,926,647.15
133302 AMFM PRN C/L 28,633,320.68
133400 MFM GPM M/L 963,842.41
----------------
MULTI-FAMILY $ 52,015,438.34
NON-RESIDENTIAL
134000 COMM REM PRN M/L $ 11,205,404.40
134002 COMM REM PRN C/L 63,558,099.00
134500 COMM REM DEF FEES (404,122.27)
134502 COMM REM DEF COSTS 138,522.82
----------------
NON-RESIDENTIAL $ 74,497,903.95
LAND
135000 LAND PRN M/L $ 1,728,320.53
135002 LAND PRN C/L 1,177,646.64
135500 LAND DEF FEES (18,508.60)
135502 LAND DEF COSTS 11,295.75
----------------
LAND 2,898,754.32
----------------
TOTAL PERMANENT MT 271,279,901.50
----------------
TOTAL MORTGAGE LOANS $296,195,302.77
NON-MORTGAGE LOANS
COMMERCIAL LOANS
136002 CNRE SECUR PRN C/L $ 28,235,933.15
136010 CNRE SBA I/L 166,504.50
136012 CNRE I/L 3,166,423.45
136052 CNRE SECUR SYND PART (322,913.71)
136102 CNRE UNSEC PRN C/L 158,317.70
136200 CNRE SECUR DEF FEES (135,352.88)
136202 CNRE SEC DEF COST 114,051.36
136500 NON-PERS DDA OVERDR 165,144.40
----------------
COMMERCIAL LOANS $ 31,548,107.97
CONSUMER LOANS
137000 LNS ON DEP I/L $ 2,348,994.47
137030 INDIRECT AUTO PRINCIP 66,238,141.18
137033 INDIRECT AUTO DEALER 1,539,302.01
137035 INDIRECT BROKER FEE 332,067.40
137040 PERS AUTO LNS I/L 10,294,118.03
137050 PURCHASED 2ND LIEN HIL 6,615,273.70
137053 PURCH 2ND LIEN BROKER 193,318.19
137060 OTHER PERS LNS I/L 6,254,922.05
137100 CONSUMER DEF COSTS 209,405.15
137200 CONSUMER DEF FEES (899.77)
137210 CONSUMER UED (30,841.54)
137500 PERS DDA OVERDR 1,766,021.23
137505 PERS SAVINGS OVERDR 11,185.50
137507 RESERVE LOC PRN I/L 1,528,365.52
----------------
CONSUMER LOANS 97,299,373.12
----------------
TOTAL NON-MORTGAGE 128,847,481.09
----------------
SUBTOTAL $425,042,783.66
ALLOWANCE FOR LOAN
141010 GEN MTG PROV-LOSSES $ (3,701,141.00)
141020 GEN MTG CHARGE OFFS 456,674.00
141030 GEN MTG RECOVERIES (552,671.55)
141050 SPEC MTG PROV-LOSSES (970,896.95)
141060 SPEC MTG CHARGE OFFS 958,942.95
141110 GEN NONMTG PROV-LOSS (1,013,171.25)
141120 GEN NONMTG CHRG OFFS 1,050,648.41
141150 SPEC NMTG PROV-LOSS (286,728.90)
141160 SPEC NMTG CHRG OFFS 155,465.32
----------------
ALLOWANCE FOR LOAN (3,902,878.97)
----------------
TOTAL LOANS $421,139,904.89
OTHER ASSETS
ACCRUED INCOME REC
150030 A/I FHLB TIME $ 5,863.02
150150 A/I PVT CMO'S ARM 174,934.40
150220 A/I PRIV MBS-ARM 266,529.76
150300 A/I MTG M/L 1,031,180.60
150302 A/I MTG C/L 830,144.82
150308 NONACCRUAL LOANS (7,723.59)
150402 A/I NONMTG C/L 466,382.72
150404 A/I NONMTG I/L 160,136.47
150410 A/I PURCHASED HIL 36,138.65
150416 INDIRECT AUTO LOANS 366,310.96
----------------
ACCRUED INCOME RECEIVABLE $ 3,329,897.81
REPOSSESSED ASSETS
160000 REAL ESTATE $ 196,832.75
160010 AUTOMOBILE LOANS 37,862.68
----------------
REPOSSESSED ASSETS $ 234,695.43
OFFICE PREMISES & EQUIPMENT
179000 LAND IN USE $ 1,438,999.00
179100 BUILDINGS 198,207.43
179102 IMPROV TO FAC OWNED 285,439.24
179200 A/D BUILDINGS (42,982.71)
179202 A/D IMP TO FAC OWNED (66,835.84)
179300 BLDGS-LEASED LAND 928,471.06
179302 IMPROV TO FAC LEASED 890,785.72
179400 A/D BLDGS-LEASED LND (397,581.10)
179402 A/D IMP TO FAC LSD (456,343.81)
179500 FURNITURE & FIXTURES 6,989,306.36
179502 A/D FURN & FIXT (6,012,217.57)
179520 ORIGINAL ART OBJECTS 42,750.09
179530 TRANSPORTATION EQUIPM 41,724.54
179532 A/D TRANSPORT EQUIPME (34,024.05)
----------------
TOTAL OFFICE PREMISES AND EQUIP $ 3,805,698.36
GOODWILL
181010 GOODWILL I $ 5,139.42
181020 GOODWILL II 4,312,500.03
188804 GOODWILL III (994,238.20)
----------------
TOTAL GOODWILL $ 3,323,401.25
OTHER INTANGIBLES
181150 FRANCHISE FEE $ 17,500.09
----------------
TOTAL OTH INTANGIBLES $ 17,500.09
NON-INTEREST RECEIVABLE
186000 A/R GENERAL $ 21,077.14
186210 A/R-PRIV. INVESTORS (1,061.54)
186510 MBS P&I RECEIVABLE 244,952.18
----------------
TOT NON-INT RECEIVABLE $ 264,967.78
PREPAID EXPENSES
187060 FSLIC INSUR PREMIUM $ 354,308.12
187200 OTHER PREPD EXPENSES 50,678.49
----------------
TOTAL PREPAID EXPENSES $ 404,986.61
OTHER ASSETS
188030 LEASE DEPOSIT $ 13,862.00
----------------
OTHER ASSETS 13,862.00
----------------
TOTAL OTHER ASSETS 11,395,009.33
TOTAL PURCHASED ASSETS $607,798,474.17
================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1.1(K)
REQUISITE REGULATORY APPROVALS OF BUYER
---------------------------------------
<C> <S> <C>
1 Federal Reserve Board Prior notice of a bank holding company to acquire
control of a savings association.
2 Texas Banking Commissioner Prior notice to acquire control of a depository
institution.
3 Office of Thrift Supervision Prior approval for a company proposing to merge,
consolidate, acquire the assets of , etc., two or
more savings associations.
4 FDIC Application for Deposit Insurance (only if Bank is
not to be acquired by an existing thrift or bank
subsidiary of Buyer at Closing).
5 FHLBB Application for Membership (only if Bank is not
to be acquired by an existing thrift or bank
subsidiary of Buyer at Closing).
6 Office of Thrift Supervision Permission to charter a savings association (only if
Bank is not to be acquired by an existing thrift or
ank subsidiary of Buyer at Closing).
7 Notifications required under the Post-closing notices (to be filed within 30 days
Hart-Scott-Rodino Act after closing).
8 OTS Post-closing notices (to be filed within 30 days after
closing).
9 Office of Thrift Supervision Applications related to Oakar transaction (if Bank
is to be acquired by a bank subsidiary of
Norwest).
10 OCC Applications related to an Oakar transaction (if
Bank is to be acquired by a national bank
subsidiary of Norwest).
11 FDIC Certificate of Assumption of Liability.
12 OTS Post-closing notices of consummation of
acquisition.
13 Federal Reserve Board Post-closing notices of consummation of
acquisition.
14 FDIC Application to Acquire Deposit Liabilities (if
Bank is to be acquired by state bank subsidiary of
Norwest).
</TABLE>
<PAGE>
SCHEDULE 1.1(L)
INVESTMENT IN DIRECT AND INDIRECT SUBSIDIARIES
FFB REALTY CORP
Incorporated: July 5, 1989, Texas Corporation
Shares: 100% of shares owned by FFB; shares acquired by FFB 8/24/89
Activities: holds investment in Austin Community Development Corporation,
otherwise inactive
Offices: 111 Congress Avenue, Austin, Texas 78701
* FFB Investment as of June 30, 1996: $100,000.02
FRANKLIN SECURITIES CORPORATION
Incorporated: April 7, 1989, Texas Corporation
Shares: 100% of shares owned by FFB: shares acquired by FFB 5/24/90
Activities: mutual fund/annuity sales
Offices: 111 Congress Avenue, Austin, Texas 78701
* FFB Investment as of June 30, 1996: $11,606.27
FFB MORTGAGE CAPITAL CORPORATION
Incorporated: January 30, 1991, Texas Corporation
Shares: 100% of shares owned by FFB; shares acquired by FFB 1/30/91
Activities: inactive
Offices: 111 Congress Avenue, Austin, Texas 78701
* FFB Investment as of June 30, 1996: $2,344.11
AUSTIN COMMUNITY DEVELOPMENT CORPORATION
Incorporated: April 1994, Texas Corporation
Shares: 13.3% of shares owned by FFB subsidiary FFB Realty Corp;
shares acquired by FFB Realty Corp 7/94, 7/95, and 4/96
Activities: community and inner-city development
Offices: 505 Barton Springs Road, Austin, Texas
FFB Realty Corp Investment as of June 30, 1996: $99,999.99
* excludes subsidiary cash balances held with FFB
<PAGE>
SCHEDULE 1.1(M)
TERMINATION AGREEMENT
The Termination Agreement was entered into effective December 31, 1995 between
the Federal Deposit Insurance Corporation as Manager of the FSLIC Resolution
Fund ("FDIC") on the one hand, and Club Corporation International ("CCI"),
First Federal Financial Corporation ("FFFC") and Franklin Federal Bancorp, A
Federal Savings Bank ("FFB") on the other hand. The Termination Agreement
provided for (i) the early termination of the Assistance Agreement entered
into effective September 30, 1988 by the FSLIC, CCI, FFFC and FFB, (ii) a
mutual release of all claims related to the Assistance Agreement, (iii) the
execution of a Tax Benefits Agreement to resolve issues relating to the
sharing of the tax benefits under the Assistance Agreement, and (iv) the
execution of a Warrant Agreement to replace the warrant agreement entered into
by FSLIC and FFB effective September 30, 1988.
Concurrently with the execution of the Termination Agreement, FFB transferred
to the FDIC certain active litigation matters covered by the Assistance
Agreement and all subsidiaries covered by the Assistance Agreement.
Pursuant to the Warrant Agreement, FFB issued warrants to the FDIC for the
purchase of 20% of the common stock of FFB exercisable at any time before
September 30, 2003. The Warrant Agreement also provides that the FDIC is
entitled to a pro-rata share of the proceeds of any liquidation following a
sale of assets of FFB.
<PAGE>
SCHEDULE 4.5
CHANGES IN FINANCIAL ACCOUNTING STANDARDS
There have been no changes in financial accounting standards since March 31,
1996.
<PAGE>
Schedule 4.14
REGULATORY AGREEMENTS
Supervisory Agreement between the Office of Thrift Supervision and Franklin
Federal Bancorp, A Federal Savings Bank dated effective July 5, 1995;
terminated April 5, 1996.
Capital Plan approved April 19, 1990 and modified on June 23, 1993; terminated
September 29, 1995.
<PAGE>
SCHEDULE 6.2(B)
BRANCH OR OPERATING SITES TO BE RELOCATED
The Bank intends to move the ATM located in the lobby of the Downtown Sheraton
Hotel, 500 North IH-35, Austin, Texas to a new location to be determined.
<PAGE>
SCHEDULE 6.2(I)
CONTRACTS AND AGREEMENT SUBJECT TO CHANGE
Subsequent to March 31, 1996, the Bank has completed or is in the process of
completing the following:
1. The Bank's vacation policy has been modified effective January 1, 1997
to provide for pro rata monthly accruals of earned vacation benefits rather
than an entire year's vacation being earned on January 1 of each year. The
annual amount of vacation, based upon years of service and title remains
unchanged from the previous policy.
2. The employment agreement between the Bank and Leonard E. Huber, which
expires August 24, 1996 is being extended one year to August 24, 1997 with
substantially the same terms.
3. A Terminating Directors Bonus Plan for Franklin's five outside
directors in process. The aggregate cost of this plan is approximately
$150,000.
4. The Bank's 401(k) Administrative Committee will meet to determine the
appropriate method of termination of the 401(k) in light of the closing of the
transaction and will pass appropriate resolutions prior to the closing of the
transaction.
5. The Bank's Enhanced Severance Plan will be amended prior to Closing to
provide for continuation of benefits for six months following Closing and for
out placement services.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 6.2P
LOANS IN PROCESS
Loans with combined balances exceeding $1,000,000 pending credit approval.
<S> <C> <C> <C> <C>
Amount Anticipated
Existing Under Committee
Borrower Loan Type Commitment Consideration Date
- -------------- --------------- ----------- -------------- ----------------
Clean Cut, Inc. Line of Credit $ 500,000 $ 1,000,000 08/15/96
Equipment Line $ 100,000 $ 350,000 08/15/96
Kappa Sigma Real Estate Loan - $ 1,100,000 08/22/96
Education with Additional
Foundation, Inc. Collateral
Clean Cut, Inc. Application in - $ 80,000 Pending Guaranty
process for by FFB to First
corporate credit USA
card
</TABLE>
<PAGE>
SCHEDULE 9.3(G)
The amount available to satisfy Sellers' indemnification obligations
under Section 9.3(a) shall decrease by $500,000 for each of its obligations
under Section 9.3 on the day that is six months after the Closing Date. The
amounts available to satisfy Sellers' indemnification obligations under
Section 9.3(a) shall both be reduced to zero on the first anniversary of the
Closing Date. The decreases in the foregoing amounts shall be exclusive of
any pending claims that have been made by Buyer or Purchaser.
