<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1994
REGISTRATION NO. 33-54531
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SIGNET BANKING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
VIRGINIA 6711 54-6037910
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
7 NORTH EIGHTH STREET
RICHMOND, VIRGINIA 23219
(804) 747-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANDREW T. MOORE, JR.
SENIOR VICE PRESIDENT AND CORPORATE SECRETARY
SIGNET BANKING CORPORATION
7 NORTH EIGHTH STREET
RICHMOND, VIRGINIA 23219
(804) 771-7177
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JOSEPH C. CARTER, III, ESQ. LEONARD S. VOLIN, ESQ.
MCGUIRE WOODS BATTLE & BOOTHE HOUSLEY GOLDBERG & KANTARIAN, P.C.
ONE JAMES CENTER SUITE 700
901 EAST CARY STREET 1220 19TH STREET, N.W.
RICHMOND, VIRGINIA 23219 WASHINGTON, D.C. 20036
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. ( )
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
<TABLE>
SIGNET BANKING CORPORATION
CROSS-REFERENCE SHEET
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
<S> <C>
1. Forepart of Registration Statement and Outside Front Facing Page; Cross Reference Sheet; Outside
Cover Page of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front Cover Page of Prospectus; Table
of Contents; Available Information;
Incorporation of Certain Information
by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Summary; Comparative Per Share Data
Information
4. Terms of the Transaction Summary; The Holding Company
Merger; Comparative Rights of Shareholders;
ANNEX I, ANNEX II, ANNEX III, ANNEX IV
5. Pro Forma Financial Information Not Applicable
6. Material Contacts with the Company Being Acquired Not Applicable
7. Additional Information Required for Reoffering by Persons and Parties Not Applicable
Deemed to be Underwriters
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of Commission's Position on Indemnification for Securities Act Not Applicable
Liabilities
10. Information with Respect to S-3 Registrants Incorporation of Certain Information
by Reference
11. Incorporation of Certain Information by Reference Incorporation of Certain Information
by Reference
12. Information with Respect to S-2 or S-3 Registrants Incorporation of Certain Information
by Reference
13. Incorporation of Certain Information by Reference Incorporation of Certain Information
by Reference
14. Information with Respect to Registrants Other than S-2 or S-3 Registrants Not Applicable
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Incorporation of Certain Information
by Reference, ANNEX VI, ANNEX VII
17. Information with Respect to Companies other than S-2 or S-3 Companies Not Applicable
18. Information if Proxies, Consents or Authorizations are to be Solicited Incorporation of Certain Information
by Reference; Summary; The Shareholder
Meeting; The Holding Company Merger; The
Holding Company Merger -- Dissenters'
Rights; ANNEX V
19. Information if Proxies, Consents or Authorizations are not to be Solicited, Not Applicable
or in an Exchange Offer
<PAGE>
[PIONEER FINANCIAL CORPORATION LETTERHEAD]
July , 1994
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Pioneer Financial Corporation ("PFC") to be held on August
26, 1994 at 2:00 p.m., Eastern Daylight Time, at Pioneer Financial Corporation,
5601 Ironbridge Parkway, Chester, Virginia. This is a very important meeting
regarding your investment in PFC.
At the Special Meeting, shareholders of PFC will be asked to approve and
adopt a Reorganization and Merger Agreement, dated as of February 16, 1994, as
amended on June 1, 1994, (the "Agreement"), the related Holding Company Plan of
Merger providing for the acquisition of PFC by Signet Banking Corporation (the
"Holding Company Merger") and the Holding Company Merger (the "Merger
Proposal"). The Holding Company Merger is further described in the enclosed
Proxy Statement/Prospectus, together with a proposal to adjourn the Special
Meeting in the event an insufficient number of shares is present in person or by
proxy at the Special Meeting to approve the Merger Proposal.
The Board of Directors of PFC has unanimously approved and recommends that
you vote FOR the Merger Proposal. The Board of Directors also recommends that
you vote FOR the proposal to adjourn the Special Meeting under the circumstances
described herein.
Your vote is important, regardless of the number of shares you own. ON
BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE, EVEN IF YOU CURRENTLY PLAN TO ATTEND
THE SPECIAL MEETING. This will not prevent you from voting in person but will
assure that your vote is counted if you are unable to attend the Special
Meeting. Because approval of the Merger Proposal requires the affirmative vote
of more than two-thirds of the outstanding shares of PFC Common Stock, failure
to vote will have the same effect as voting against the Merger Proposal.
On behalf of the Board of Directors, we thank you for your support and urge
you to vote FOR approval of the Merger Proposal.
Sincerely,
G. R. Whittemore,
President
<PAGE>
PIONEER FINANCIAL CORPORATION
5601 IRONBRIDGE PARKWAY
CHESTER, VIRGINIA 23831
(804) 748-9733
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 26, 1994
TO THE SHAREHOLDERS OF PIONEER FINANCIAL CORPORATION:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Special
Meeting") has been called by the Board of Directors of Pioneer Financial
Corporation ("PFC") and will be held at Pioneer Financial Corporation, 5601
Ironbridge Parkway, Chester, Virginia, August 26, 1994 at 2:00 p.m. for the
following purposes:
1. To consider and vote upon the Reorganization and Merger Agreement dated
as of February 16, 1994, as amended on June 1, 1994 (the "Agreement"), a related
Holding Company Plan of Merger providing for the merger of PFC with and into
Signet Banking Corporation (the "Holding Company Merger") and the Holding
Company Merger (collectively, the "Merger Proposal"). The Agreement and the
Holding Company Plan of Merger are attached to the accompanying Proxy
Statement/Prospectus as ANNEX I and ANNEX III, respectively.
2. To consider and vote upon the adjournment of the Special Meeting to a
later date to permit the further solicitation of proxies in the event an
insufficient number of shares is present in person or by proxy at the Special
Meeting to approve the Merger Proposal.
3. To consider and vote upon such other matters as may properly come before
the Special Meeting.
NOTE: The Board of Directors is not aware of any other business to come
before the Special Meeting.
Any action may be taken on any of the foregoing proposals at the Special
Meeting on the date specified above, or on any date or dates to which, by
original or later adjournment, the Special Meeting may be adjourned. Only those
PFC shareholders of record at the close of business on July 1, 1994 shall be
entitled to notice of and to vote at the Special Meeting. The affirmative vote
of the holders of more than two-thirds of the issued and outstanding shares of
PFC common stock entitled to vote at the Special Meeting is required to approve
the Merger Proposal. Approval of the proposal to adjourn the Special Meeting
under the circumstances described above requires the affirmative vote of a
majority of the shares present in person or by proxy at the Special Meeting.
With respect to the Merger Proposal, PFC shareholders have a right to dissent
and obtain payment for their shares by complying with the terms and procedures
of Section 13.1-733 of the Virginia Stock Corporation Act, a copy of which is
attached as ANNEX V to the Proxy Statement/Prospectus accompanying this Notice
of Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING. PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING. YOUR
PROXY WILL NOT BE USED IF YOU ATTEND AND VOTE AT THE SPECIAL MEETING IN PERSON.
By Order of the Board of Directors,
Frances M. Leslie
Secretary
July , 1994
Chester, Virginia
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
OF
PIONEER FINANCIAL CORPORATION
TO BE HELD ON
AUGUST 26, 1994
PROSPECTUS
OF
SIGNET BANKING CORPORATION
COMMON STOCK
This Proxy Statement/Prospectus is being furnished to the holders of common
stock, par value $1.00 per share ("PFC Common Stock"), of Pioneer Financial
Corporation, a Virginia corporation ("PFC"), in connection with the solicitation
of proxies by the PFC Board of Directors (the "PFC Board") for use at a special
meeting of PFC shareholders to be held at 2:00 p.m. on August 26, 1994, at
Pioneer Financial Corporation, 5601 Ironbridge Parkway, Chester, Virginia (the
"Special Meeting").
At the Special Meeting, the shareholders of record of PFC Common Stock as
of the close of business on July 1, 1994 will consider and vote upon a proposal
to approve the Reorganization and Merger Agreement dated as of February 16,
1994, as amended June 1, 1994 (the "Agreement"), by and between Signet Banking
Corporation, a Virginia corporation ("Signet"), and PFC, the related Holding
Company Plan of Merger, pursuant to which, among other things, PFC will merge
with and into Signet (the "Holding Company Merger"), and the Holding Company
Merger (collectively, the "Merger Proposal"). Upon consummation of the Holding
Company Merger, each outstanding share of PFC Common Stock (other than shares as
to which dissenters' rights have been asserted and duly perfected in accordance
with Virginia law ("Dissenting Shares") and other than certain shares held by
PFC or Signet) shall be converted into and represent the right to receive .6232
of a share of common stock of Signet, par value $5.00 per share ("Signet Common
Stock") (the "Exchange Ratio"), PROVIDED, HOWEVER, that if the average of the
closing prices of the shares of Signet Common Stock on the New York Stock
Exchange Composite Tape (the "Average Closing Price") for the ten consecutive
trading days (the "Valuation Period") ending on the business day prior to the
later of (i) the date on which all requisite regulatory approvals required to
consummate the transactions contemplated by the Agreement are obtained,
including for these purposes the expiration of all applicable waiting periods,
and (ii) the date of the Special Meeting is greater than $40.12, the Exchange
Ratio shall be equal to $25.00 divided by the Average Closing Price of the
Signet Common Stock, and PROVIDED FURTHER that if the Average Closing Price of
the Signet Common Stock is less than $33.30, PFC will have the right to
terminate the Agreement unless Signet agrees to adjust the Exchange Ratio to
$20.75 divided by the Average Closing Price of the Signet Common Stock. Based on
the closing price per share of Signet Common Stock on the New York Stock
Exchange Composite Tape on , 1994 of $ , each share of
PFC Common Stock would be exchanged for . share of Signet Common Stock. Such
share amount of Signet Common Stock may increase or decrease depending on the
Average Closing Price as described herein. See "The Holding Company
Merger -- The Exchange Ratio; Fractional Shares." For a description of the
Agreement, which is included herein in its entirety as ANNEX I to this Proxy
Statement/Prospectus, see "The Holding Company Merger." Immediately following
consummation of the Holding Company Merger, Pioneer Federal Savings Bank, a
wholly owned subsidiary of PFC ("Pioneer Federal"), will merge (the "Bank
Merger") with and into Signet Bank/Virginia, a wholly owned subsidiary of Signet
("Signet Bank"). The Holding Company Merger and the Bank Merger are sometimes
referred to together as the "Transaction."
Holders of PFC Common Stock are also being asked to approve the adjournment
of the Special Meeting to a later date in the event an insufficient number of
shares of PFC Common Stock is present in person or by proxy at
<PAGE>
the Special Meeting to approve the Merger Proposal. PFC shareholders may also
transact such other business as may properly be brought before the Special
Meeting or any adjournment or adjournments thereof.
This Proxy Statement/Prospectus also constitutes the Prospectus of Signet
with respect to up to 1,574,861 shares of Signet Common Stock that may be issued
in connection with the Holding Company Merger. Signet has filed a Registration
Statement on Form S-4 (together with all amendments and exhibits thereto,
including documents and information incorporated by reference, the "Registration
Statement") with the Securities and Exchange Commission ("SEC") which includes
the Proxy Statement/Prospectus and relates to registration under the Securities
Act of 1933, as amended (the "Securities Act"), of such shares of Signet Common
Stock. All information herein with respect to PFC and its affiliates has been
furnished by PFC, and all information herein with respect to Signet and its
affiliates has been furnished by Signet. This Proxy Statement/Prospectus and the
accompanying proxy card are first being mailed to shareholders of PFC on or
about July , 1994.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF SIGNET COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR A SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY , 1994.
No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the offer
contained in this Proxy Statement/Prospectus, and, if given or made, such
information or representation must not be relied upon. This Proxy
Statement/Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities other than the securities to which it relates,
nor does it constitute an offer to or solicitation of any person in any
jurisdiction to whom it would be unlawful to make such an offer or solicitation.
This Proxy Statement/Prospectus does not cover resales of Signet Common Stock to
be received by PFC shareholders upon consummation of the Holding Company Merger,
and no person is authorized to make use of this Proxy Statement/Prospectus in
connection with any such resale. Neither the delivery of this Proxy
Statement/Prospectus at any time nor any distribution of securities made
hereunder shall under any circumstances imply that the information herein is
correct as of any time subsequent to the date hereof.
THE BOARD OF DIRECTORS OF PFC UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF
PFC VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
ii
<PAGE>
TABLE OF CONTENTS
</TABLE>
<TABLE>
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AVAILABLE INFORMATION..................................................................................... 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................................................... 1
SUMMARY................................................................................................... 2
Parties to the Transaction.............................................................................. 2
Special Meeting......................................................................................... 2
Vote Required; Record Date.............................................................................. 2
The Holding Company Merger.............................................................................. 3
Recommendation of the PFC Board of Directors............................................................ 3
The Exchange Ratio; Cancellation of PFC Stock Options................................................... 3
Interests of Certain Persons in the Merger.............................................................. 4
Opinion of Financial Advisor............................................................................ 5
Limitations on Negotiation; Option Granted to Signet.................................................... 5
Regulatory Approvals Required........................................................................... 5
Conditions, Amendment and Termination................................................................... 6
Dissenters' Rights...................................................................................... 6
Certain Federal Income Tax Consequences................................................................. 6
Certain Differences in Shareholders' Rights............................................................. 7
Market Prices Prior to Announcement of the Transaction.................................................. 7
Comparative Per Share Data.............................................................................. 7
Selected Financial Data................................................................................. 9
GENERAL INFORMATION....................................................................................... 11
RECENT DEVELOPMENTS....................................................................................... 12
Signet.................................................................................................. 12
PFC..................................................................................................... 13
PROPOSAL I: THE HOLDING COMPANY MERGER.................................................................... 14
Parties to the Transaction.............................................................................. 14
Background of the Merger................................................................................ 14
Signet's Reasons for the Merger......................................................................... 16
PFC's Reasons and Recommendations for the Merger........................................................ 16
Opinion of Financial Advisor............................................................................ 16
Effective Time of the Holding Company Merger............................................................ 18
The Exchange Ratio; Fractional Shares................................................................... 19
Cancellation of Certain Shares; PFC Stock Options....................................................... 19
Exchange and Surrender of Stock Certificates............................................................ 20
Conduct of Business of PFC and Pioneer Federal Pending the
Holding Company Merger............................................................................... 21
No Solicitation......................................................................................... 22
Conduct of Business of Signet Pending the Merger........................................................ 22
Conditions to Consummation of the Holding Company Merger................................................ 22
Regulatory Approvals Required........................................................................... 24
Stock Option Agreement.................................................................................. 25
Amendment and Termination of the Agreement.............................................................. 26
Accounting Treatment.................................................................................... 27
Operations of Signet After the Holding Company Merger................................................... 27
Interests of Certain Persons in the Merger.............................................................. 27
Effect on PFC Employee Benefits Plans................................................................... 29
Certain Federal Income Tax Consequences................................................................. 29
Affiliates.............................................................................................. 30
Representations and Warranties of the Parties........................................................... 30
Dissenters' Rights...................................................................................... 31
Expenses................................................................................................ 32
</TABLE>
iii
<PAGE>
<TABLE>
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BUSINESS OF SIGNET........................................................................................ 33
BUSINESS OF PFC........................................................................................... 33
SUPERVISION AND REGULATION................................................................................ 33
Limitations on Dividends and Other Payments............................................................. 33
Capital Requirements.................................................................................... 34
Obligations to Commonly Controlled Institutions......................................................... 34
Bank Holding Companies.................................................................................. 35
Banks................................................................................................... 35
FDIC Insurance Assessments.............................................................................. 35
Governmental Policies................................................................................... 35
Recent Banking Legislation.............................................................................. 35
DESCRIPTION OF SIGNET CAPITAL STOCK....................................................................... 37
Common Stock............................................................................................ 38
Preferred Stock......................................................................................... 38
Virginia Stock Corporation Act.......................................................................... 38
Shareholders' Rights Plan............................................................................... 39
COMPARATIVE RIGHTS OF SHAREHOLDERS........................................................................ 40
General................................................................................................. 40
Authorized Capital...................................................................................... 40
Amendment of Articles or Bylaws......................................................................... 41
Size and Classification of Board of Directors........................................................... 41
Vacancies and Removal of Directors...................................................................... 41
Director and Officer Exculpation........................................................................ 41
Indemnification......................................................................................... 42
Special Meetings of Shareholders........................................................................ 42
Director Nominations.................................................................................... 42
Shareholder Proposals................................................................................... 42
Shareholder Inspection Rights; Shareholder Lists........................................................ 42
Required Shareholder Vote for Certain Actions........................................................... 43
State Antitakeover Statutes............................................................................. 43
Shareholder Rights Plan................................................................................. 43
Dissenters' Rights...................................................................................... 43
Dividends and Other Distributions....................................................................... 43
Voluntary Dissolution................................................................................... 43
RESALE OF SIGNET COMMON STOCK............................................................................. 44
PROPOSAL II: ADJOURNMENT OF THE SPECIAL MEETING........................................................... 44
EXPERTS................................................................................................... 44
LEGAL OPINION............................................................................................. 44
ANNEX I -- Reorganization and Merger Agreement............................................................ I-1
ANNEX II -- Stock Option Agreement........................................................................ II-1
ANNEX III -- Holding Company Plan of Merger............................................................... III-1
ANNEX IV -- Fairness Opinion of Baxter Fentriss and Company............................................... IV-1
ANNEX V -- Article 15 of Virginia Stock Corporation Act Regarding Dissenters' Rights...................... V-1
ANNEX VI -- PFC's 1993 Annual Report to Shareholders...................................................... VI-1
ANNEX VII -- PFC's Quarterly Report on Form 10-Q, as amended by Form 10-Q/A, for the Period Ended March
31, 1994..................................................................................... VII-1
</TABLE>
iv
<PAGE>
AVAILABLE INFORMATION
Signet and PFC are both subject to the reporting and informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in
accordance therewith file reports, proxy statements and other information with
the SEC. Reports, proxy statements and other information filed with the SEC can
be inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611-2511 and 75 Park Place, New York, New York 10007. Copies of such
material can be obtained from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports,
proxy statements and other information concerning Signet also may be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005, and such reports, proxy statements and other information concerning
PFC also may be inspected at the offices of the National Association of
Securities Dealers, Inc. located at 1735 K Street, N.W., Washington, D.C. 20006.
As permitted by the Rules and Regulations of the SEC, this Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement. For further information, reference is hereby made to the
Registration Statement. Statements contained in this Proxy Statement/Prospectus
as to the contents of any documents are not necessarily complete, and in each
instance reference is made to such documents, each such statement being
qualified in all respects by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by Signet and PFC, respectively, are
incorporated by reference in this Proxy Statement/Prospectus:
Signet documents:
(i) Signet's Annual Report on Form 10-K for the year ended December 31,
1993;
(ii) Signet's Current Report on Form 8-K, dated February 22, 1994;
(iii) Signet's Current Report on Form 8-K, dated March 28, 1994; and
(iv) Signet's Quarterly Report on Form 10-Q for the period ended March 31,
1994.
PFC documents:
(i) PFC's Annual Report on Form 10-K, as amended by Form 10-K/A filed June
3, 1994, for the year ended September 30, 1993;
(ii) PFC's Quarterly Report on Form 10-Q for the period ended December 31,
1993;
(iii) PFC's Current Report on Form 8-K, dated February 16, 1994; and
(iv) PFC's Quarterly Report on Form 10-Q, as amended by Form 10-Q/A filed
June 3, 1994, for the period ended March 31, 1994.
All documents filed by Signet or PFC pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the date
of the Special Meeting are hereby incorporated by reference in this Proxy
Statement/Prospectus and shall be deemed a part hereof from the date of filing
of such documents.
Any statement contained herein, in any supplement hereto or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein, in any supplement hereto or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus or any supplement
hereto.
Also incorporated by reference herein are the Agreement, the Stock Option
Agreement dated February 16, 1994 between PFC and Signet (the "Stock Option
Agreement") and the Holding Company Plan of Merger, which are attached to this
Proxy Statement/Prospectus as ANNEXES I, II and III, respectively.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS
RELATING TO SIGNET OR PFC THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
SUCH SIGNET DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM SIGNET'S
INVESTOR RELATIONS DEPARTMENT, SIGNET BANKING CORPORATION, 7 NORTH EIGHTH
STREET, RICHMOND, VIRGINIA 23219, (804) 771-7650. SUCH PFC DOCUMENTS ARE
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO FRANCES M. LESLIE, SECRETARY,
PIONEER FINANCIAL CORPORATION, P.O. BOX C-9000, CHESTER, VIRGINIA 23831-9000 OR
BY CALLING (804) 748-9733. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUESTS SHOULD BE MADE BY AUGUST 12, 1994.
1
<PAGE>
SUMMARY
PARTIES TO THE TRANSACTION
SIGNET. Signet is a Virginia corporation which serves as the holding
company for Signet Bank/Virginia, Signet Bank N.A. of Washington, D.C. and
Signet Bank/Maryland. At March 31, 1994, Signet had approximately $11.5 billion
in total assets, $7.9 billion in total deposits and $1.0 billion in total
shareholders' equity.
Signet is engaged in the general commercial and consumer banking business
and provides a full range of banking services to individuals, businesses and
organizations through a network of 239 banking offices, 243 automated teller
machines and a 24-hour full-service Telephone Banking Center. Signet is a major
issuer of credit cards, offering a broad spectrum of card products designed to
meet the needs of varying market segments. Signet also offers investment
services including municipal bond, government, federal agency and money market
sales and trading, foreign exchange trading and discount brokerage. In addition,
an international operation concentrating on trade finance, specialized services
for trust, leasing, asset based lending, cash management, real estate,
insurance, consumer financing and investment banking are offered.
The executive offices of Signet are located in Richmond, Virginia at 7
North Eighth Street. Signet's Operations Center is also located in Richmond.
PFC. PFC is a Virginia corporation which serves as the holding company for,
and conducts its principal business through, its wholly-owned subsidiary,
Pioneer Federal. At March 31, 1994, PFC had approximately $392 million in total
assets, $310 million in total deposits, and $51 million in shareholders' equity.
For regulatory purposes, PFC is classified as a unitary savings and loan
holding company and its principal business is that of its wholly-owned
subsidiary, Pioneer Federal, a federally-chartered stock savings bank with
executive and administrative offices in Chester, Virginia. The principal
business of Pioneer Federal consists of accepting deposits from the general
public and investing such deposits, together with borrowings and other funds, in
loans secured by one-to four-family residential, multi-family and commercial
properties as well as in construction loans. In addition, Pioneer Federal
originates a limited amount of commercial and consumer loans. Pioneer Federal
also maintains a substantial investment portfolio consisting primarily of
mortgage-backed and U.S. Treasury securities. Through its wholly-owned
subsidiaries, Pioneer Federal also engages in mortgage brokerage, insurance
agency operations, investment in land acquisition and development projects, and
the disposal of foreclosed real estate.
SPECIAL MEETING
The Special Meeting will be held on August 26, 1994 at 2:00 p.m., at
Pioneer Financial Corporation, 5601 Ironbridge Parkway, Chester, Virginia, for
the purpose of considering and voting upon a proposal to approve the Merger
Proposal. In addition, PFC shareholders are being asked to approve the
adjournment of the Special Meeting to a later date in the event an insufficient
number of shares of PFC Common Stock is present in person or by proxy at the
Special Meeting to approve the Merger Proposal. PFC shareholders may also
transact such other business as may be properly brought before the Special
Meeting or any adjournment or adjournments thereof. See "General Information."
VOTE REQUIRED; RECORD DATE
Only PFC shareholders of record at the close of business on July 1, 1994
(the "Record Date") will be entitled to vote at the Special Meeting. The
affirmative vote of the holders of more than two-thirds of the shares
outstanding on such date is required to approve the Merger Proposal. As of the
Record Date, there were 2,351,132 shares of PFC Common Stock entitled to be
voted, held by approximately 560 shareholders of record. The proposal with
respect to possible adjournment of the Special Meeting requires the affirmative
vote of the holders of a majority of the shares of PFC Common Stock present in
person or by proxy at the Special Meeting.
The directors and executive officers of PFC and their affiliates owned, as
of the Record Date, 110,623 shares or approximately 4.71% of the outstanding
shares of PFC Common Stock (which amount excludes an aggregate of 106,507 shares
issuable upon the exercise of options granted to such directors and executive
officers and which do not have voting rights). PFC has been advised that such
directors and executive officers intend to vote their shares in favor of
approval of the Merger Proposal.
2
<PAGE>
The Board of Directors of Signet has approved the Agreement, the Holding
Company Plan of Merger and the Holding Company Merger. Approval of the
Agreement, the Holding Company Plan of Merger and the Holding Company Merger by
Signet shareholders is not required by the Virginia Stock Corporation Act (the
"VSCA").
THE HOLDING COMPANY MERGER
Pursuant to the Agreement, PFC will be merged with and into Signet in
accordance with the Holding Company Plan of Merger attached hereto as ANNEX III
and the provisions of the VSCA, and the separate corporate existence of PFC will
cease. The Holding Company Merger shall become effective upon the issuance of a
certificate of merger by the State Corporation Commission of Virginia with
respect to the Holding Company Merger unless the Articles of Merger relating to
the Holding Company Merger filed with the State Corporation Commission of
Virginia specify that the certificate of merger shall become effective at a
later date (the "Effective Time"). Signet will be the surviving corporation of
the Holding Company Merger (sometimes referred to herein as the "Surviving
Corporation") and will continue to be governed by the laws of the Commonwealth
of Virginia.
Signet may at any time change the method of effecting the acquisition of
PFC by Signet if and to the extent it deems such change to be desirable to
provide for (i) a merger of a wholly-owned subsidiary of Signet with and into
PFC, in which PFC is the surviving corporation, or (ii) a merger of PFC directly
into a wholly owned subsidiary of Signet, in which such subsidiary is the
surviving corporation, PROVIDED, HOWEVER, that no such change shall (A) alter or
change the amount or kind of consideration to be issued to holders of PFC Common
Stock as provided for in the Agreement, (B) adversely affect the tax treatment
to shareholders of PFC as a result of receiving such consideration or (C)
materially impede or delay the consummation of the transactions contemplated by
the Agreement.
The Articles of Incorporation of Signet in effect at the Effective Time
will be the Articles of Incorporation of the Surviving Corporation. The Bylaws
of Signet, together with all amendments thereto, if any, as in effect
immediately prior to the Effective Time, will thereafter be the bylaws of the
Surviving Corporation, until amended as provided therein or by law. See
"Comparative Rights of Shareholders." The directors and officers of Signet
immediately prior to the Effective Time will be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
RECOMMENDATION OF THE PFC BOARD OF DIRECTORS
The PFC Board of Directors considered a variety of factors in evaluating
the Agreement and Holding Company Merger, including the value being offered the
shareholders of PFC in relation to the market value, book value and earnings per
share of the PFC Common Stock; information concerning the financial condition,
results of operations and prospects of Signet and PFC; the competitive
environment for financial institutions generally; the compatibility of the
respective business management philosophies of PFC and Signet; the ability of
Signet and its subsidiary bank to provide comprehensive financial services in
relevant markets; the financial terms of other recent business combinations in
the local financial services industry; the fact that the consideration to be
received in the Holding Company Merger by PFC's stockholders reflects a premium
for the PFC Common Stock over the values at which it had traded in the market
during the year prior to the Board meeting; the fact that Signet, as a larger
financial institution holding company, has the financial resources to serve the
lending and deposit needs of the local communities served by PFC; and the
opinion of PFC's financial advisor, Baxter Fentriss and Company ("Baxter
Fentriss"), that the terms of the Holding Company Merger are fair to such
shareholders from a financial point of view. Based on such factors, the Board of
Directors of PFC has unanimously determined that the Holding Company Merger is
desirable and in the best interests of PFC shareholders and has approved the
Agreement, the Holding Company Plan of Merger and the Holding Company Merger.
THE BOARD OF DIRECTORS OF PFC UNANIMOUSLY RECOMMENDS A VOTE FOR THE MERGER
PROPOSAL. See "The Holding Company Merger -- PFC's Reasons and Recommendations
for the Merger."
THE EXCHANGE RATIO; CANCELLATION OF PFC STOCK OPTIONS
At the Effective Time, each share of PFC Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares to be
cancelled as described herein and other than Dissenting Shares (as
3
<PAGE>
defined below)) will be converted into .6232 of a share of Signet Common Stock
(the "Exchange Ratio"); PROVIDED, HOWEVER, in the event the Average Closing
Price of the Signet Common Stock is greater than $40.12, the Exchange Ratio will
be equal to $25.00 divided by the Average Closing Price of the Signet Common
Stock, and PROVIDED, FURTHER, that in the event that the Average Closing Price
of the Signet Common Stock is less than $33.30, PFC will have the right to
terminate the Agreement unless Signet agrees to adjust the Exchange Ratio to
$20.75 divided by the Average Closing Price of the Signet Common Stock. Each
outstanding share of Signet Common Stock at the Effective Time will remain
outstanding and unchanged as a result of the Holding Company Merger. See "The
Holding Company Merger -- The Exchange Ratio; Fractional Shares" and "The
Holding Company Merger -- Amendment and Termination of the Merger Agreement."
No fractional shares of Signet Common Stock will be issued in the Holding
Company Merger. Each holder who otherwise would have been entitled to a fraction
of a share of Signet Common Stock will receive in lieu thereof cash (without
interest) in an amount determined by multiplying the fractional share interest
to which such holder would otherwise be entitled by the average closing sales
prices of the Signet Common Stock as reported on the New York Stock Exchange
Composite Tape for the last five trading days immediately preceding the date of
the Effective Time. No such holder will be entitled to dividends, voting rights
or any other rights in respect of any fractional share.
If prior to the Effective Time, the outstanding shares of Signet Common
Stock shall have been increased, decreased, changed into or exchanged for a
different number or kind of shares or securities through a reorganization,
reclassification, stock dividend, stock split, reverse stock split or other
similar change in Signet's capitalization, appropriate adjustments will be made
to the Exchange Ratio (or to applicable dollar amounts set forth above);
provided that no such adjustments will be made on account of ordinary quarterly
cash dividends paid by Signet (including any increases which Signet may make in
such quarterly cash dividends).
Immediately prior to the Effective Time, each holder of an outstanding
option (a "PFC Stock Option") under PFC's Stock Option and Incentive Plan (the
"PFC Option Plan") will receive in cancellation for each share of PFC Common
Stock subject to a PFC Stock Option a cash payment in an amount equal to the
excess of (A) the product of the Exchange Ratio and the closing price of the
shares of Signet Common Stock on the trading date prior to the date of the
Effective Time over (B) the exercise price of such PFC Stock Option.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the PFC's management and Board of Directors have
interests in the Holding Company Merger in addition to their interests as
shareholders of PFC. Under the Agreement, the four senior executive officers of
PFC will upon consummation of the Transaction enter into employment agreements
with Signet or Signet Bank that will provide for an annual salary, employee
benefits, and severance benefits under certain circumstances. In addition,
officers and directors of PFC who hold a PFC Stock Option under the PFC Option
Plan will receive a cash payment for each share subject to option equal to the
excess of (A) the product of the Exchange Ratio and the closing price of the
shares of Signet Common Stock on the trading date prior to the date of the
Effective Time over (B) the exercise price of such PFC Stock Option. The
Agreement also provides that Signet will appoint the members of PFC's Board of
Directors to Signet Bank's Advisory Board and that such members shall receive
fees for such service. Further, the Agreement requires Signet, for a period of
six years after the Effective Time, to indemnify present and former officers,
directors and employees of PFC (including its subsidiaries) against certain
losses and other expenses in connection with claims which arise out of such
persons serving in such capacities and which pertain to matters or facts
arising, existing or occurring before the Effective Time. The Agreement also
requires Signet to permit PFC to purchase and keep in force for at least three
years after the Effective Time, directors' and officers' liability insurance to
provide coverage to the directors and officers of PFC and its subsidiaries with
respect to claims arising from facts or events that occurred prior to the
Effective Time, or to cause Signet's directors and officers insurance policy to
provide such protection to such person, in either case subject to the cost of
such insurance not exceeding 2.5 times the rate currently paid by PFC or Pioneer
Federal on such coverage. See "Holding Company Merger -- Interests of Certain
Persons in the Merger."
4
<PAGE>
OPINION OF FINANCIAL ADVISOR
The Board of Directors of PFC retained Baxter Fentriss to render financial
advisory services to PFC with regard to potential strategies to maximize
shareholder value, including the restructuring or sale of PFC, and has requested
that Baxter Fentriss render its opinion with respect to the fairness, from a
financial point of view, to PFC's shareholders of the terms offered in the
Holding Company Merger. Baxter Fentriss rendered its opinion to PFC's Board of
Directors as of February 16, 1994 that, from a financial point of view, the
terms of the Holding Company Merger were fair to the shareholders of PFC. The
opinion was updated and confirmed on July , 1994. The updated opinion sets
forth a description of the assumptions made and matters considered by Baxter
Fentriss and contains certain limitations and qualifications. A copy of the
Baxter Fentriss opinion dated July , 1994 is attached as ANNEX IV hereto, and
the description set forth herein is qualified in its entirety by reference to
the attached opinion. For additional information, see "The Holding Company
Merger -- Opinion of Financial Advisor" and the opinion of Baxter Fentriss
attached as ANNEX IV.
LIMITATIONS ON NEGOTIATION; OPTION GRANTED TO SIGNET
The Agreement provides that PFC (including its subsidiaries) will not
authorize or permit its officers, directors, representatives and agents to,
directly or indirectly, initiate contact with any person or entity in an effort
to solicit, initiate or encourage any proposal for a merger or other business
combination involving PFC or Pioneer Federal or for the acquisition of a ten
percent or greater equity interest in PFC or Pioneer Federal, or for the
acquisition of any material portion of the assets of PFC or Pioneer Federal
(each, a "Takeover Proposal"). Further, unless otherwise required by the
fiduciary duties of PFC's Board of Directors, PFC may not, with respect to such
a merger, business combination or acquisition, permit any officer, director,
representative or agent to (a) cooperate with or furnish non-public information
to any person or entity, (b) enter into negotiations, or (c) enter into an
agreement, letter of intent, or agreement in principle. See "Holding Company
Merger -- No Solicitation."
Simultaneously with the execution of the Agreement and as required by
Signet as a condition to its execution, PFC granted Signet an option to purchase
newly issued shares of PFC Common Stock in a number equal to approximately 19.9%
of the number of shares of PFC Common Stock outstanding immediately prior to the
exercise of such option. The exercise price of the option is $21.75 per share,
subject to adjustment under certain circumstances, and the option is exercisable
only upon the occurrence of specified events relating generally to offers to
acquire PFC and the acquisition by third parties of specified percentages of PFC
Common Stock as well as PFC's or Pioneer Federal's entering into a written
agreement with a third party with respect to certain types of acquisition
transactions. To the knowledge of PFC and Signet, no event giving rise to the
exercise of such option has occurred as of the date of this Proxy
Statement/Prospectus. See "Holding Company Merger -- Stock Option Agreement."
The foregoing provisions may have the effect of discouraging competing
offers to acquire or merge with PFC.
REGULATORY APPROVALS REQUIRED
The Transaction is subject to the prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") under the Bank
Holding Company Act of 1956, as amended, the Office of Thrift Supervision
("OTS") under the Home Owners' Loan Act, as amended ("HOLA"), and the Bureau of
Financial Institutions of the Virginia State Corporation Commission (the "Bureau
of Financial Institutions") under the Virginia Savings Institutions Act. On May
12, 1994, the Federal Reserve Board approved the Transaction and, as part of
such approval, required that the Transaction be consummated within three months
of the date of such approval unless such period is extended by the Federal
Reserve Bank of Richmond. On June 8, 1994, the OTS approved the Transaction and,
as part of such approval, required that (i) the chief financial officers of
Pioneer Federal and Signet Bank shall certify in writing on the day prior to the
Effective Time that no material adverse events or material adverse changes have
occurred with respect to the financial condition or operations of the two
entities since the date of the financial statements submitted with the OTS
application and (ii) the Transaction must be consummated within 120 days of the
date of such approval unless such period is extended by the Regional Director of
the OTS or his designee. On June 9, 1994, the Bureau of Financial Institutions
approved the Transaction. See "The Holding Company Merger -- Regulatory
Approvals Required."
5
<PAGE>
CONDITIONS, AMENDMENT AND TERMINATION
The respective obligations of Signet and PFC to consummate the Holding
Company Merger are subject to the satisfaction of certain conditions, including,
among others, (i) the receipt of all required regulatory approvals with respect
to the Transaction and the expiration of all required regulatory waiting
periods, (ii) the approval of the Merger Proposal by the requisite vote of the
PFC shareholders, (iii) receipt of an opinion of counsel regarding certain tax
aspects of the Holding Company Merger to the PFC shareholders, (iv) the absence
of any material adverse change in the financial condition or results of
operations of PFC and Pioneer Federal and (v) certain other conditions customary
in transactions of this kind. A failure of any such conditions to be satisfied,
if not waived, would prevent consummation of the Holding Company Merger and
result in termination of the Agreement. See "The Holding Company
Merger -- Conditions to Consummation of the Holding Company Merger."
At any time before the Effective Time and subject to applicable law, the
Agreement may be amended by written agreement of the Boards of Directors of
Signet and PFC. However, after adoption and approval of the Agreement by the PFC
shareholders, the Agreement may not be amended as to the amount or form of the
consideration to be received by PFC shareholders without the further approval of
PFC shareholders. The Agreement may be terminated at any time prior to the
Effective Time, whether before or after adoption and approval of the Agreement
by the PFC shareholders, (i) by mutual consent of Signet and PFC, (ii) by either
Signet or PFC if under certain circumstances the Effective Time has not occurred
on or before December 31, 1994, (iii) by Signet or PFC if under certain
circumstances any event occurs that renders impossible satisfaction of a
condition in the Agreement, or (iv) by PFC if the Average Closing Price of the
Signet Common Stock is less than $33.30 per share (subject to adjustment under
certain conditions) unless Signet has agreed to adjust the Exchange Ratio to
$20.75 divided by the Average Closing Price of the Signet Common Stock. See "The
Holding Company Merger -- Amendment and Termination of the Agreement."
DISSENTERS' RIGHTS
Pursuant to the VSCA, holders of PFC Common Stock entitled to vote on
approval of the Merger Proposal have the right to dissent from the Merger
Proposal and to demand payment of the fair value of such holder's shares of PFC
Common Stock in the event the Holding Company Merger is consummated. A holder of
PFC Common Stock who wishes to assert such holder's dissenters' rights must (i)
deliver to PFC, before such vote is taken on the Merger Proposal, written notice
of such holder's intent to demand payment for such shares if the Holding Company
Merger is consummated, (ii) not vote such shares in favor of approval of the
Merger Proposal and (iii) comply with the further provisions of the VSCA in
order to be entitled to receive in cash, if the Holding Company Merger is
consummated, the fair value of such holder's PFC Common Stock. A vote against
approval of the Merger Proposal will not constitute written notice of an intent
to demand payment nor will a failure to vote against such approval constitute a
waiver of dissenters' rights. The procedures to be followed by dissenting
shareholders are summarized under "The Holding Company Merger -- Dissenters'
Rights" and a copy of the applicable provisions of the VSCA is set forth in
ANNEX V to this Proxy Statement/Prospectus. Failure to follow such provisions
precisely may result in loss of such dissenters' rights.
In general, any dissenting shareholder who perfects such holder's statutory
dissenters' rights to be paid in cash the fair value of such holder's PFC Common
Stock will recognize gain or loss for federal income tax purposes upon receipt
of such cash. See "The Holding Company Merger -- Certain Federal Income Tax
Consequences."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Holding Company Merger is intended to be a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Generally, no gain or loss should be recognized for
federal income tax purposes by PFC shareholders as a result of the Holding
Company Merger, except a gain or loss will be recognized with respect to cash
received by dissenters, if any, or cash received in lieu of fractional shares. A
condition to consummation of the Holding Company Merger is the receipt by PFC
and Signet of an opinion of Wachtell, Lipton, Rosen & Katz as to the
qualification of the Holding Company Merger as a tax-free reorganization and
certain other federal income tax consequences of the Holding Company Merger. See
"The Holding Company Merger -- Certain Federal Income Tax Consequences."
6
<PAGE>
BECAUSE CERTAIN TAX CONSEQUENCES OF THE HOLDING COMPANY MERGER MAY VARY
DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER OF PFC AND OTHER
FACTORS, EACH HOLDER OF PFC COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN
TAX ADVISER TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
HOLDING COMPANY MERGER (INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL
INCOME AND OTHER TAX LAWS).
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Time, shareholders of PFC, other than those who properly
exercise dissenters' rights, will become shareholders of Signet and their rights
as shareholders of Signet will be determined by the VSCA and by Signet's
Articles of Incorporation and Bylaws. The rights of PFC's shareholders are
currently governed by the VSCA and by PFC's Articles of Incorporation and
Bylaws. The rights of shareholders of Signet differ from rights of shareholders
of PFC with respect to certain matters. For a summary of these differences, see
"Comparative Rights of Shareholders."
MARKET PRICES PRIOR TO ANNOUNCEMENT OF THE TRANSACTION
The following is information regarding the price per share of Signet Common
Stock and PFC Common Stock prior to the public announcement of the proposed
Transaction on February 17, 1994. The historical prices for Signet Common Stock
and PFC Common Stock are each based on the reported last sale price on February
16, 1994, the last trading day preceding the announcement of the proposed
Transaction, as reported, in the case of Signet, in the New York Stock Exchange
Composite Tape and, in the case of PFC, in the NASDAQ National Market System.
<TABLE>
<CAPTION>
SIGNET PFC PFC
HISTORICAL HISTORICAL EQUIVALENT
PRICE PRICE PRICE (A)
<S> <C> <C> <C>
Common Stock.................. $38.00 $21.75 $23.68
</TABLE>
(a) The amount of the equivalent price for PFC Common Stock is the product of
multiplying an assumed Exchange Ratio of .6232 of a share of Signet Common
Stock by $38.00 per share.
On July , 1994, the most recent practicable date prior to the printing of
this Proxy Statement/Prospectus, the closing price of Signet Common Stock on the
NYSE Composite Tape was $ per share and the closing price of PFC Common Stock
on the NASDAQ National Market System was $ per share (or $ per PFC
Equivalent Share).
COMPARATIVE PER SHARE DATA
The following table presents historical and pro forma per share data for
Signet and historical and equivalent pro forma per share data for PFC. The pro
forma combined amounts give effect to an assumed Exchange Ratio of .6232 of a
share of Signet Common Stock for each share of PFC Common Stock. The equivalent
pro forma PFC per share amounts are computed by multiplying the pro forma
combined amounts by such assumed Exchange Ratio of .6232. The final Exchange
Ratio will be determined as described under "The Holding Company Merger -- The
Exchange Ratio; Fractional Shares."
Signet's fiscal year ends December 31 and PFC's fiscal year ends September
30. PFC book value per share is as of December 31, 1993 and March 31, 1994. PFC
net income and dividend data reflect results for the twelve months ended
September 30, 1993 and three months ended March 31, 1994, respectively.
The per share data included in the following table should be read in
conjunction with the notes thereto, the consolidated financial statements of
Signet and PFC incorporated by reference herein and the financial statements of
PFC included herein and the notes accompanying all such financial statements.
The data presented below is not necessarily indicative of the results of
operations which would have been obtained if the Holding Company Merger had been
consummated in the past or which may be obtainable in the future.
7
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table presents historical data for Signet and PFC and pro
forma per share data giving effect to the Holding Company Merger as described
elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1994 FISCAL YEAR 1993
PRO FORMA PRO FORMA
SIGNET SIGNET
AND AND
EQUIVALENT EQUIVALENT
PRO FORMA PRO FORMA
HISTORICAL (1) PFC (2) HISTORICAL (1) PFC (2)
<S> <C> <C> <C> <C>
Signet Common Stock:
Net income(3)(6)............ $ .93 $ .91 $ 3.06 $ 3.02
Cash dividends(4)........... .25 .25 0.80 0.80
Book value(5)(6)............ 17.95 18.48 17.04 17.59
PFC Common Stock:
Net income.................. .33 .57 1.48 1.88
Cash dividends.............. .05 .16 .15 .50
Book value.................. 21.61 11.51 21.70 10.96
</TABLE>
(1) Signet historical data are as of December 31, 1993 and for the year then
ended and as of March 31, 1994 and the three months then ended. PFC
historical net income and cash dividends are for the year ended September
30, 1993 and the three months ended March 31, 1994. PFC historical book
value is as of December 31, 1993 and March 31, 1994.
(2) Equivalent pro forma per share information for PFC is presented on an
equivalent per share basis assuming a conversion ratio of .6232 of a share
of Signet common stock for each share of PFC common stock.
(3) Pro forma combined net income per Signet common share represents combined
net income divided by pro forma combined average common shares outstanding.
(4) Based on historical dividends of Signet.
(5) Pro forma combined book value per Signet common share represents pro forma
combined common stockholders' equity amounts, divided by pro forma combined
period-end common shares outstanding.
(6) Pro forma combined book value per share and net income per share amounts for
Signet and PFC do not reflect exercise of options to acquire shares of PFC
common stock. Options to acquire 183,255 and 178,255 shares were outstanding
at December 31, 1993 and March 31, 1994, respectively. Assumed exercise of
these options does not have a significant impact upon either the combined
common stockholders' equity of Signet and PFC or the pro forma combined net
income per share.
8
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for Signet for each
of the five years in the period ended December 31, 1993 and the three months
ended March 31, 1994 and 1993 and for PFC for each of the five years in the
period ended September 30, 1993 and the six months ended March 31, 1994 and
1993. Such data should be read in conjunction with the consolidated financial
statements and notes thereto of Signet and PFC, the unaudited consolidated
interim financial statements of Signet and PFC, all incorporated by reference in
this Joint Proxy Statement/Prospectus and the financial statements of PFC
included herein. Selected unaudited financial data for the three months ended
March 31, 1994 and 1993 for Signet and for the six months ended March 31, 1994
and 1993 for PFC includes all adjustments (consisting only of normal recurring
accruals) that Signet and PFC, respectively, consider necessary for a fair
presentation of the consolidated operating results of such interim periods.
Results for the interim periods are not necessarily indicative of results for
the full year.
SELECTED HISTORICAL FINANCIAL DATA OF SIGNET
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
(UNAUDITED) YEAR ENDED DECEMBER 31
1994 1993 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS -- EXCEPT PER SHARE)
Consolidated Summary of Operations:
Interest income................................. $ 189,635 $ 193,870 $ 803,725 $ 767,262 $ 963,586
Interest expense................................ 62,419 63,990 274,385 331,652 565,616
Net interest income............................. 127,216 129,880 529,340 435,610 397,970
Provision for loan losses....................... 5,499 15,498 47,286 67,794 287,484
Non-interest income............................. 128,363 76,534 365,436 273,541 341,758
Non-interest expense............................ 172,109 134,057 598,316 499,239 508,925
Income (loss) before income taxes (benefit)..... 77,971 56,859 249,174 142,118 (56,681)
Applicable income taxes (benefit)............... 24,858 18,592 74,760 32,918 (30,934)
Net income (loss)............................... $ 53,113 $ 38,267 $ 174,414 $ 109,200 $ (25,747)
Per Common Share*:
Net income (loss)............................... $ .93 $ .68 $ 3.06 $ 1.96 $ (.48)
Cash dividends declared......................... .25 .15 .80 .45 .30
Book value...................................... 17.95 15.30 17.04 14.77 13.17
Consolidated Average Balances:
Total assets.................................... $11,310,310 $11,142,643 $11,617,451 $11,167,886 $11,533,723
Loans, net of unearned income................... 6,235,210 6,029,009 6,206,417 5,618,412 6,071,067
Allowance for loan losses....................... 252,360 270,557 263,593 307,558 191,856
Deposits........................................ 7,815,385 7,565,610 7,732,585 7,886,171 8,362,122
Long-term borrowings............................ 258,266 297,764 286,809 298,475 317,799
Common stockholders' equity..................... 1,007,162 841,121 889,161 767,963 749,907
Common Shares:
Outstanding at period-end....................... 56,719 28,050 56,609 27,981 27,018
Average (includes common stock equivalents)*.... 57,247 56,705 56,920 55,727 53,994
Selected Ratios:
Return on average assets........................ 1.90% 1.39% 1.50% .98% N/M
Return on average common stockholders' equity... 21.39 18.45 19.62 14.22 N/M
Common equity to assets at period-end........... 8.83 7.45 8.14 6.84 6.33%
Allowance for loan losses to loans at
period-end.................................... 4.19 4.33 4.01 4.57 5.60
Non-performing assets to loans and foreclosed
properties at period end...................... 1.47 2.23 1.83 3.08 5.53
<CAPTION>
1990 1989
<S> <C> <C>
Consolidated Summary of Operations:
Interest income................................. $ 1,229,612 $ 1,186,920
Interest expense................................ 785,684 752,060
Net interest income............................. 443,928 434,860
Provision for loan losses....................... 182,724 58,530
Non-interest income............................. 201,542 185,248
Non-interest expense............................ 414,535 395,061
Income (loss) before income taxes (benefit)..... 48,211 166,517
Applicable income taxes (benefit)............... 6,833 43,197
Net income (loss)............................... $ 41,378 $ 123,320
Per Common Share*:
Net income (loss)............................... $ .78 $ 2.27
Cash dividends declared......................... .78 .76
Book value...................................... 13.83 14.07
Consolidated Average Balances:
Total assets.................................... $12,349,079 $11,467,015
Loans, net of unearned income................... 7,217,647 6,915,557
Allowance for loan losses....................... 118,240 88,211
Deposits........................................ 7,900,146 7,341,480
Long-term borrowings............................ 353,452 320,302
Common stockholders' equity..................... 754,770 709,115
Common Shares:
Outstanding at period-end....................... 26,615 26,673
Average (includes common stock equivalents)*.... 53,027 53,373
Selected Ratios:
Return on average assets........................ .34% 1.08%
Return on average common stockholders' equity... 5.48 17.12
Common equity to assets at period-end........... 6.46 6.02
Allowance for loan losses to loans at
period-end.................................... 2.54 1.30
Non-performing assets to loans and foreclosed
properties at period end...................... 4.12 1.40
</TABLE>
*The per common share and average common shares outstanding data above reflect a
two-for-one common stock split in the form of a dividend which was declared on
June 23, 1993 to shareholders of record July 6, 1993 and distributed July 27,
1993.
N/M: Not meaningful
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF PFC
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31
(UNAUDITED) YEAR ENDED SEPTEMBER 30
1994 1993 1993 1992 1991
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS -- EXCEPT PER SHARE)
Consolidated Summary of Operations:
Interest income................................. $ 13,169 $ 16,116 $ 31,950 $ 33,812 $ 42,187
Interest expense................................ 6,862 10,379 18,631 26,195 33,332
Net interest income............................. 6,307 5,737 13,319 7,617 8,855
Provision for loan losses....................... 106 200 534 1,205 4,824
Non-interest income............................. 1,056 1,389 6,461 8,921 11,770
Non-interest expense............................ 4,655 5,291 10,579 10,072 10,132
Income before income taxes and extraordinary
item.......................................... 2,602 1,635 8,667 5,261 5,669
Income taxes.................................... 718 402 2,747 1,261 2,986
Income (loss) before extraordinary item......... 1,884 1,233 5,920 4,000 2,683
Extraordinary item.............................. 2,216 272
Net income (loss)............................... $ 1,884 $ 1,233 $ 3,704 $ 4,000 $ 2,411
Per Common Share:
Net income (loss)............................... $ .77 $ .50 $ 1.48 $ 1.59 $ .88
Cash dividends declared......................... .10 .10 .15 .10 .10
Book value...................................... 21.61 19.92 21.40 19.46 17.43
Consolidated Average Balances:
Total assets.................................... $ 395,591 $ 478,540 $ 455,825 $ 506,842 $ 499,740
Loans, net of unearned income................... 220,333 196,188 205,222 195,147 231,035
Allowance for loan losses....................... 4,616 4,332 4,231 4,119 3,740
Deposits........................................ 313,882 312,129 310,659 339,086 349,190
Long-term borrowings............................ -- 22,750 22,750 98,833 34,958
Common stockholders' equity..................... 50,859 48,149 47,819 47,256 43,236
Common Shares:
Outstanding at period-end....................... 2,348,799 2,432,768 2,342,266 2,457,768 2,613,009
Average (includes common stock equivalents)..... 2,447,053 2,456,339 2,501,373 2,510,788 2,749,602
Selected Ratios:
Return on average assets........................ .95% .52% .81% .79% .48%
Return on average common stockholders' equity... 7.41 5.12 7.75 8.47 5.58
Common equity to assets at period-end........... 12.94 10.13 12.27 10.21 9.13
Allowance for loan losses to loans at
period-end.................................... 2.20 2.00 2.09 2.53 2.11
Non-performing assets to loans and foreclosed
properties at period end...................... 5.20 8.12 4.02 7.12 6.83
<CAPTION>
1990 1989
<S> <C> <C>
Consolidated Summary of Operations:
Interest income................................. $ 51,555 $ 59,875
Interest expense................................ 40,846 48,859
Net interest income............................. 10,709 11,016
Provision for loan losses....................... 2,992 2,124
Non-interest income............................. 3,505 35,247
Non-interest expense............................ 10,561 13,112
Income before income taxes and extraordinary
item.......................................... 661 31,027
Income taxes.................................... 749 10,341
Income (loss) before extraordinary item......... (88) 20,686
Extraordinary item..............................
Net income (loss)............................... $ (88) $ 20,686
Per Common Share:
Net income (loss)............................... $ (.02) $ 5.13
Cash dividends declared......................... .06 .28
Book value...................................... 13.10 14.06
Consolidated Average Balances:
Total assets.................................... $ 555,644 $ 647,359
Loans, net of unearned income................... 279,782 382,989
Allowance for loan losses....................... 1,789 2,664
Deposits........................................ 360,237 407,279
Long-term borrowings............................ 75,833 83,458
Common stockholders' equity..................... 46,006 44,828
Common Shares:
Outstanding at period-end....................... 2,929,637 3,571,304
Average (includes common stock equivalents)..... 3,424,417 4,028,792
Selected Ratios:
Return on average assets........................ N/M 3.2%
Return on average common stockholders' equity... N/M 46.14
Common equity to assets at period-end........... 6.76% 8.76
Allowance for loan losses to loans at
period-end.................................... 1.05 .47
Non-performing assets to loans and foreclosed
properties at period end...................... 2.87 .98
</TABLE>
N/M: Not meaningful
10
<PAGE>
GENERAL INFORMATION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the PFC Board of Directors, to be voted at the
Special Meeting of PFC to be held at Pioneer Financial Corporation, 5601
Ironbridge Parkway, Chester, Virginia, on August 26, 1994, at 2:00 p.m. and at
any adjournment thereof. At the Special Meeting, shareholders will consider and
vote upon the Merger Proposal. Pursuant to the Agreement, PFC will merge with
and into Signet, and Signet will succeed to the business of PFC. Only
shareholders of record of PFC at the close of business on July 1, 1994 are
entitled to notice of and to vote at the Special Meeting. This Proxy
Statement/Prospectus is being mailed to all such holders of record of PFC Common
Stock on or about July , 1994.
The affirmative vote of the holders of more than two-thirds of the
outstanding shares entitled to vote is required for approval of the Merger
Proposal. As of the Record Date, the directors and executive officers of PFC and
their affiliates beneficially owned a total of 110,623 shares (representing
approximately 4.71% of the outstanding shares of PFC Common Stock), and the
directors of Signet owned no PFC Common Stock. The number of shares of PFC
Common Stock owned by the directors and executive officers of PFC excludes an
aggregate of 106,507 shares issuable upon the exercise of options granted to
such directors and executive officers and which do not have voting rights. PFC
has been advised that the shares of PFC Common Stock owned by the directors and
executive officers of PFC will be voted for approval of the Merger Proposal.
Holders of PFC Common Stock are also being asked to approve the adjournment
of the Special Meeting to a later date in the event an insufficient number of
shares of PFC Common Stock is present in person or by proxy at the Special
Meeting to approve the Agreement and the Holding Company Plan of Merger. An
affirmative vote of the holders of a majority of the shares of PFC Common Stock
present in person or by proxy at the Special Meeting is required for approval of
this proposal.
The proxies solicited hereby, if properly signed and returned and not
revoked prior to their use, will be voted in accordance with the instructions
given thereon by the shareholders. If no instructions are so specified, the
proxies will be voted FOR the Merger Proposal and FOR adjournment of the Special
Meeting under the circumstances described above. Any shareholder giving a proxy
has the power to revoke it at any time before it is exercised by (i) filing
written notice of revocation with the Corporate Secretary of PFC (ATTN: Frances
M. Leslie, Pioneer Financial Corporation, 5601 Ironbridge Parkway, Chester,
Virginia 23831); (ii) submitting a duly executed proxy bearing a later date; or
(iii) appearing at the Special Meeting and notifying the Secretary of his or her
intention to vote in person. The presence of a shareholder at the Special
Meeting will not, by itself, be sufficient to revoke such proxy. Proxies
solicited by this Proxy Statement/Prospectus may be exercised only at the
Special Meeting and any adjournment thereof and will not be used for any other
meeting.
The accompanying proxy is being solicited by the PFC Board of Directors.
The cost of such solicitation will be borne by PFC. PFC has retained Morrow &
Co., Inc., a professional proxy solicitation firm, to assist in the solicitation
of proxies. That firm will receive a fee of $5,500 plus reimbursement of
expenses. In addition, proxies may be solicited by personal interview, telephone
or telegram by directors, officers and employees of PFC or Signet without
additional compensation. Arrangements may also be made with brokerage houses and
other custodians, nominees and fiduciaries for forwarding of solicitation
material to the beneficial owners of stock held of record by such persons.
The PFC Board has no information that other matters will be brought before
the meeting. If other matters are presented, however, the accompanying proxy
will be voted in accordance with the determination of a majority of PFC's Board
of Directors.
For the reasons described below, the PFC Board of Directors has adopted the
Agreement and Holding Company Plan of Merger, believes the Holding Company
Merger is in the best interest of PFC and its shareholders and unanimously
recommends that shareholders of PFC vote FOR approval of the Merger Proposal. In
making its recommendation, the PFC Board of Directors considered, among other
things, the opinion of Baxter Fentriss that the terms of the Holding Company
Merger are fair to the PFC shareholders from a financial point of view. See "The
Holding Company Merger -- PFC's Reasons for the Merger," and " -- Opinion of
Financial Advisor." The PFC Board of Directors also unanimously recommends that
shareholders of PFC vote FOR approval of the adjournment of the Special Meeting
under the circumstances described herein.
11
<PAGE>
The address of Signet is 7 North Eighth Street, Richmond, Virginia 23219
and its telephone number is (804) 747-2000. The address of PFC is 5601
Ironbridge Parkway, Chester, Virginia 23831 and its telephone number is (804)
748-9733.
RECENT DEVELOPMENTS
SIGNET
FORMATION OF CREDIT CARD BANK. On May 2, 1994, Signet filed applications
seeking federal and state regulatory approvals to establish a separately
chartered Virginia state member credit card bank subsidiary. Signet's credit
card operations are currently conducted in Signet Bank/Virginia. Establishing a
separate credit card bank will provide Signet with greater funding flexibility
and will enable the credit card operations to compete more effectively on a
national basis with other credit card companies. Signet hopes to establish the
separate credit card bank in the second half of 1994.
SECOND QUARTER EARNINGS. The following unaudited consolidated financial
data for Signet for the three months and six months ended June 30, 1994 and 1993
includes, in the opinion of Signet's management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of operations for such periods. The results for the first half of 1994
are not necessarily indicative of the results which may be experienced for the
full 1994 year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
(UNAUDITED)
CONDENSED STATEMENTS OF INCOME (IN
THOUSANDS -- EXCEPT PER SHARE)
Interest income $196,225 $201,466 $385,860 $395,336
Interest expense 71,315 71,684 133,734 135,674
Net interest income 124,910 129,782 252,126 259,662
Provision for loan losses 2,999 9,011 8,498 24,509
Net interest income after provision for
loan losses 121,911 120,771 243,628 235,153
Non-interest income 139,467 81,229 267,830 157,763
Non-interest expense 186,625 146,809 358,734 280,866
Income before income taxes 74,753 55,191 152,724 112,050
Income taxes 24,368 14,751 49,226 33,343
Net income $ 50,385 $ 40,440 $103,498 $ 78,707
Earnings per share $0.88 $0.71 $1.81 $1.39
<CAPTION>
JUNE 30
1994 1993
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA (IN MILLIONS)
Assets $ 10,824 $ 12,044
Loans (net of unearned income) 5,727 5,824
Deposits 7,549 7,828
Long-term debt 254 297
Total stockholders' equity 1,037 890
Common equity to assets 9.58% 7.39%
</TABLE>
EARNINGS SUMMARY
Net interest income totaled $124.9 million for the second quarter and
$252.1 million for the first half of 1994. Net interest income decreased 4
percent from the 1993 second quarter and 3 percent from the 1993 first half
largely as a result of increased cost of funds and the securitization of $3.5
billion of credit card assets in late 1993 and the first half of 1994. The
resulting net yield margin was 5.01 percent for the quarter, down 2 basis points
from the same quarter last year and 23 basis points from the first quarter of
1994.
The provision for loan losses was $3.0 million and $8.5 million for the
second quarter and first half of 1994, respectively. This represents a
substantial reduction from the $9.0 million and $24.5 million for the same
respective time periods in 1993. The reduced loan loss provision reflects
Signet's improved credit quality.
12
<PAGE>
Non-interest income totaled $139.5 million for the second quarter and
$267.8 million for the six-month period, representing respective increases of 72
percent and 70 percent over the second quarter and first half of 1993. The
increase in non-interest income was due primarily to the securitization of
credit card assets. Taking into account the effects of securitizations, total
net revenues, the combination of net interest income and non-interest income,
rose from $211 million in the second quarter of 1993 to $264.4 million in the
second quarter of 1994, or 25 percent. Signet also had $3.3 million in
securities available for sale gains during the quarter.
Non-interest expense increased $39.8 million, or 27 percent, for the second
quarter of 1994 and $77.9 million, or 28 percent, for the first half of 1994,
compared with the 1993 levels. Direct costs associated with Signet's credit card
business accounted for most of the increase and included new account
solicitation costs of $24.3 million in the second quarter of 1994, compared with
$17.3 million for the three months ended June 30, 1993.
BALANCE SHEET SUMMARY
The decrease in net loans from June 30, 1993 to June 30, 1994 was primarily
attributable to the securitization of $2.3 billion of credit card loans in the
second half of 1993 and an additional $1.2 billion in June of 1994.
At June 30, 1994, credit card loans held for securitization totaled $750
million compared with $1.0 billion at June 30, 1993.
Securities available for sale amounted to $1.2 billion at June 30, 1994
compared with $0.3 billion the previous year. This increase reflects the
adoption of SFAS No. 115 on January 1, 1994, pursuant to which securities
totaling $1.5 billion were reclassified from investment securities to securities
available for sale. At June 30, 1994, the cost of securities available for sale
exceeded the fair value by $19.5 million.
At June 30, 1994, the investment securities portfolio was $0.2 billion
compared with $1.9 billion at June 30, 1993. At June 30, 1994, the fair value of
investment securities exceeded the cost by $10.1 million.
Total deposits declined 4 percent from last year, as core deposits
experienced a similar decline.
ASSET QUALITY
Non-performing assets totaled $77.7 million at June 30, 1994, or 1.35
percent of loans and foreclosed properties. Non-performing assets were down
$52.1 million from the end of the 1993 second quarter and $10.7 million since
March 31, 1994. The allowance for loan losses amounted to $245.8 million, or
4.29 percent of loans, at June 30, 1994, compared with $258.6 million, or 4.44
percent, at June 30, 1993. The allowance at the end of the 1994 second quarter
equaled 617 percent of non-performing loans and 316 percent of non-performing
assets.
Net charge-offs of loans amounted to $6.1 million, or 0.38 percent of
average loans, in the second quarter of 1994 compared with $22.7 million, or 1.4
percent, for the second quarter of 1993. For the first six months, net
charge-offs declined from $30.5 million, or 0.97 percent of average loans, in
1993 to $11.7 million, or 0.37 percent of average loans, in 1994.
FINANCIAL RATIOS
Signet's return on assets was 1.76 percent for the 1994 second quarter and
1.83 percent for the first half, while the return on common stockholders' equity
was 19.87 percent and 20.62 percent for the same respective periods. Signet's
common equity to assets ratio of 9.58 percent at June 30, 1994, represented a 30
percent increase over the 1993 second quarter ratio of 7.39 percent.
PFC
In March , 1994, PFC discovered that one of Pioneer Federal's customers was
apparently engaged in "kiting" checks drawn on another financial institution and
deposited in its account at Pioneer Federal. As a result, an overdraft was
created in the account in the approximate amount of $1.93 million. In order to
avoid the expense and uncertainties of litigation, Pioneer Federal has entered
into a settlement agreement under which it will receive $1.3 million to settle
the claims that Pioneer Federal has made against the customer and the other
financial institution.
13
<PAGE>
On the basis of its assessment of all currently available information
regarding this matter and PFC's operations, management of PFC does not expect
this development to have a material adverse effect on PFC or Pioneer Federal.
There can be no assurance, however, that Signet will agree with this conclusion.
In the event that Signet were to assert that losses associated with this
development represent a material adverse change in the business, financial
condition or results of operations of PFC and Pioneer Federal within the meaning
of the Agreement, or otherwise caused the failure of any condition to
consummation of the Transaction, Signet could claim that it is relieved from its
obligation to effect the Merger and the transactions contemplated in the
Agreement.
PROPOSAL I
THE HOLDING COMPANY MERGER
The detailed terms of the Holding Company Merger are contained in the
Agreement, attached as ANNEX I to this Proxy Statement/Prospectus, and the
Holding Company Plan of Merger, attached as ANNEX III to this Proxy
Statement/Prospectus. The following discussion describes the more important
aspects of the Holding Company Merger and the terms of the Agreement. This
description is not complete and is qualified by reference to the Agreement which
is incorporated by reference herein.
PARTIES TO THE TRANSACTION
SIGNET. Signet is a Virginia corporation which serves as the holding
company for Signet Bank/Virginia, Signet Bank N.A. of Washington, D.C. and
Signet Bank/Maryland. At March 31, 1994, Signet had approximately $11.5 billion
in total assets, $7.9 billion in total deposits and $1.0 billion in total
shareholders' equity.
Signet is engaged in the general commercial and consumer banking business
and provides a full range of banking services to individuals, businesses and
organizations through a network of 239 banking offices, 243 automated teller
machines and a 24-hour full-service Telephone Banking Center. Signet is a major
issuer of credit cards, offering a broad spectrum of card products designed to
meet the needs of varying market segments. Signet also offers investment
services including municipal bond, government, federal agency and money market
sales and trading, foreign exchange trading and discount brokerage. In addition,
an international operation concentrating on trade finance, specialized services
for trust, leasing, asset based lending, cash management, real estate,
insurance, consumer financing and investment banking are offered.
The executive offices of Signet are located in Richmond, Virginia at 7
North Eighth Street. Signet's Operations Center is also located in Richmond.
PFC. PFC is a Virginia corporation which serves as the holding company for,
and conducts its principal business through, its wholly-owned subsidiary,
Pioneer Federal. At March 31, 1994, PFC had approximately $392 million in total
assets, $310 million in total deposits, and $51 million in shareholders' equity.
For regulatory purposes, PFC is classified as a unitary savings and loan
holding company and its principal business is that of its wholly owned
subsidiary, Pioneer Federal, a federally-chartered stock savings bank with
executive and administrative offices in Chester, Virginia. The principal
business of Pioneer Federal consists of accepting deposits from the general
public and investing such deposits, together with borrowings and other funds, in
loans secured by one-to four-family residential, multi-family and commercial
properties as well as in construction loans. In addition, Pioneer Federal
originates a limited amount of commercial and consumer loans. Pioneer Federal
also maintains a substantial investment portfolio consisting primarily of
mortgage-backed and U.S. Treasury securities. Through its wholly-owned
subsidiaries, Pioneer Federal also engages in mortgage brokerage, insurance
agency operations, investment in land acquisition and development projects, and
the disposal of foreclosed real estate.
Additional information about Signet and PFC and their respective
subsidiaries is included in documents incorporated by reference in this Proxy
Statement/Prospectus. See "Incorporation of Certain Information By Reference."
BACKGROUND OF THE MERGER
The Board of Directors of PFC has believed for a number of years that the
best interests of PFC's stockholders would be served by a sale of PFC provided
that the terms of the transaction, including most significantly the
amount and form of consideration to be received by stockholders, were fair.
Beginning in the late 1980s, structural impediments resulting primarily from
legislative and regulatory action have inhibited the generation of non-interest
income, traditionally a significant source of PFC's profitability, thereby
hindering its ability to generate competitive returns on invested capital.
Heightened competition from commercial banks and non-bank institutions providing
financial services, which have generally operated with fewer structural
impediments, has further hindered PFC's ability to generate favorable returns,
and it is expected that the competitive advantages of commercial banks and other
institutions insured by the Bank Insurance Fund ("BIF") will increase over time
as a result of the potential disparity between deposit insurance premiums paid
by BIF members and institutions, like Pioneer Federal, insured by the Savings
Association Insurance Fund ("SAIF"). For these reasons, the Board of PFC has
regarded a sale of PFC as the most effective means of maximizing shareholder
value provided that suitable economic, market, regulatory and other conditions
prevail.
Exceptionally favorable conditions in the market for thrift stocks prompted
the Board to consider a sale of PFC in early 1993. During the first several
months of 1993, the President of PFC, with the Board's concurrence, held
informal discussions with executive officers of a number of bank holding
companies as to a possible acquisition of PFC. No formal offers to acquire PFC
resulted from these discussions.
In September 1993, the Board of Directors met with representatives of
Baxter Fentriss to discuss the procedural, strategic and regulatory aspects of a
possible sale of PFC and the market's perception of PFC's value. Following these
discussions, the Board approved the engagement of Baxter Fentriss as PFC's agent
and financial advisor in connection with a possible sale.
Beginning in November 1993, Baxter Fentriss solicited, on a confidential
basis, indications of interest from other financial institutions as to a
possible merger with or acquisition of PFC. A confidential information
memorandum providing detailed information regarding PFC was distributed to over
40 potential merger partners. The memorandum solicited indications of interest
in acquiring PFC in one of two ways: purchase of the entire corporation (a
"Whole Bank Transaction"), or purchase of the entire corporation with a
corresponding tax-free spin off of certain of Pioneer Federal's real estate
properties to the stockholders of PFC (a "Spin Off Transaction"). The memorandum
requested interested parties to provide, among other things, an indication of
the price to be paid for PFC in both a Whole Bank Transaction and a Spin Off
Transaction, as well as the financing arrangements that the interested party
could offer for purposes of continuing development of the real estate properties
to be spun off. The Board of PFC believed that the Spin Off Transaction could
potentially maximize the value to be realized by stockholders in an acquisition
of PFC, provided that it could be accomplished as a tax free transaction, that
satisfactory arrangements for financing of the real estate properties could be
made and that certain other criteria were met. Interested parties were given
until December 31, 1993, later extended to January 14, 1994, to submit
expressions of interest for an acquisition of PFC.
In response to the confidential information memorandum, four bank holding
companies submitted preliminary indications of interest in acquiring PFC, all of
which were subject to due diligence reviews of PFC's and Pioneer Federal's
operations. The bids consisted of the following: (1) an All Bank Transaction at
$26.00 per share in cash; (2) Signet's proposal for a Spin Off Transaction in
which Signet offered Common Stock of Signet valued at $18.40 per share plus
stock, valued at $5.30 per share, to be issued by a newly formed company that
would hold the spun off real estate properties; (3) a third bidder's proposal
for a Spin Off Transaction involving stock of the bidder valued at $8.59 per
share and stock in the real estate company valued at $13.41 per share; and (4) a
fourth bidder's proposal for a Spin Off Transaction involving $10.57 per share
in cash, stock of the bidder valued at $7.70 per share, and stock in the newly
formed real estate company valued at $5.43 per share. The stock of the
to-be-formed real estate company was valued by the bidders on the basis of the
book value established by PFC for the real estate assets to be held by such
company. The bids varied as to which real estate assets were proposed to be spun
off and, accordingly, as to the per share value of the real estate company's
stock. Signet's bid indicated that in the event the real estate development
properties were not spun off, its preliminary indication of value would be
reduced by approximately $3.0 to $4.0 million, to reflect additional required
reserves and projected net operating losses. This equated to a bid for an All
Bank Transaction at $22.22 to $22.51 per share. Signet indicated in its bid a
willingness to discuss possible ongoing financing arrangements available to the
spun off real estate development properties; the other Spin Off Transaction bids
were silent as to the availability of financing.
PFC's Board discussed the relative merits of these bids in detail at a
regular meeting attended by Baxter Fentriss on January 18, 1994. The Board
authorized management and Baxter Fentriss to further negotiate with the highest
bidder, to permit the bidder to conduct due diligence and to take certain other
actions to promote a possible transaction between the bidder and PFC.
The highest bidder verbally withdrew its $26.00 per share cash bid
following its due diligence examination, which apparently demonstrated to the
bidder that it had significantly overestimated the value which could be realized
upon the immediate disposition of certain of PFC's real estate properties.
Following the withdrawal of the first bidder's bid, management of PFC authorized
Signet and the third bidder to conduct on-site due diligence examinations of PFC
and Pioneer Federal. Signet conducted its examination during the first week of
February 1994, and the third bidder indicated that it would not be available to
commence its examination before February 14, 1994. With respect to the fourth
bidder, a financial institution company significantly smaller in size than the
other three bidders, based upon the Board's serious concerns as to the ability
of the fourth bidder to be able to secure the financing necessary for receipt of
all required regulatory approvals for an acquisition of PFC, as well as the
Board's concerns that there was not sufficient liquidity in the stock of such
company, PFC did not pursue negotiations with this bidder.
On February 1, 1994, in response to significant increases in the volume of
trading in PFC's common stock and in the price of such stock, PFC issued a press
release announcing that it had retained Baxter Fentriss to review and analyze
strategic alternative opportunities for PFC, that it had received preliminary
indications of interest from several potential acquirors at prices ranging from
approximately $22.00 to approximately $24.00 per share, and that no assurance
could be given that an agreement with respect to a business combination
involving PFC would be reached.
During the second week of February 1994, the first bidder indicated to a
representative of Baxter Fentriss that it was willing to offer $21.50 per share
in cash, and that it might consider increasing this offer to as high as $22.00
per share.
As a result of further negotiations between PFC and its representatives and
Signet, and following Signet's due diligence examination of PFC and Pioneer
Federal, Signet increased its bid for a Spin Off Transaction to $24.25 per
share, consisting of $18.71 per share plus stock to be issued by the
to-be-formed real estate company.
14
<PAGE>
Based upon PFC's book value for the real estate assets then proposed by Signet
to be held by the real estate company (which included certain properties in
addition to those proposed to be spun off in Signet's earlier bid), Signet
assigned a value of $5.54 per share to the stock of this company. At such time,
and in connection with its higher bid, Signet required that PFC immediately
commence exclusive negotiations with Signet with respect to an acquisition of
PFC by Signet.
On February 9, 1994, the Board of Directors held a special meeting attended
by representatives of Baxter Fentriss in order to discuss the pending proposals.
The Board noted (i) that Signet's revised offer represented the highest price
then under consideration, (ii) that whereas Signet had completed its due
diligence examination, the third bidder had yet to commence its examination, and
could reduce the price of its bid on the basis of such examination, (iii) the
problems perceived by the Board with the ability of the fourth bidder to
complete an acquisition and (iv) the significant reduction in the first bidder's
initial price. On the basis of the foregoing and other considerations, the Board
determined to pursue negotiations exclusively with Signet.
On February 13, 1994, the Board held another special meeting attended by
representatives of Baxter Fentriss as well as PFC's legal counsel and
independent accountants, to discuss the progress of negotiations with Signet and
other prospective acquirors. The relative drawbacks of each of the other
proposals were again noted, and the President of PFC summarized for the Board
the results of the negotiations with Signet that had commenced four days
earlier. The Board also engaged in an extensive discussion of the advantages and
disadvantages of a Spin Off Transaction versus a Whole Bank Transaction.
Directors expressed particular concerns about the appropriate manner of valuing
the stock to be issued by the newly formed company as part of Signet's proposed
consideration, the potential illiquidity of such stock, the failure of Signet at
such time to provide terms and amount of financing to be made available by
Signet for purposes of continuing development of the real estate properties to
be held by the newly formed company, the assumption by Signet of any contingent
liabilities relating to these properties and whether the proposed transaction
would be tax free to PFC's stockholders.
Following this review and discussion, a representative of Baxter Fentriss
discussed the price proposed to be paid by Signet, including the trading history
of Signet Common Stock and the use of maximum and minimum pricing adjustments
that reflect changes in the value of Signet Common Stock prior to consummation
of a proposed merger. A general review and discussion of valuation methodologies
followed such remarks, as well as a discussion of price adequacy, using an
exchange ratio of Signet Common Stock increased above or decreased below certain
specified levels, and the unknown risk of accepting stock of the real estate
company as consideration in a Spin Off Transaction. Following this review and
discussion, the Board discussed submitting a counterproposal to Signet for a
Whole Bank Transaction. On the basis of Signet's earlier proposal of $22.11 to
$22.51 per share for an All Bank Transaction, increased by $.55 per share
(representing the amount by which Signet had increased its preliminary bid for a
Spin Off Transaction following its due diligence examination), the Board arrived
at a counterproposal of $23.06 per share, payable solely in Signet Common Stock,
in an All Bank Transaction. The Board then authorized management to continue its
negotiations on a definitive agreement with Signet on these terms.
On February 15, 1994, the Board held a special meeting attended by
representatives of Baxter Fentriss and PFC's legal counsel to further discuss
the terms of the Transaction. At that meeting, the President of PFC reported
that Signet had agreed to PFC's counterproposal providing for an All Bank
Transaction at $23.06 per share in Signet Common Stock, but that negotiations
continued as to (i) the adjustments that would be used to reflect changes in the
price of Signet Common Stock prior to consummation of the Transaction, and (ii)
whether, and to what extent, the Board would agree to restrictions requested by
Signet on further investments by PFC in its real estate development properties.
A lengthy discussion followed as to the outstanding legal obligations of PFC to
develop the properties and the expenditures and management necessary to meet
these obligations. The Board also discussed the implications of PFC's failure to
meet these obligations as a result of the restrictions requested by Signet.
Following this discussion, the Board directed management of PFC to consult with
counsel regarding the extent of PFC's obligations regarding these properties and
to provide Signet with a specific list of expenses associated with their
continued development.
On February 16, 1994, the Board of Directors of PFC held a special meeting
attended by representatives of Baxter Fentriss and PFC's legal counsel. The
Baxter Fentriss representative provided detailed information concerning the
financial terms of the Merger. After reviewing the information and certain other
data regarding the financial condition of PFC, Pioneer Federal and Signet, the
Baxter Fentriss representative responded to questions
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of directors, and then advised the Board that it was the opinion of Baxter
Fentriss that the terms of the proposed Holding Company Merger were fair to
holders of PFC's Common Stock from a financial point of view. Following such
presentation, legal counsel provided an overview of the proposed Holding Company
Merger and furnished each director with an updated draft of the Agreement. Legal
counsel then conducted a detailed analysis of the updated draft, responded to
questions concerning the terms of the proposal, and discussed certain procedural
aspects of the Holding Company Merger. After discussion and further questions
and answers, the Agreement and the Holding Company Merger were unanimously
approved by the PFC Board of Directors.
SIGNET'S REASONS FOR THE MERGER
Signet has considered a number of factors, including, among other things,
the financial condition of PFC and projected synergies which are anticipated to
result from the Holding Company Merger. Signet has concluded that the Holding
Company Merger presents a unique opportunity for Signet to increase its presence
in the Richmond banking market through the acquisition of an established
organization. Signet has determined that in order to achieve certain marketing
and other efficiencies and to compete more effectively with other banking
organizations serving that regional banking market, it is desirable for Signet
to expand its presence in that market. Signet's decision to pursue discussions
with PFC was primarily a result of Signet's assessment of the value of PFC's
franchise within the targeted market, its asset base within that area and the
compatibility of the businesses of the two organizations.
PFC'S REASONS AND RECOMMENDATIONS FOR THE MERGER
PFC's Board of Directors has carefully considered and unanimously approved
the terms of the Agreement and Holding Company Plan of Merger as being in the
best interest of PFC and its stockholders. The recommendation of PFC's Board of
Directors is based upon a number of factors, including the value being offered
to the shareholders of PFC in relation to the market value, book value and
earnings per share of the PFC Common Stock; the financial condition, results of
operations and prospects of Signet and PFC; the competitive environment for
financial institutions generally; the compatibility of the respective business
management philosophies of PFC and Signet; the ability of Signet and Signet Bank
to provide comprehensive financial services in relevant markets; the financial
terms of other recent business combinations in the local financial services
industry; the fact that the consideration to be received in the Holding Company
Merger by PFC's stockholders reflects a premium for the PFC Common Stock over
the values at which it had traded in the market during the year prior to the
Board meeting; the fact that Signet, as a larger financial institution company,
has the financial resources to serve the lending and deposit needs of the local
communities served by PFC; and the opinion of PFC's financial advisor, Baxter
Fentriss, that terms of the Holding Company Merger are fair to such shareholders
from a financial point of view.
Based on the factors described above, the Board of Directors of PFC has
unanimously determined that the Holding Company Merger is desirable and in the
best interests of PFC shareholders and has approved the Agreement, the Holding
Company Plan of Merger and the Holding Company Merger. THE BOARD OF DIRECTORS OF
PFC UNANIMOUSLY RECOMMENDS A VOTE FOR THE MERGER PROPOSAL. In addition, PFC has
been advised that each member of the Board of Directors of PFC will vote all
shares of PFC Common Stock owned by such director, in favor of the Merger
Proposal.
OPINION OF FINANCIAL ADVISOR
Baxter Fentriss has acted as financial advisor to PFC in connection with
the Holding Company Merger. Baxter Fentriss previously assisted PFC in
identifying prospective acquirors. See "Background of the Merger." On February
16, 1994 Baxter Fentriss delivered to Pioneer its opinion that as of such date,
and on the basis of matters referred to therein, the terms of the Holding
Company Merger are fair, from a financial point of view, to the holders of PFC
Common Stock. Baxter Fentriss updated and confirmed its opinion on
, 1994. In rendering its opinion Baxter Fentriss consulted with
the management of PFC and Signet, reviewed the Agreement and the Holding Company
Plan of Merger, and certain publicly-available information concerning the
parties; and reviewed certain additional materials made available by the
management of PFC and the management of Signet.
In addition, Baxter Fentriss discussed with the management of PFC and
Signet their respective businesses and outlooks. Baxter Fentriss was involved in
the negotiations with Signet and initiated merger discussions at the
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request of PFC. No limitations were imposed by PFC's Board of Directors upon
Baxter Fentriss with respect to the investigation made or procedures followed by
it in rendering its opinion. The full text of Baxter Fentriss' updated written
opinion is attached as ANNEX IV to this Proxy Statement/Prospectus and should be
read in its entirety with respect to the procedures followed, assumptions made,
matters considered, and qualifications and limitations on the review undertaken
by Baxter Fentriss in connection therewith.
Baxter Fentriss' opinion is directed to PFC's Board of Directors only, and
is directed only to the fairness, from a financial point of view, of the terms
of the Holding Company Merger. It does not address PFC's underlying business
decision to effect the proposed Holding Company Merger, nor does it constitute a
recommendation to any PFC shareholder as to how such shareholder should vote
with respect to the Merger Proposal at the Special Meeting or as to any other
matter.
Baxter Fentriss, as part of its investment banking business, is continually
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. Baxter Fentriss is an advisor to firms in the financial
services industry on mergers and acquisitions. PFC selected Baxter Fentriss as
its financial advisor because Baxter Fentriss is an investment banking firm
focusing on transactions in the Southeastern part of the United States, and
because of the firm's extensive experience and expertise in transactions similar
to the Holding Company Merger. Baxter Fentriss is not affiliated with Signet or
PFC.
In connection with rendering its opinion to PFC's Board of Directors,
Baxter Fentriss performed a variety of financial analyses. In conducting its
analyses and arriving at its opinion as expressed herein, Baxter Fentriss
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial condition and results of operations of Signet and PFC
including interest income, interest expense, interest sensitivity, noninterest
income, noninterest expense, earnings, book value, returns on assets and equity,
capitalization, the amount and type of non-performing assets, the impact of
holding certain non-earning real estate assets, the reserve for loan losses and
possible tax consequences resulting from the Transaction; (ii) the business
prospects of Signet and PFC; (iii) the economies of Signet's and PFC's
respective business areas; (iv) the historical and current market for Signet
Common Stock and for the equity securities of certain other banking companies
that Baxter Fentriss believed to be relevant. Baxter Fentriss also assessed
general economic, market, financial and regulatory conditions and trends, and
drew upon its knowledge of the financial institutions industry, its experience
in connection with similar transactions, its knowledge of securities valuation
generally, and its knowledge of merger transactions in Virginia and throughout
the Southeastern United States.
In connection with rendering its opinion, Baxter Fentriss reviewed (i) the
Agreement; (ii) drafts of this Proxy Statement/Prospectus; (iii) the Annual
Reports to Shareholders, including the audited financial statements, of PFC and
Signet for the years ended September 30, 1993 and December 31, 1993,
respectively; (iv) pro forma combined unaudited condensed balance sheets as of
March 31, 1994 and pro forma combined statements of income for the year ended
December 31, 1993; (v) certain additional financial and operating information
with respect to the business, operations and prospects of Signet and PFC as it
deemed appropriate. Baxter Fentriss also (a) held discussions with members of
the senior management of Signet and PFC regarding the historical and current
business operations, financial condition and future prospects of their
respective companies, including but not limited to the operation of certain real
estate subsidiaries; (b) reviewed the historical market prices and trading
activity for the Signet's Common Stock and compared them with those of certain
publicly traded companies that it deemed to be relevant; (c) compared the
results of operations of Signet and PFC with those of certain banking companies
that it deemed to be relevant; (d) analyzed the pro forma financial impact of
the Holding Company Merger on Signet; (e) analyzed the pro forma financial
impact of the Holding Company Merger on PFC; and (f) conducted such other
studies, analyses, inquiries and examinations as Baxter Fentriss deemed
appropriate.
The following is a summary of selected analyses performed by Baxter
Fentriss in connection with its opinion.
1. Stock Price History. Baxter Fentriss studied the history of the trading
prices and volume for PFC Common Stock and compared that to publicly traded
thrifts in Virginia and to the price offered by Signet. As of March 31, 1994 the
fully diluted book value of PFC Common Stock was $21.61 per share.
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2. Comparative Analyses. Baxter Fentriss compared the price to earnings
multiple, price to book multiple, and price to assets multiple of the Signet
offer with other comparable merger transactions in Virginia after considering
the impact of PFC's excess capitalization, non-performing assets, and other
variables. The comparative multiples included both bank and thrift sales during
the last three years. The price to be paid to PFC was one of the higher prices
paid for banks and thrifts in Virginia during such time period on an assets and
earnings basis.
3. Baxter Fentriss evaluated the earnings, book value, and dividends of
Signet Common Stock to be received by PFC shareholders and considered the pro
forma premium of earnings, book value, and dividends to be received by the PFC
shareholders. Based on this analysis, Baxter Fentriss concluded the transaction
should have a positive long-term impact on the shares of Signet Common Stock
received by PFC shareholders.
4. Baxter Fentriss performed a discounted cash flow analysis to determine
hypothetical present values for a share of PFC Common Stock as a 5 and 10 year
investment. Under this analysis, Baxter Fentriss considered various scenarios
for the performance of PFC Common Stock using (i) a range from 0% to 10% in the
growth of PFC's earnings and dividends and (ii) a range from 6 times to 12 times
earnings as the terminal value for PFC's stock. A range of discount rates from
10% to 15% were applied to these alternative growth and terminal value
scenarios. These ranges of discount rates, growth alternatives, and terminal
values were chosen based upon what Baxter Fentriss, in its judgement, considered
to be appropriate taking into account, among other things, PFC's past and
current performance, the general level of inflation, rates of return for fixed
income and equity securities in the marketplace generally and for companies with
similar risk profiles. In most of the scenarios considered, the present value of
a share of PFC Common Stock was calculated at less than the $23.06 value of the
Signet offer. Thus, Baxter Fentriss' discounted cash flow analysis indicated
that PFC shareholders would likely be in a better financial position by
receiving the Signet Common Stock offered in the Holding Company Merger rather
than continuing to hold PFC Common Stock.
Using publicly available information on Signet and applying the capital
guidelines of banking regulators, Baxter Fentriss' analysis indicated that the
Holding Company Merger would not seriously dilute the capital and earnings
capacity of Signet and would, therefore, likely not be opposed by the banking
regulatory agencies from a capital perspective. Furthermore, Baxter Fentriss
considered the likely market overlap and the Federal Reserve Board guidelines
with regard to market concentration and did not believe that the Transaction
would raise antitrust concerns.
Baxter Fentriss has relied, without any independent verification, upon the
accuracy and completeness of all financial and other information reviewed.
Baxter Fentriss has assumed that all estimates, including those as to possible
economies of scale, were reasonably prepared by management, and reflect their
best current judgements. Baxter Fentriss did not make an independent appraisal
of the assets or liabilities of either PFC or Signet, and has not been furnished
such an appraisal.
Baxter Fentriss will be paid an amount equal to one percent of the
aggregate consideration to be received by the PFC shareholders in the Holding
Company Merger plus reasonable out-of-pocket expenses for its services. PFC has
agreed to indemnify Baxter Fentriss against certain liabilities, including
certain liabilities under federal securities laws.
EFFECTIVE TIME OF THE HOLDING COMPANY MERGER
Under the Agreement, upon satisfaction or waiver of the conditions to each
party's obligations, a closing will be held at which time the parties will
exchange such documents as required by the Agreement (the "Closing"). The
Holding Company Merger will become effective upon the issuance of a certificate
of merger by the State Corporation Commission of Virginia with respect to the
Holding Company Merger unless the Articles of Merger relating to the Holding
Company Merger filed with the State Corporation Commission of Virginia specify
that certificate of merger shall become effective at a later date. The Effective
Time is expected to occur during the third quarter of 1994. Pursuant to the
Agreement, PFC will be merged with and into Signet in accordance with the
Holding Company Plan of Merger and the VSCA. Signet will be the Surviving
Corporation. Following the Effective Time the directors and officers of Signet
will continue in office. It is expected that immediately following the Effective
Time, the Bank Merger will occur.
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THE EXCHANGE RATIO; FRACTIONAL SHARES
At the Effective Time, each share of PFC Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares to be
cancelled as described herein and other than Dissenting Shares (as defined
below)) will be converted into .6232 of a share of Signet Common Stock (the
"Exchange Ratio"); PROVIDED, HOWEVER, in the event the Average Closing Price of
the Signet Common Stock is greater than $40.12, the Exchange Ratio will be equal
to $25.00 divided by the Average Closing Price of the Signet Common Stock; and
PROVIDED, FURTHER, in the event the Average Closing Price of the Signet Common
Stock is less than $33.30, PFC will have the right to terminate the Agreement
unless Signet agrees to adjust the Exchange Ratio to $20.75 divided by the
Average Closing Price of the Signet Common Stock. For example, if the Average
Closing Price of the Signet Common Stock were $41.00, the Exchange Ratio would
be .6098 ($41.00 divided by $25.00) and, if the Average Closing Price of the
Signet Common Stock were $33.00, and Signet agreed to adjust the Exchange Ratio,
the Exchange Ratio would be .6288 ($20.75 divided by $33.00). See " -- Amendment
and Termination of the Agreement." The formula for determining the Exchange
Ratio was determined through arm's length negotiation between the parties.
Under the terms of the Agreement, any changes to the Exchange Ratio will be
determined by reference to the average closing price of the Signet Common Stock
measured over the ten consecutive New York Stock Exchange trading days ending on
the business day prior to the later of (i) the date on which all requisite
regulatory approvals required to consummate the transactions contemplated by the
Agreement are obtained, including for these purposes the expiration of all
applicable waiting periods, and (ii) the date of the Special Meeting. The market
price of Signet Common Stock will fluctuate between the date of this Proxy
Statement/Prospectus and the beginning of such valuation period, and between the
end of such valuation period and the Effective Time. Fluctuations in such market
price prior to the Effective Time could result in an increase or decrease in the
market price as of the Effective Time of the shares of Signet Common Stock to be
received by PFC Shareholders in the Holding Company Merger. No assurance can be
given concerning the market price of Signet Common Stock before or after the
Effective Time.
If, prior to the Effective Time, the outstanding shares of Signet Common
Stock shall have been increased, decreased, changed into or exchanged for a
different number or kind of shares or securities through a reorganization,
reclassification, stock dividend, stock split, reverse stock split or other
similar change in Signet's capitalization, appropriate adjustments will be made
to the Exchange Ratio (or to applicable dollar amounts set forth above);
provided that no such adjustments will be made on account of ordinary quarterly
cash dividends paid by Signet (including any increases which Signet may make in
such quarterly cash dividends).
No fractional shares of Signet Common Stock will be issued in the Holding
Company Merger. Each holder who otherwise would have been entitled to a fraction
of a share of Signet Common Stock will receive in lieu thereof cash (without
interest) in an amount determined by multiplying the fractional share interest
to which such holder would otherwise be entitled by the average closing sales
prices of the Signet Common Stock as reported on the New York Stock Exchange
Composite Tape for the last five trading days immediately preceding the date of
the Effective Time. No such holder will be entitled to dividends, voting rights
or any other rights in respect of any fractional share.
CANCELLATION OF CERTAIN SHARES; PFC STOCK OPTIONS
Any shares of PFC Common Stock which are owned or held by PFC or any of its
wholly owned subsidiaries (other than in a fiduciary capacity or as a result of
debts previously contracted) or by Signet or any of Signet's wholly owned
subsidiaries (other than in a fiduciary capacity or as a result of debts
previously contracted) at the Effective Time will cease to exist, and the
certificates for such shares will be cancelled and no consideration therefor
will be paid, issued or exchanged therefor. Each share of Signet Common Stock
issued and outstanding immediately prior to the Effective Time will remain
unchanged as an outstanding share of Signet Common Stock.
Immediately prior to the Effective Time, each holder of an outstanding
option (a "PFC Stock Option") under PFC's Stock Option and Incentive Plan (the
"PFC Option Plan") will receive in cancellation of such option, for each share
of PFC Common Stock subject to a PFC Stock Option a cash payment in an amount
equal to the excess of (A) the product of the Exchange Ratio and the closing
price of the shares of Signet Common Stock on the trading date prior to the date
of the Effective Time over (B) the exercise price of such PFC Stock Option.
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EXCHANGE AND SURRENDER OF STOCK CERTIFICATES
After the Effective Time, holders of certificates ("Certificates")
theretofore evidencing outstanding shares of PFC Common Stock (other than shares
to be cancelled as described above and other than holders of Dissenting Shares),
upon surrender of such certificates to (the "Exchange Agent"), will
be entitled to receive a certificate or certificates representing the number of
full shares of Signet Common Stock into which the Certificate so surrendered
shall have been converted pursuant to the Agreement and any distribution
theretofore declared and not yet paid with respect to such shares of Signet
Common Stock without interest, and cash in respect of any fractional shares as
described above without interest (together, the "Merger Consideration"). As soon
as practicable after the Effective Time, the Exchange Agent will send a notice
and transmittal form to each PFC shareholder of record at the Effective Time
advising such shareholder of the effectiveness of the Holding Company Merger and
the procedure for surrendering to the Exchange Agent outstanding certificates
formerly evidencing PFC Common Stock in exchange for the Merger Consideration.
Upon surrender, each certificate evidencing PFC Common Stock will be cancelled
and promptly upon such surrender the Merger Consideration to be issued to such
former PFC shareholder will be issued to the former PFC shareholder.
The Exchange Agent will accept Certificates upon compliance with such
reasonable terms and conditions as Signet or the Exchange Agent may impose to
effect an orderly exchange thereof in accordance with customary exchange
practices. Certificates will be appropriately endorsed or accompanied by such
instruments of transfer as Signet or the Exchange Agent may require.
After the Effective Time, holders of Certificates will cease to have rights
with respect to the stock previously represented by such Certificates, and their
sole rights will be to exchange such Certificates for the Merger Consideration.
After the Effective Time, there will be no further transfer on the records of
PFC of Certificates, and if such Certificates are presented to PFC for transfer,
they will be cancelled against delivery of the Merger Consideration. Each
outstanding Certificate will until duly surrendered to the Exchange Agent be
deemed to evidence ownership of the consideration into which the stock
previously represented by such Certificate shall have been converted pursuant to
the Merger Agreement.
Signet will not be obligated to deliver the consideration to which any
former holder of PFC Common Stock is entitled as a result of the Holding Company
Merger until such holder surrenders the Certificates as provided in the
Agreement. No dividends declared will be remitted to any person entitled to
receive Signet Common Stock under the Agreement until such person surrenders the
Certificate representing the right to receive such Signet Common Stock, at which
time such dividends will be remitted to such person, without interest and less
any taxes that may have been imposed thereon.
Neither the Exchange Agent nor any party to the Agreement nor any affiliate
thereof will be liable to any holder of stock represented by any Certificate for
any consideration paid to a public official pursuant to applicable abandoned
property, escheat or similar laws. Signet and the Exchange Agent will be
entitled to rely upon the stock transfer books of PFC to establish the identity
of those persons entitled to receive consideration specified in the Agreement,
which books shall be conclusive with respect thereto. In the event of a dispute
with respect to ownership of stock represented by any Certificate, Signet and
the Exchange Agent will be entitled to deposit any consideration represented
thereby in escrow with an independent third party and thereafter be relieved
with respect to any claims thereto.
In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed, and if required by Signet, the
posting by such person of a bond in such amount as Signet may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Signet Common Stock and cash in lieu of
fractional shares deliverable in respect thereof pursuant to the Agreement.
HOLDERS OF PFC COMMON STOCK SHOULD NOT SEND IN ANY STOCK CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE EXCHANGE AGENT
AND SHOULD NOT RETURN SUCH STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
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CONDUCT OF BUSINESS OF PFC AND PIONEER FEDERAL PENDING THE HOLDING COMPANY
MERGER
Pursuant to the Agreement, PFC and Pioneer Federal have each agreed that,
except as otherwise provided in the Agreement, between the date of the Agreement
and the Effective Time:
(a) PFC and its subsidiaries will conduct their business and maintain their
books and records in the ordinary course of business and in accordance with past
practices;
(b) PFC will not, without the prior written consent of Signet: (i) declare,
set aside or pay any dividend or make any other distribution with respect to
PFC's capital stock or reacquire any of PFC's outstanding shares, except that
PFC will be permitted to pay its usual quarterly $.05 per share cash dividend
until the Effective Time; (ii) issue or sell or buy any shares of capital stock
of PFC or any of its subsidiaries, except shares of PFC Common Stock issued
pursuant to the PFC Option Plan; (iii) effect any stock split, stock dividend or
other reclassification of PFC's Common Stock; or (iv) grant any options or issue
any warrants exercisable for or securities convertible or exchangeable into
capital stock of PFC or any of its subsidiaries or grant any stock appreciation
or other rights with respect to shares of capital stock of PFC or of any of its
subsidiaries;
(c) PFC and its subsidiaries will not, without the prior written consent of
Signet: (i) sell or dispose of any significant assets of PFC or any of its
subsidiaries other than in the ordinary course of business consistent with past
practices; (ii) change the articles of incorporation, charter documents or other
governing instruments of PFC or any of its subsidiaries; (iii) grant to any
employee of PFC or any of its subsidiaries an increase in compensation, bonus or
benefits except in the aggregate in a manner and amount consistent with past
practice; (iv) adopt any new or amend or terminate any existing employee plans
or benefit arrangements of any type, except to comply with applicable law;
provided, however, that prior to the Effective Time, PFC and its subsidiaries
may, consistent with past practices, make contributions to PFC's Profit
Sharing/401(k) plan; (v) authorize severance pay or other benefits for any
employee of PFC or any of its subsidiaries; (vi) incur any material obligation,
including any contingent obligation, or enter into or extend any material
contract other than in the ordinary course of business consistent with past
practice; (vii) engage in any lending activities other than in the ordinary
course of business consistent with past practice; (viii) form any new subsidiary
or cause or permit a material change in the activities presently conducted by
any of its subsidiaries or make additional investments in subsidiaries in excess
of $100,000, except that PFC and its subsidiaries may contribute an amount not
in excess of an aggregate of $1.8 million for certain specified expenditures;
(ix) purchase any equity securities other than Federal Home Loan Bank stock; (x)
make any investment which would cause Pioneer Federal to not be a qualified
thrift lender under Section 10(m) of the HOLA, or not to be a "domestic building
and loan association" as defined in Section 7701(a)(19) of the Code; (xi) enter
into any settlement or closing agreement with the Internal Revenue Service or
any other taxing authority; or (xii) knowingly take any action which would cause
any of the representations or warranties of PFC and Pioneer Federal to become
untrue in any material respect;
(d) PFC will not take any action that would (i) materially impede or delay
the consummation of the transactions contemplated by the Agreement or the
ability of Signet or PFC to obtain any approval of any regulatory authority
required for the transactions contemplated by the Agreement or to perform its
covenants and agreements under the Agreement or (ii) prevent the transactions
contemplated by the Agreement from qualifying as a reorganization within the
meaning of Section 368 of the Code; and
(e) PFC and its subsidiaries will not (except as provided below) (i) enter
into, increase, modify, renew or otherwise extend the maturity date of any loan
or credit commitment (including stand-by letters of credit) or make any
investment (collectively, "Make Loans") of the following types: (A) residential
mortgage loans exceeding $350,000 other than single family residential loans
that are saleable and for which investor commitments have been received; (B)
commercial or commercial mortgage loans in excess of $500,000 or having a
maturity of five years or more; (C) residential construction lines/limits in
excess of $1,500,000; (D) consumer (or commercial mortgage) loans in excess of
$100,000; and (E) loans on investment properties in excess of $500,000; PROVIDED
that PFC or any of its subsidiaries may make any such loan described in clause
(e)(i) above in the event (w) PFC or any of its subsidiaries has delivered to
Signet a notice of its intention to make such loan and such information as
Signet may reasonably require in respect thereof and (x) Signet shall not have
reasonably objected to such loan by giving written or facsimile notice of such
objection within two business days following the delivery to Signet of the
notice of intention and information as aforesaid; or (ii) Make Loans to any
person or entity any of the loans or other extensions of credit to which or
investments in which are on a "watch list" or similar internal report of PFC or
any of its subsidiaries (except those denoted "pass" thereon), in an amount in
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excess of $50,000; PROVIDED, HOWEVER, that the Agreement does not prohibit PFC
or any of its subsidiaries from (y) honoring any contractual obligation or
issuing stand-by letters of credit with respect to acquisition and development
loans, in each case with respect to such obligations or loans in existence on
the date of the Agreement, or (z) with respect to loans described in clause
(e)(i) above, making such loans after consulting with Signet.
On April 1, 1994 Pioneer Federal and Signet Bank entered into a Marketing
Agreement (the "Marketing Agreement") pursuant to which Pioneer Federal agreed
to actively market and use its best efforts to secure purchasers for certain
real estate development projects owned by subsidiaries of Pioneer Federal and
located in the Richmond, Virginia metropolitan area. The terms of sale of such
properties will be subject to the approval of Signet Bank. The Marketing
Agreement will terminate upon the earlier of (i) termination of the Agreement or
(ii) the Effective Time.
NO SOLICITATION
Pursuant to the Agreement, PFC has agreed that it will not authorize or
permit any officer, director, employee, investment banker, financial consultant,
attorney, accountant or other representative of PFC or any of its subsidiaries,
directly or indirectly, to initiate contact with any person or entity in an
effort to solicit, initiate or encourage any "Takeover Proposal" (as such term
is defined below). Except as the fiduciary duties of PFC's Board of Directors
may otherwise require, PFC has agreed that it will not authorize or permit any
officer, director, employee, investment banker, financial consultant, attorney,
accountant or other representative of PFC or any of its subsidiaries, directly
or indirectly, (A) to cooperate with, or furnish or cause to be furnished any
non-public information concerning its business, properties or assets to, any
person or entity in connection with any Takeover Proposal; (B) to negotiate any
Takeover Proposal with any person or entity; or (C) to enter into any agreement,
letter of intent or agreement in principle as to any Takeover Proposal. PFC will
promptly give written notice to Signet upon becoming aware of any Takeover
Proposal. "Takeover Proposal" means any proposal, other than as contemplated by
the Agreement, for a merger or other business combination involving PFC or
Pioneer Federal or for the acquisition of a ten percent or greater equity
interest in PFC or Pioneer Federal, or for the acquisition of any material
portion of the assets of PFC or Pioneer Federal.
CONDUCT OF BUSINESS OF SIGNET PENDING THE MERGER
Pursuant to the Agreement, Signet has agreed that, during the period from
the date of the Agreement to the Effective Time, Signet will not and will not
permit any of its subsidiaries to, without the prior written consent of PFC,
take any action that would (A) materially adversely affect or delay the ability
of Signet or PFC to obtain the governmental approvals required for the
transactions contemplated by the Agreement or to perform its covenants and
agreements under the Agreement or (B) prevent or impede the transactions
contemplated by the Agreement from qualifying as a reorganization within the
meaning of Section 368 of the Code.
CONDITIONS TO CONSUMMATION OF THE HOLDING COMPANY MERGER
The obligations of Signet and PFC to effect the Holding Company Merger are
subject to the satisfaction or waiver prior to the Effective Time of the
following conditions: (a) the holders of the outstanding shares of PFC Common
Stock shall have approved the Agreement, the Holding Company Plan of Merger and
the Holding Company Merger; (b) no order shall have been entered and remain in
force restraining or prohibiting the Holding Company Merger or the Subsidiary
Merger in any legal, administrative, arbitration, investigatory or other
proceedings (collectively, "Proceedings") by any governmental or judicial or
other authority; (c) to the extent required by applicable law or regulation, all
approvals of or filings with any governmental authority (collectively,
"Governmental Approvals") shall have been obtained or made and any waiting
periods shall have expired in connection with the consummation of the Holding
Company Merger and the Bank Merger, and other statutory or regulatory
requirements for the valid consummation of the Holding Company Merger and the
Bank Merger and related transactions shall have been satisfied; (d) the
Registration Statement of which this Proxy Statement/Prospectus is a part shall
have been declared effective and shall not be subject to a stop order of the
SEC, and, if the offer and sale of Signet's common stock in the Holding Company
Merger pursuant to the Agreement is subject to the Blue Sky laws of any state,
shall not be subject to a stop order of any state securities commissioner; and
(e) PFC and Signet shall have received an opinion of Wachtell, Lipton, Rosen &
Katz, in form and substance satisfactory to PFC and Signet, substantially to the
effect that the Holding Company Merger will constitute one or more tax free
reorganizations under Section 368 of the Code, and that (i) the shareholders of
PFC
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will not recognize any gain or loss to the extent that such shareholders
exchange shares of PFC Common Stock solely for shares of Signet Common Stock in
the Holding Company Merger, (ii) the basis of the Signet Common Stock received
by a PFC shareholder who exchanges PFC Common Stock solely for Signet Common
Stock will be the same as the basis of the PFC Common Stock surrendered in
exchange therefor (subject to any adjustments required as the result of receipt
of cash in lieu of a fractional share of Signet Common Stock), (iii) the holding
period of the Signet Common Stock received by a PFC shareholder receiving Signet
Common Stock will include the period during which the PFC Common Stock
surrendered in exchange therefor was held (provided that the PFC Common Stock of
such PFC shareholder was held as a capital asset at the Effective Time), and
(iv) cash received by a PFC shareholder in lieu of a fractional share interest
of Signet Common Stock will be treated as having been received as a distribution
in full payment in exchange for the fractional share interest of Signet Common
Stock which he would otherwise be entitled to receive.
In addition, the obligations of Signet to effect the Holding Company Merger
and the transactions contemplated in the Agreement are subject to the
satisfaction or waiver prior to the Effective Time of the following additional
conditions: (a) Signet shall have received from counsel to PFC an opinion dated
as of the Closing to the effect that (i) PFC is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia; (ii) Pioneer Federal is a federal savings bank duly organized, validly
existing and in good standing under the laws of the United States of America,
(iii) the Agreement and the Holding Company Plan of Merger have been duly and
validly authorized, executed and delivered by PFC and Pioneer Federal and
(assuming that the Agreement and the Holding Company Plan of Merger are binding
obligations of Signet) constitute valid and binding obligations of PFC and
Pioneer Federal enforceable in accordance with their respective terms, subject
as to enforceability to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors rights
generally and to the application of equitable principles and judicial
discretion, and (iv) to the actual knowledge of such counsel, no consent or
approval, which has not already been obtained, from any governmental authority
is required for execution and delivery by PFC or Pioneer Federal of the
Agreement and the Holding Company Plan of Merger or any of the documents to be
executed and delivered by PFC or Pioneer Federal in connection therewith; (b)
between the date of the Agreement and the date of Closing, there shall not have
occurred any material adverse change in the financial condition, business or
results of operations of PFC and its subsidiaries, taken as a whole, other than
any such change attributable to or resulting from (1) changes in law, regulation
or generally accepted accounting principles of general application to the
banking and thrift industries or (2) changes in economic conditions that affect
the banking and thrift industries generally, including changes in the general
level of interest rates; (c) the representations and warranties of PFC and
Pioneer Federal set forth in the Agreement shall be true and correct in all
material respects as of the date of the Agreement and as of the Effective Time
with the same effect as though made at the Effective Time (except in the case of
any representation or warranty which specifically relates to an earlier date and
as contemplated by the Agreement); PFC and Pioneer Federal shall have performed
all obligations and complied with their covenants, taken as a whole, in all
material respects, under the Agreement on their parts to be performed or
complied with at or prior to the Effective Time; and PFC shall have delivered to
Signet a certificate, dated the Effective Time and signed by its chief executive
officer and chief financial officer, to such effect; and (d) the form and
substance of all legal matters contemplated by the Agreement and all papers
delivered under the Agreement shall be reasonably acceptable to counsel to
Signet.
In addition, the obligations of PFC and Pioneer Federal to effect the
Holding Company Merger and the transactions contemplated in the Agreement are
subject to the satisfaction or waiver prior to the Effective Time of the
following additional conditions: (a) PFC shall have received from counsel to
Signet an opinion dated as of the Closing to the effect that (i) Signet is a
Virginia corporation duly organized, validly existing and in good standing under
the laws of the Commonwealth of Virginia, (ii) the Agreement and the Holding
Company Plan of Merger have been duly and validly authorized, executed and
delivered by Signet and (assuming the Agreement and the Holding Company Plan of
Merger are binding obligations of PFC and Pioneer Federal) constitute valid and
binding obligations of Signet enforceable in accordance with their respective
terms, subject as to enforceability to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and to the application of equitable principles and
judicial discretion, (iii) to the actual knowledge of such counsel, no consent
or approval, which has not already been obtained from any government authority,
is required for execution and delivery by Signet of the Agreement or any of the
documents to be executed and delivered by Signet in connection therewith, and
(iv) the shares of Signet Common Stock to be issued in the names of PFC record
holders and delivered in exchange for the PFC Common Stock will be duly
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authorized, validly issued, fully paid and non-assessable; (b) the
representations and warranties of Signet set forth in the Agreement shall be
true and correct in all material respects as of the date of the Agreement and at
the Effective Time with the same effect as though made at the Effective Time
(except in the case of any representations or warranties which specifically
relate to an earlier date and as contemplated by the Agreement); Signet shall
have performed all obligations and complied with its covenants, taken as a
whole, in all material respects, and all conditions under the Agreement on its
part to be performed or complied with at or prior to the Effective Time; and
Signet shall have delivered to PFC a certificate, dated the Effective Time and
signed by its chief executive officer and chief financial officer, to such
effect; (c) the form and substance of all legal matters contemplated by the
Agreement and all papers delivered under the Agreement shall be reasonably
acceptable to counsel to PFC; (d) the Exchange Agent shall acknowledge in
writing to PFC that it is in receipt of (i) certificates representing the
aggregate number of shares of Signet Common Stock to be issued to the
shareholders of PFC pursuant to the Agreement and (ii) sufficient cash to pay
the PFC shareholders their fractional share interest as provided in the
Agreement; and (e) any shares of Signet Common Stock to be issued in connection
with the Holding Company Merger shall be authorized for listing on the
applicable exchange.
REGULATORY APPROVALS REQUIRED
Under the Agreement, the obligations of both Signet and PFC to consummate
the Holding Company Merger are conditioned upon the receipt of all required
regulatory approvals and the lapse of all required regulatory waiting periods.
See "The Holding Company Merger -- Conditions to Consummation of the Holding
Company Merger." Signet and PFC are not aware of any governmental approvals or
actions that are required in order to consummate the Transaction except as
described below. Should such other approval or action be required, it is
contemplated that Signet and PFC would seek such approval or action. There can
be no assurance as to whether or when any such other approval or action, if
required, could be obtained.
FEDERAL RESERVE BOARD. The Transaction is subject to the prior approval of
the Federal Reserve Board under Section 4 of the Bank Holding Company Act and
Sections 5(d)(3) and 18(c) of the Federal Deposit Insurance Act ("FDIA"),
respectively. Under the Bank Holding Company Act and the FDIA, the Federal
Reserve Board is required, in approving a transaction such as the Transaction,
to take into consideration the financial and managerial resources and future
prospects of the existing and proposed institutions and the convenience and
needs of the communities to be served. The Bank Holding Company Act and the FDIA
prohibit the Federal Reserve Board from approving the Holding Company Merger or
the Bank Merger if it would result in a monopoly or be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize the business
of banking in any part of the United States. The Bank Holding Company Act and
the FDIA also prohibit the Federal Reserve Board from approving the Transaction
if its effect in any section of the country may be substantially to lessen
competition or tend to create a monopoly, or if it would in any other manner
result in a restraint of trade, unless the Federal Reserve Board finds that the
anti-competitive effects of the Transaction are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served. In addition, under the Community
Reinvestment Act of 1977, as amended, the Federal Reserve Board must take into
account the record of performance of the existing institutions in meeting the
needs of the entire community, including low-and moderate-income neighborhoods,
served by such institutions.
OTS. The Transaction also is subject to the prior approval of the OTS under
Section 10 of the Home Owners' Loan Act. The factors required to be considered
by the OTS under the Home Owners' Loan Act are substantially similar to those
described above with respect to Federal Reserve Board approval. However,
approval by the Federal Reserve Board will not constitute approval by the OTS,
or vice versa.
BUREAU OF FINANCIAL INSTITUTIONS. The Transaction is subject to the prior
approval of the Bureau of Financial Institutions under Title 6.1 of the Code of
Virginia. In order to approve the Transaction, the Bureau of Financial
Institutions must determine, among other things, that the Transaction will serve
the public interest in the communities to be served by Pioneer Federal after the
Transaction and that, following the Transaction, the deposits of Pioneer Federal
will be insured or guaranteed by a state or federal agency up to the limits of
the insurance provided thereby.
CURRENT STATUS OF REGULATORY APPROVALS. On May 12, 1994, the Federal
Reserve Board approved the Transaction and, as part of such approval, required
that the Transaction be consummated within three months of the date of such
approval unless such period is extended by the Federal Reserve Bank of Richmond.
On June 8,
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1994, the OTS approved the Transaction and, as part of such approval, required
that (i) the chief financial officers of Pioneer Federal and Signet Bank shall
certify in writing on the day prior to the Effective Time that no material
adverse events or material adverse changes have occurred with respect to the
financial condition or operations of the two entities since the date of the
financial statements submitted with the OTS application and (ii) the Transaction
must be consummated within 120 days of the date of such approval unless such
period is extended by the Regional Director of the OTS or his designee. On June
9, 1994, the Bureau of Financial Institutions approved the Transaction.
STOCK OPTION AGREEMENT
As a condition and inducement to Signet's willingness to enter into the
Agreement, and concurrently with the execution and delivery of the Agreement,
Signet and PFC entered into a Stock Option Agreement (the "Stock Option
Agreement"), pursuant to which PFC granted to Signet an option (the "Option") to
purchase up to 467,013 shares of PFC Common Stock (equivalent to 19.9% of the
outstanding shares of PFC Common Stock) at a price of $21.75 per share (the
"Option Price"). A copy of the Stock Option Agreement is attached as ANNEX II to
this Proxy Statement/Prospectus. The following description of the Stock Option
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Stock Option Agreement, which is incorporated herein in its
entirety.
The Option is exercisable, in whole or part, only if both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined).
An "Initial Triggering Event" means any of the following events or
transactions: (i) PFC or any of its subsidiaries shall have entered into an
agreement to engage in (x) a merger or consolidation, or any similar
transaction, involving PFC or any of its significant subsidiaries, (y) a
purchase, lease or other acquisition of all or substantially all of the assets
of PFC or any of its significant subsidiaries other than as contemplated by the
Agreement, or (z) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 10% or
more of the voting power of PFC or any of its significant subsidiaries (any of
such transactions, an "Acquisition Transaction") with any person other than
Signet or the Board of Directors of PFC shall have recommended that the
shareholders of PFC approve or accept any Acquisition Transaction other than as
contemplated by the Agreement; (ii) any person other than Signet, any Signet
subsidiary or any subsidiary of PFC acting in a fiduciary capacity shall have
acquired beneficial ownership or the right to acquire beneficial ownership of
10% or more of the outstanding shares of PFC Common Stock; (iii) any person
other than Signet or any Signet subsidiary shall have made a proposal to PFC or
its shareholders by public announcement or written communication that is or
becomes the subject of public disclosure to engage in an Acquisition
Transaction; (iv) PFC shall have breached any covenant or obligation set forth
in Section 4.3 of the Agreement (concerning no solicitation); (v) after a
proposal is made by a third party to PFC to engage in an Acquisition
Transaction, PFC shall have intentionally or knowingly breached any covenant or
obligation contained in the Agreement and such breach (x) would entitle Signet
to terminate the Agreement and (y) shall not have been cured prior to the giving
of notice by Signet that it wishes to exercise the option (as defined below); or
(vi) any person other than Signet or any Signet subsidiary, other than in
connection with a transaction to which Signet has given its prior written
consent, shall have filed an application or notice with the OTS, the Federal
Reserve Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to engage
in an Acquisition Transaction.
A "Subsequent Triggering Event" under the Stock Option Agreement means
either of the following events or transactions: (x) the acquisition by any
person of beneficial ownership of 25% or more of the then outstanding PFC Common
Stock; or (y) the occurrence of the Initial Triggering Event described in clause
(i) of the preceding paragraph, except that the percentage referred to in clause
(z) therein is 25%;
The Stock Option Agreement provides that any of the following is an
Exercise Termination Event: (i) the Effective Time of the Holding Company
Merger; (ii) termination of the Agreement in accordance with the provisions
thereof if such termination occurs prior to the occurrence of an Initial
Triggering Event; or (iii) the passage
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of nine months after termination of the Agreement if such termination follows
the occurrence of an Initial Triggering Event (PROVIDED that if an Initial
Triggering Event continues or occurs beyond such termination, the Exercise
Termination Event shall be six months from the expiration of the Last Triggering
Event but in no event more than 12 months after such termination).
If the Option becomes exercisable, it may be exercised in whole or in part
upon written notice from Signet within 30 days following the applicable
Subsequent Triggering Event, subject to extension of such period in order to
obtain the required regulatory approvals and comply with applicable regulatory
waiting periods and to avoid liability under Section 16(b) of the Exchange Act.
The Option Price is subject to adjustment if PFC issues or agrees to issue
shares of PFC Common Stock (other than allowed under the Agreement) at a price
less than the then current Option Price, and the Option Price and the number of
shares issuable under the Option are subject to adjustment in the event of
specified changes in the capital stock of PFC.
Upon occurrence of a Subsequent Triggering Event that occurs prior to an
Exercise Termination Event, Signet will have the right for 30 days to demand
that PFC register the shares of PFC Common Stock issuable pursuant to the Option
under the Securities Act of 1933, subject to specified conditions and
limitations. The Stock Option Agreement grants two such demand registrations to
Signet and provides that PFC will bear the costs of the first demand
registration and Signet will bear the cost of the second demand registration.
Upon the occurrence of a Subsequent Triggering Event that occurs prior to
an Exercise Termination Event, Signet will have the right for 30 days (subject
to extension as described in the Stock Option Agreement) to require PFC to
repurchase the Option, or shares of PFC Common Stock acquired by Signet pursuant
to the partial or complete exercise of the Option, or both, at a specified
price, subject to specified conditions and limitations. The repurchase price of
the Option would equal the sum of (i) the amount by which the "market/offer
price," as defined in the Stock Option Agreement, exceeds the Option Price,
multiplied by the number of shares covered by the Option, and (ii) specified
out-of-pocket expenses incurred by Signet. The repurchase price of shares of PFC
Common Stock acquired by Signet pursuant to partial or complete exercise of the
Option would equal the sum of (x) such "market/offer price" multiplied by the
number of shares of such PFC Common Stock so held, and (y) such specified
out-of-pocket expenses incurred by Signet.
The Stock Option Agreement also provides that if, prior to an Exercise
Termination Event, PFC enters into specified merger, consolidation or sale of
assets transactions with persons other than Signet or a subsidiary of Signet,
provision must be made by the acquiring person in such transaction for the
issuance by such acquiring person (or, at the election of Signet, by any person
controlling such acquiring controlling person) to Signet of a new option, with
terms specified in the Stock Option Agreement, in substitution for the Option.
The foregoing provisions of the Stock Option Agreement may have the effect
of discouraging competing offers to acquire or merge with PFC. To the knowledge
of PFC and Signet, no event giving rise to the right to exercise the Option has
occurred as of the date of this Proxy Statement/Prospectus.
AMENDMENT AND TERMINATION OF THE AGREEMENT
Subject to applicable law, the Agreement may be amended, whether before or
after any relevant approval of shareholders, by an agreement in writing by the
Boards of Directors of the parties hereto, PROVIDED THAT, after the adoption of
the Agreement by the shareholders of PFC, no such amendment without further
shareholder approval may change the amount or form of the consideration to be
received by the PFC shareholders in the Holding Company Merger.
Signet may at any time change the method of effecting the acquisition of
PFC by Signet if and to the extent it deems such change to be desirable to
provide for (i) a merger of a wholly owned subsidiary of Signet with and into
PFC, in which PFC is the surviving corporation, or (ii) a merger of PFC directly
into a wholly owned subsidiary of Signet, in which such subsidiary is the
surviving corporation, PROVIDED, HOWEVER, that no such change shall (A) alter or
change the amount or kind of consideration to be issued to holders of PFC Common
Stock as provided for in the Agreement, (B) adversely affect the tax treatment
to shareholders of PFC as a result of receiving such consideration or (C)
materially impede or delay the consummation of the transactions contemplated by
the Agreement.
The Agreement may be terminated at any time before the Effective Time,
whether before or after approval thereof by the shareholders of PFC, as provided
below: (a) by mutual consent of the parties; (b) at the election of
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either party, if the Closing shall not have occurred on or before December 31,
1994, or such later date as shall have been agreed to in writing by the parties;
PROVIDED, HOWEVER, that such right to terminate will not be available to any
party whose failure to perform an obligation under the Agreement has been the
cause of, or has resulted in, the failure of the Closing to occur on or before
such date; (c) by Signet if any event occurs which renders impossible of
satisfaction in any material respect one or more of the conditions to the
obligations of Signet to effect the Holding Company Merger set forth in the
Agreement and noncompliance is not waived by Signet; (d) by PFC if any event
occurs which renders impossible of satisfaction in any material respect one or
more of the conditions to the obligations of PFC and Pioneer Federal to effect
the Holding Company Merger set forth in the Agreement and noncompliance is not
waived by PFC; or (e) by PFC, whether before or after approval of the Holding
Company Merger by PFC's stockholders, by giving written notice of such election
to Signet within two trading days after the later to occur of (x) the receipt of
the written notice from Signet to the effect that all requisite federal and
state bank and thrift regulatory approvals required to consummate the
transactions contemplated by the Agreement have been obtained or (y) the Special
Meeting, in the event that the Average Closing Price of the Signet Common Stock
is less than $33.30 per share of Signet Common Stock; PROVIDED, HOWEVER, PFC
shall not be so permitted to terminate the Agreement and the Holding Company
Merger in the event that Signet determines (by giving written notice to PFC
within one day following receipt of PFC's notice) to adjust the Exchange Ratio
to equal such number of shares of Signet Common Stock as equal the quotient of
$20.75 divided by such Average Closing Price.
ACCOUNTING TREATMENT
As required under generally accepted accounting principles, the Holding
Company Merger will be accounted for as a "purchase" of PFC by Signet.
OPERATIONS OF SIGNET AFTER THE HOLDING COMPANY MERGER
Pursuant to the Agreement Signet has agreed that it will (or it will cause
the surviving subsidiary financial institution from the merger with Pioneer
Federal to) make offers of employment, beginning as of the Effective Time, to
all persons who are employees of PFC or any of its subsidiaries immediately
prior to the Effective Time, or, in the alternative, to take all reasonable
steps to locate suitable employment for all such persons. If such employment
cannot be achieved for any such persons and such employee's employment with
Signet (or a Signet subsidiary) following the Effective Time is terminated at
any time on or after the Effective Time up to one year thereafter, such employee
will be entitled to receive a severance payment in accordance with Signet's
Employee Displacement Policy. Any PFC employee terminated following such one
year period shall be entitled to receive severance pay in accordance with
Signet's severance policy for its employees then in effect. Employees of PFC or
any of its subsidiaries who are terminated by Signet or any Signet subsidiary
within one year of the Effective Time will also be entitled to outplacement
services provided by Signet.
In addition, Signet has agreed that each employee of PFC and any of its
subsidiaries who is actively at work at PFC or any of its subsidiaries on the
date immediately preceding the date of the Holding Company Merger and who
becomes an employee of Signet or its subsidiaries as a result of the Holding
Company Merger will be immediately entitled to participate in all employee
benefit plans sponsored by Signet or its subsidiaries to the same extent as
other similarly situated Signet employees. Such employees will receive credit
for their prior period of service to PFC or any of its subsidiaries for purposes
of determining eligibility, participation and vesting, but not for purposes of
benefit accrual, in all Signet employee benefit plans and for receiving other
employee benefits including, but not limited to, vacation and sick pay.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pursuant to the Agreement, as of the Effective Time, Signet or Signet Bank
will enter into employment agreements with George R. Whittemore, H. Lee Rettig,
Jacqueline T. Thornton and George E. Moore, III, in the forms filed as Exhibit
10(b) to the Registration Statement of which this Proxy Statement/Prospectus is
a part. Mr. Whittemore will be employed at an annual salary of $147,900 and each
of the other three individuals will be employed at an annual salary of $83,550.
While such individuals are employed by Signet or such Signet subsidiary, each
such individual will be entitled to benefits that are consistent with those
given similarly situated employees of Signet. The term of each such agreement is
three years. Pursuant to the terms of each such agreement, in the event that the
employee is terminated without cause or the employee voluntarily resigns such
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employment, the employee will be entitled to receive the salary set forth above,
up to the end of the term of such agreement, in a lump sum within ten days of
the date of termination of employment, discounted to the date of payment at the
applicable federal rate; provided, however, that if the amount paid to such
employee would result in any payment made to the employee under the agreement or
otherwise being nondeductible by reason of Section 280G of the Code, then the
amount payable to the employee shall be reduced to the greatest amount that will
permit all such payments to be deductible.
In addition, Signet has agreed to consider PFC employees displaced by the
Holding Company Merger for any unfilled comparable positions at Signet.
Pursuant to the Agreement, as of the Effective Time, Signet will appoint
each of PFC's directors to Signet Bank's Advisory Board. Such persons will
receive fees for serving on such Advisory Board at least equal in amount to the
fees received by other Advisory Board members. Currently, Advisory Board members
receive a fee of $200 per meeting, and meet approximately six times per year.
From and after the Effective Time, Signet will indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date of
the Agreement or who becomes prior to the Effective Time, an officer, director
or employee of PFC or any of its subsidiaries (the "Indemnified Parties")
against all losses, claims, damages, costs, expenses (including attorney's
fees), liabilities, judgments or amounts that are paid in settlement of or in
connection with any claim, action, suit, proceeding or investigation (each a
"Claim") in which an Indemnified Party is, or is threatened to be made, a party
or a witness based in whole or in part on or arising in whole or in part out of
the fact that such person is or was a director, officer or employee of PFC or
any subsidiary of PFC if such Claim pertains to any matter of fact arising,
existing or occurring prior to the Effective Time (including, without
limitation, the Holding Company Merger and other transactions contemplated by
the Agreement), regardless of whether such Claim is asserted or claimed prior
to, or at or after, the Effective Time (the "Indemnified Liabilities") to the
full extent permitted under (i) applicable Virginia or federal law in effect as
of the date of the Agreement or as amended applicable to a time prior to the
Effective Time or (ii) under PFC's or Pioneer Federal's Articles of
Incorporation, Charter and Bylaws. Signet will pay expenses in advance of the
final disposition of any such claim to each Indemnified Party to the full extent
permitted by Virginia or federal law in effect as of the date hereof or as
amended applicable to a time prior to the Effective Time upon receipt of any
undertaking required by applicable law. Any Indemnified Party wishing to claim
indemnification under the Agreement upon learning of any Claim, must notify
Signet promptly after learning of any Claim (but the failure so to notify Signet
will not relieve them from any liability which they may have under the Agreement
except to the extent such failure materially prejudices Signet) and must deliver
to Signet the undertaking, if any, required by applicable law. Signet will
insure, to the extent permitted under applicable law, that all limitations of
liability existing in favor of the Indemnified Parties as provided in PFC's or
Pioneer Federal's Articles of Incorporation, Charter and Bylaws, as in effect as
of the date of the Agreement, or allowed under applicable Virginia or federal
law as in effect as of the date of the Agreement or as amended applicable to a
time prior to the Effective Time, with respect to claims or liabilities arising
from facts or events existing or occurring prior to the Effective Time
(including, without limitation, the transactions contemplated by the Agreement),
will survive the Holding Company Merger. The obligations of Signet described
above will continue in full force and effect, without any amendment thereto, for
a period of not less than six years from the Effective Time; provided, however,
that all rights to indemnification in respect of any Claim asserted or made
within such period will continue until the final disposition of such Claim.
From and after the Effective Time, the directors, officers and employees of
PFC and its subsidiaries who become directors, officers or employees of Signet
or its subsidiaries, (i) will have indemnification rights having prospective
application only, except for the indemnification rights set forth in the
preceding paragraph and (ii) will be covered by the directors, officers and
employees liability insurance policy of Signet and its subsidiaries on a basis
at least equal to the coverage provided to persons in similar positions with
Signet or any of its subsidiaries.
Signet has agreed to (x) cause its own directors' and officers' liability
insurance to, or (y) permit PFC and Pioneer Federal to purchase and keep in
force for a period of at least three years following the Effective Time,
directors' and officers' liability insurance to, provide coverage to PFC's and
its subsidiaries' directors and officers for acts or omissions of the type and
in the amount currently covered by PFC's and Pioneer Federal's existing
directors' and officers' liability insurance for acts or omissions occurring on
or prior to the Effective
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Time; provided that Signet shall not be required to spend, or permit PFC or
Pioneer Federal to spend, in respect of such coverage, an amount in excess of
2.5 times the rate currently paid by PFC or Pioneer Federal for directors' and
officers' insurance.
EFFECT ON PFC EMPLOYEE BENEFITS PLANS
PFC will terminate PFC's Profit Sharing/401(k) Plan prior to the date of
the Holding Company Merger and employees of PFC or any of its subsidiaries who
are participants in PFC's Profit Sharing/401(k) Plan and who become employees of
Signet or its subsidiaries as of the date of the Holding Company Merger may have
their account balances transferred to the Signet 401(k) Plan. Employees of PFC
or any of its subsidiaries who are actively at work at PFC or any of its
subsidiaries on the date immediately preceding the date of the Holding Company
Merger and who become employees of Signet or its subsidiaries as of the date of
the Holding Company Merger will have their prior service with PFC or any of its
subsidiaries credited toward vesting service, participation and eligibility
under the terms of the Signet 401(k) Plan. See " -- Operations of Signet After
the Holding Company Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is a condition to the obligation of Signet and PFC to consummate the
Holding Company Merger that Signet and PFC receive an opinion from Wachtell,
Lipton, Rosen & Katz, special tax counsel for Signet, to the effect that, among
other things, the Holding Company Merger will be treated for federal income tax
purposes as one or more reorganizations within the meaning of Section 368(a) of
the Code, and (i) the shareholders of PFC will not recognize any gain or loss to
the extent that such shareholders exchange shares of PFC Common Stock solely for
shares of Signet Common Stock in the Merger, (ii) the basis of the Signet Common
Stock received by a PFC shareholder who exchanges PFC Common Stock solely for
Signet Common Stock will be the same as the basis of the PFC Common Stock
surrendered in exchange therefor (subject to any adjustments required as the
result of receipt of cash in lieu of a fractional share of Signet Common Stock),
(iii) the holding period of the Signet Common Stock received by a PFC
shareholder receiving Signet Common Stock will include the period during which
the PFC Common Stock surrendered in exchange therefor was held (provided that
the PFC Common Stock of such PFC shareholder was held as a capital asset at the
Effective Time), and (iv) cash received by a PFC shareholder in lieu of a
fractional share interest of Signet Common Stock will be treated as having been
received as a distribution in full payment in exchange for the fractional share
interest of Signet Common Stock which he would otherwise be entitled to receive.
Assuming that certain representations to be made by Signet and PFC are true
as of the Effective Time, the law firm of Wachtell, Lipton, Rosen & Katz, New
York, New York, will render an opinion that the Holding Company Merger will
qualify as a reorganization under the Code with the consequences set forth
above.
Holders of PFC Common Stock who receive cash in the Holding Company Merger
as a result of the rounding off of fractional share interests in Signet Common
Stock will be treated, in each instance, as having received the fractional share
interests and then as having sold such interest for the cash received. This sale
will result in the recognition of gain or loss for federal income tax purposes,
measured by the difference between the amount of cash received and the portion
of the basis for the share of PFC Common Stock allocable to such fractional
share interests. Such gain or loss will be capital gain or loss, provided that
such share of PFC Common Stock was held as a capital asset at the Effective
Time, and will be long-term capital gain or loss if such share of PFC Common
Stock has been held for more than one year.
Each holder of PFC Common Stock who properly dissents to the Holding
Company Merger and thereby receive cash in exchange for his shares of PFC Common
Stock will generally recognize gain or loss for federal income tax purposes to
the extent of the difference between the aggregate amount of cash received and
the aggregate amount of such stockholder's adjusted tax basis in the shares of
PFC Common Stock surrendered in exchange therefor, and such gain or loss will be
treated as a capital gain or loss if the stock was a capital asset in the hands
of such stockholder at the Effective Time, or ordinary income otherwise.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE HOLDING COMPANY MERGER AND DOES NOT PURPORT TO BE
A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A
DECISION WHETHER TO VOTE IN FAVOR OF APPROVAL AND ADOPTION
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OF THE AGREEMENT AND THE HOLDING COMPANY MERGER. THE DISCUSSION DOES NOT ADDRESS
THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR PFC SHAREHOLDER
SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS
DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS,
NON-UNITED STATES PERSONS AND SHAREHOLDERS WHO ACQUIRED THEIR SHARES AS
COMPENSATION, NOR ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY
OR FOREIGN JURISDICTION. THE DISCUSSION IS BASED UPON THE CODE, TREASURY
REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE
DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. PFC SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF THE HOLDING COMPANY MERGER TO THEM.
AFFILIATES
PFC has agreed that, within five business days prior to the Effective Time,
PFC will use its best efforts to deliver to Signet from each person who may be
deemed to be an "affiliate" of PFC within the meaning of Rule 145 under the
Securities Act, a written letter agreement regarding restrictions on resale of
the shares of Signet Common Stock received by such persons in the Holding
Company Merger to ensure compliance with applicable resale restrictions imposed
under the federal securities laws.
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
The representations and warranties made by PFC and Pioneer Federal in the
Agreement relate to (i) the organization, good standing, authority and insurance
of PFC and each of its subsidiaries; (ii) the capitalization of PFC; (iii) the
ownership by PFC (directly or indirectly) of the capital stock of PFC's
subsidiaries and the absence, except as disclosed to Signet, of ownership by PFC
or its subsidiaries of other capital stock; (iv) PFC's financial statements and
certain loss reserves; (v) the absence of liabilities that have not been
disclosed to Signet; (vi) the absence of material adverse changes since
September 30, 1993; (vii) the absence, except as disclosed to Signet, of
dividends, stock repurchases and certain specified activities and occurrences;
(viii) the accuracy of information to be supplied by PFC in connection with
documents to be distributed to stockholders of Signet and PFC and the compliance
with the required forms of such documents; (ix) the absence of liability, except
as disclosed to Signet, with respect to investment banking or similar fees in
respect of the Agreement; (x) material contracts; (xi) litigation, (xii)
compliance with law; (xiii) authority to enter into the Agreement; (xiv) labor
relations and the absence of undisclosed employment agreements; (xv) employee
benefits and compliance with the Employee Retirement Income Security Act of
1974, as amended ("ERISA"); (xvi) title to real property and other assets;
(xvii) payment of taxes; (xviii) environmental matters; (xix) the absence of
knowledge of impediments to the grant of governmental approvals or satisfaction
of other conditions to the Agreement; and (xx) accuracy of documents filed by
PFC with the SEC.
The representations and warranties made by Signet in the Agreement relate
to (i) the organization, good standing and authority of Signet and each of its
subsidiaries; (ii) the capitalization of Signet; (iii) the ownership by Signet
(directly or indirectly) of the capital stock of Signet's subsidiaries; (iv)
Signet's financial statements; (v) the absence of liabilities that have not been
disclosed to PFC; (vi) the absence of material adverse changes since September
30, 1993; (vii) the accuracy of information to be supplied by Signet in
connection with documents to be distributed to stockholders of Signet and PFC
and the compliance with the required forms of such documents; (viii) litigation,
(ix) compliance with law; (x) reservation of a sufficient number of shares of
Signet Common Stock for issuance in the Holding Company Merger; (xi) authority
to enter into the Agreement; (xii) payment of taxes; (xiii) environmental
matters; (xiv) the absence of knowledge of impediments to the grant of
governmental approvals or satisfaction of other conditions to the Agreement; and
(xvi) accuracy of documents filed by Signet with the SEC.
DISSENTERS' RIGHTS
Holders of PFC Common Stock entitled to vote on approval of the Agreement
and the related Holding Company Plan of Merger will be entitled to have the fair
value of each such holder's shares of PFC Common
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Stock immediately prior to consummation of the Holding Company Merger paid to
such holder in cash, together with interest, if any, by complying with the
provisions of Article 15 of the VSCA ("Article 15"). Under Article 15, the
determination of the fair value of a dissenter's shares would exclude any
appreciation or depreciation in the value of such shares in anticipation of the
Holding Company Merger, unless such exclusion would be inequitable.
A HOLDER OF PFC COMMON STOCK WHO DESIRES TO EXERCISE SUCH HOLDER'S
DISSENTERS' RIGHTS MUST SATISFY ALL OF THE FOLLOWING CONDITIONS. A written
notice of such holder's intent to demand payment for such holder's PFC Common
Stock must be delivered to PFC before the taking of the vote on approval of the
Holding Company Merger. This written notice must be in addition to and separate
from voting against, abstaining from voting, or failing to vote on approval of
the Agreement and the related Holding Company Plan of Merger. Voting against,
abstaining from voting or failing to vote on approval of the Agreement and the
related Holding Company Plan of Merger will not constitute written notice of an
intent to demand payment within the meaning of Article 15.
A holder of PFC Common Stock electing to exercise such holder's dissenters'
rights under Article 15 must not vote for approval of the Agreement and the
related Holding Company Plan of Merger. Voting for approval of the Agreement and
the related Holding Company Plan of Merger, or delivering a proxy in connection
with the PFC shareholder Meeting (unless the proxy specifies a vote against, or
affirmatively abstaining from voting on, approval of the Agreement and the
related Holding Company Plan of Merger), will constitute a waiver of such
holder's dissenters' rights and will nullify any written notice of an intent to
demand payment submitted by such holder.
A holder of record of PFC Common Stock may assert dissenters' rights as to
less than all of the shares registered in such holder's name only if such holder
dissents with respect to all shares beneficially owned by any one person and
notifies PFC in writing of the name and address of each person on whose behalf
such holder is asserting dissenters' rights. The rights of a partial dissenter
under Article 15 are determined as if the shares as to which the holder dissents
and the holder's other shares were registered in the names of different
shareholders.
A beneficial holder of PFC Common Stock may assert dissenters' rights as to
shares held on such holder's behalf only if such holder: (1) submits to PFC the
record holder's written consent to the dissent not later than the time the
beneficial holder asserts dissenters' rights; and (ii) does so with respect to
all shares of which such holder is the beneficial holder or over which such
holder has the power to direct the vote.
If the Holding Company Merger is consummated, Signet will, within ten days
after the date of the Effective Time of the Holding Company Merger, deliver a
dissenters' notice to all holders who satisfied the foregoing requirements,
which will: (i) state where payment demand is to be sent and where and when
certificates for Dissenting Shares are to be deposited; (ii) supply a form for
demanding payment that includes the date (February 16, 1994) of the first
announcement to news media of the terms of the Holding Company Merger, and
requires that the person asserting dissenters' rights certify whether or not
such person acquired beneficial ownership of such person's Dissenting Shares
before or after such date; (iii) set a date by which Signet must receive the
payment demand, which date may not be less than 30 nor more than 60 days after
the date of delivery of the dissenters' notice; and (iv) be accompanied by a
copy of Article 15.
Except as provided below with respect to after-acquired shares, within 30
days after receipt of a payment demand, Signet shall pay the dissenter the
amount that Signet estimates to be the fair value of the dissenter's shares,
plus accrued interest. The obligation of Signet to make such payment may be
enforced: (i) by the Circuit Court for the City of Richmond, Virginia; or (ii)
at the election of any dissenter residing or having its principal office in
Virginia, by the circuit court in the city or county where the dissenter resides
or has such office. The payment by Signet will be accompanied by: (i) Signet's
balance sheet as of the end of a fiscal year ended not more than 16 months
before the date of the Effective Time of the Holding Company Merger, an income
statement for that year, a statement of changes in shareholders' equity for that
year and the latest available interim financial statements, if any; (ii) an
explanation of how Signet estimated the fair value of the Dissenting Shares and
of how the interest was calculated; (iii) a statement of the dissenter's right
to demand payment as described below; and (iv) a copy of Article 15.
Signet may elect to withhold payment from a dissenter unless the dissenter
was the beneficial owner of the Dissenting Shares on February 16, 1994, in which
case Signet will estimate the fair value of such after-acquired shares, plus
accrued interest, and will offer to pay such amount to each dissenter who agrees
to accept it in full
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satisfaction of such dissenter's demand. Signet will send with such offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment as described below.
Within 30 days after Signet makes or offers payment as described above, a
dissenter may notify Signet in writing of the dissenter's own estimate of the
fair value of the Dissenting Shares and the amount of interest due, and demand
payment of such estimate (less any payment by Signet) or reject Signet's offer
and demand payment of such estimate.
If any such demand for payment remains unsettled, within 60 days after
receiving the payment demand Signet will petition the Circuit Court for the City
of Richmond, Virginia to determine the fair value of the shares and the accrued
interest and make all dissenters whose demands remain unsettled parties to such
proceeding, or pay each dissenter whose demand remains unsettled the amount
demanded. Each dissenter made a party to such proceeding is entitled to a
judgment for: (1) the amount, if any, by which the court finds that the fair
value of the Dissenting Shares, plus interest, exceeds the amount paid by
Signet; or (ii) the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which Signet elected to withhold payment. The court
will determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court and assess the
costs against Signet, or against all or some of the dissenters to the extent the
court finds the dissenters did not act in good faith in demanding payment.
The foregoing is only a summary of the rights of a dissenting holder of PFC
Common Stock. Any holder of PFC Common Stock who intends to dissent from the
Holding Company Merger should carefully review the text of the applicable
provisions of the VSCA set forth in ANNEX V to this Proxy Statement/Prospectus
and should also consult with such holder's attorney. THE FAILURE OF A HOLDER OF
PFC COMMON STOCK TO FOLLOW PRECISELY THE PROCEDURES SUMMARIZED ABOVE, AND SET
FORTH IN ANNEX V, MAY RESULT IN LOSS OF DISSENTERS' RIGHTS. No further notice of
the events giving rise to dissenters' rights or any steps associated therewith
will be furnished to holders of PFC Common Stock, except as indicated above or
otherwise required by law.
In general, any dissenting shareholder who perfects such holder's right to
be paid the fair value of such holder's PFC Common Stock in cash will recognize
taxable gain or loss for federal income tax purposes upon receipt of such cash.
See " -- Federal Income Tax Consequences".
EXPENSES
Whether or not the Holding Company Merger is consummated, all costs and
expenses incurred in connection with the Agreement and the transactions
contemplated thereby will be paid by the party incurring such expense, except
for liability for an uncured intentional and willful breach of a representation,
warranty, covenant or agreement giving the other party to the Agreement the
right to terminate.
THE BOARD OF DIRECTORS OF PFC RECOMMENDS A VOTE FOR THE MERGER PROPOSAL.
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BUSINESS OF SIGNET
Signet is the holding company for Signet Bank/Virginia, Signet Bank N.A. of
Washington, D.C. and Signet Bank/Maryland. At March 31, 1994, Signet had
approximately $11.5 billion in total assets, $7.9 billion in total deposits and
$1.0 billion in total shareholders' equity.
Signet was incorporated under the laws of the Commonwealth of Virginia in
1962. The executive offices of Signet are located in Richmond, Virginia at 7
North Eighth Street.
BUSINESS OF PFC
PFC is the holding company for Pioneer Federal, a federal savings bank. At
March 31, 1994, PFC had approximately $392 million in total assets, $310 million
in total deposits, and $51 million in shareholders' equity. PFC was incorporated
in November 1987 and, in May 1988, issued its common stock to the existing
shareholders of Pioneer Federal and became the holding company for Pioneer
Federal. For regulatory purposes, PFC is classified as a unitary savings and
loan holding company and is thereby subject to examination, regulation and
supervision by the OTS. Prior to becoming the holding company of Pioneer
Federal, PFC had no significant assets or liabilities and did not engage in any
business activities. Since that time, PFC has not engaged in any significant
activity other than holding the stock of Pioneer Federal. Accordingly, the
information set forth herein, including financial statements and related data,
relates primarily to Pioneer Federal and its subsidiaries.
Pioneer Federal is a federally-chartered stock savings bank with executive
and administrative offices in Chester, Virginia. It conducts business through
eleven full service retail banking offices in Virginia located in the cities of
Hopewell, Colonial Heights, Petersburg, and Richmond; the counties of
Chesterfield and Henrico, and the town of Chase City, and it also operates a
separate mortgage loan production office in Henrico County, Virginia. Pioneer
Federal was chartered in 1933 under the name "Pioneer Federal Savings and Loan
Association," converted to a federal capital stock savings and loan association
in July 1984, and converted to a federal stock savings bank and adopted its
current name in June 1988.
The principal business of Pioneer Federal consists of accepting deposits
from the general public and investing such deposits, together with borrowings
and other funds, in loans secured by one-to four-family residential,
multi-family and commercial properties as well as in construction loans. In
addition, Pioneer Federal originates commercial loans and a limited amount of
consumer loans. Pioneer Federal also maintains a substantial investment
portfolio consisting primarily of mortgage-backed U.S. Treasury securities.
Through its wholly-owned subsidiaries, Pioneer Federal also engages in mortgage
brokerage, insurance agency operations, investment in land acquisition and
development projects, and the disposal of foreclosed real estate. See "Recent
Development of PFC" for a discussion of certain recent developments which could
affect the Transaction.
SUPERVISION AND REGULATION
The following generally describes the regulations to which Signet and its
subsidiary banks (the "Subsidiaries") are subject. Bank holding companies and
banks are extensively regulated under both federal and state law. To the extent
that the following information describes statutory or regulatory provisions, it
is qualified in its entirety by reference to the particular statutory
provisions. Any change in applicable law or regulation may have a material
effect on the business and prospectus of Signet and the Subsidiaries.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
Signet is a legal entity separate and distinct from the Subsidiaries. A
large portion of Signet's revenues results from dividends paid to Signet by the
Subsidiaries. The right of Signet, and consequently the right of creditors and
shareholders of Signet, to participate in any distribution of the assets or
earnings of any Subsidiary through the payment of such dividends or otherwise is
necessarily subject to the prior claims of creditors of the Subsidiary, except
to the extent that claims of Signet in its capacity as a creditor may be
recognized. Under federal law, the Subsidiaries may not, subject to certain
limited exceptions, make loans or extensions of credit to, or investments in the
securities of, Signet or take securities of Signet as collateral for loans to
any borrower. The Subsidiaries are also subject to collateral security
requirements for any loans or extensions of credit permitted by such exceptions.
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The Subsidiaries are subject to various statutory restrictions on their
ability to pay dividends to Signet. Under the current supervisory practices of
the Subsidiaries' regulatory agencies, prior approval from those agencies is
required if cash dividends declared in any given year exceed net income for that
year plus retained earnings of the two preceding years. Under banking
regulations, at December 31, 1993, the Subsidiaries could have paid additional
dividends to Signet of approximately $131.8 million, without obtaining prior
regulatory approval. The payment of dividends by the Subsidiaries or Signet also
may be limited by other factors, such as requirements to maintain adequate
capital above regulatory guidelines. Bank regulatory agencies have authority to
prohibit any Subsidiary of Signet from engaging in an unsafe or unsound practice
in conducting their business. The payment of dividends, depending upon the
financial condition of the Subsidiary in question, or Signet, could be deemed to
constitute such an unsafe or unsound practice. The Federal Reserve Board has
stated that, as a matter of prudent banking, a bank or banking holding company
should not maintain its existing rate of cash dividends on common stock unless
(1) the organizations' net income available to common shareholders over the past
year has been sufficient to fund fully the dividends and (2) the prospective
rate of earnings retention appears consistent with the organization's capital
needs, asset quality and overall financial condition.
CAPITAL REQUIREMENTS
As a bank holding company, Signet is subject to regulation by the Federal
Reserve Board under the Bank Holding Company Act of 1956 (the "BHCA"). In
January 1989, the Federal Reserve Board published risk-adjusted capital
guidelines in final form which are applicable to bank holding companies. The
Federal Reserve Board guidelines redefine the components of capital, categorize
assets into different risk classes and include certain off-balance sheet items
in the calculation of risk-weighted assets. The minimum ratio of qualified total
capital to risk-weighted assets (including certain off-balance sheet items, such
as standby letters of credit) is 8 percent. At least half of the total capital
is to be comprised of common equity, retained earnings and a limited amount of
permanent preferred stock, less goodwill ("Tier 1 capital"). The remainder
("Tier 2 capital") may consist of a limited amount of subordinated debt, other
preferred stock, certain other instruments and a limited amount of loan and
lease loss reserves. Signet's Tier 1 and total capital to risk-weighted asset
ratios as of March 31, 1994 (calculated using final risk-adjusted guidelines)
were 10.97% and 14.63%, respectively, exceeding the minimums required at
year-end 1993.
In addition, the Federal Reserve Board has established minimum leverage
ratio (Tier 1 capital to quarterly average tangible assets) guidelines for bank
holding companies. These guidelines provide for a minimum ratio of 3 percent for
bank holding companies that meet certain specified criteria, including that they
have the highest regulatory rating. All other bank holding companies will be
required to maintain a leverage ratio of 3 percent plus an additional cushion of
at least 100 to 200 basis points. Signet's leverage ratio as of March 31, 1994
was 8.74%. The guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However, management is unable to predict whether higher capital ratios would be
imposed and, if so, at what levels and on what schedule. Management is not aware
of any current recommendations by the regulatory authorities, which, if they
were to be implemented, would have a material effect on the liquidity, capital
resources or operations of Signet.
OBLIGATIONS TO COMMONLY CONTROLLED INSTITUTIONS
Under applicable law, a depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably expected to be incurred by,
the FDIC after August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a "default" is likely to occur
in the absence of regulatory assistance. Liability of any Subsidiary under this
"cross-guarantee" provision could have a material adverse effect on the
financial condition of any Subsidiary and Signet.
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BANK HOLDING COMPANIES
The BHCA requires the prior approval of the Federal Reserve Board in any
case where a bank holding company proposes to acquire direct or indirect
ownership or control or more than 5% of the voting shares of any bank that is
not already majority owned by it or to merge or consolidate with any other bank
holding company. The BHCA prohibits the Federal Reserve Board from approving an
application from a bank holding company to acquire shares of a bank located
outside the state in which the operations or the holding company's banking
subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by statute of the state in which the bank whose shares
are to be acquired is located. [Virginia has adopted legislation permitting such
acquisitions by bank holding companies located in any state that has reciprocal
acquisition arrangements with Virginia.]
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank and from engaging in any business other than banking or managing or
controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the ownership of shares by a bank holding company in any company the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. The Federal Reserve Board has by regulation determined that
certain activities are closely related to banking within the meaning of the
BHCA. These activities include: operating a mortgage company, finance company,
credit card company or factoring company; performing certain data processing
operations; providing investment and financial advice; and acting as an
insurance agent for certain types of credit-related insurance.
BANKS
The Subsidiaries are supervised and regularly examined by various federal
and state regulatory agencies. The laws and regulations administered by the
regulatory agencies affect corporate practices, such as payment of dividends,
incurring debt and acquisition of financial institutions and other companies,
and affect business practices, such as payment of interest on deposits, the
charging of interest on loans, types of business conducted and location of
offices.
FDIC INSURANCE ASSESSMENTS
The Subsidiaries are subject to FDIC deposit insurance assessments. In
September 1992, the FDIC issued a final rule, effective in November 1992,
relating to assessment regulations to provide for the transition from a flat-
rate system for deposit insurance premiums to a new risk-based system. Under the
new risk-based system and the new premium rates established by the FDIC, which
became effective in January 1993, the premium rate will range from $.23 to $.31
per $100 of deposits and will depend on both the institution's capital adequacy
and a supervisory judgment of overall risk posed by the institution. According
to the FDIC, the resulting average industry-wide premium under the new rule
would be $.254 per $100 of deposits. Because of decreases in the reserves of the
Bank Insurance Fund and the Savings Association Insurance Fund due to the
increased number of bank and thrift failures in recent years, it is possible
that insurance assessments will increase and that there may be special
additional assessments. Additional assessments could have an adverse impact on
Signet's results of operations.
GOVERNMENTAL POLICIES
The operations of Signet and the Subsidiaries are affected not only by
general economic conditions, but also by the policies of various regulatory
authorities. In particular, the Federal Reserve Board regulates money and credit
and interest rates in order to influence general economic conditions. These
policies have a significant influence on overall growth and distribution of
loans, investments and deposits and affect interest rates charged on loans or
paid for time and savings deposits. Federal Reserve Board monetary policies have
had a significant effect on the operating results of commercial banks in the
past and are expected to continue to do so in the future.
RECENT BANKING LEGISLATION
In December 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") was enacted. FDICIA substantially revises the depository
institution regulatory and funding provisions of the Federal Deposit Insurance
Act and makes revisions to several other federal banking statutes.
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Among other things, FDICIA requires the federal banking regulators to take
prompt corrective action with respect to depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized."
The Federal Reserve Board and the OTS have adopted regulations establishing
relevant capital measures and relevant capital levels for banks and thrifts. The
relevant capital measures are the total risk-adjusted capital ratio, Tier 1
risk-adjusted capital ratio and the leverage ratio. Under the regulations, a
bank or thrift is considered (i) well capitalized if it has a total capital
ratio of ten percent or greater, a Tier 1 capital ratio of six percent or
greater and a leverage ratio of five percent or greater and is not subject to
any order or written directive by such regulator to meet and maintain a specific
capital level for any capital measure, (ii) adequately capitalized if it has a
total capital ratio of eight percent or greater, a Tier 1 capital ratio of four
percent or greater and a leverage ratio of four percent or greater (three
percent in certain circumstances) and is not well capitalized, (iii)
undercapitalized if it has a total capital ratio of less then eight percent, a
Tier 1 capital ratio of less than four percent or a leverage ratio of less than
four percent (three percent in certain circumstances), (iv) significantly
undercapitalized if it has a total capital ratio of less than six percent, a
Tier 1 capital ratio of less than three percent or a leverage ratio of less than
three percent, and (v) critically undercapitalized if its tangible equity is
equal to or less than two percent of average quarterly tangible assets. As of
December 31, 1993, all of the Subsidiaries had capital levels that qualify them
as being well capitalized under such regulations.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. In order to
obtain acceptance of a capital restoration plan, a depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
Under FDICIA, a depository institution that is not well capitalized is
generally prohibited from accepting brokered deposits and offering interest
rates on deposits higher than the prevailing rate in its market. In addition,
"pass through" insurance coverage may not be available for certain employee
benefit accounts.
Under FDICIA, each insured depository institution is required to submit
annual financial statements to the FDIC, its primary federal regulatory, and any
appropriate state banking supervisor and a report signed by the chief executive
officer and chief accounting or financial officer which contains (i) a statement
of management's responsibilities for preparing financial reports, establishing
and maintaining an adequate internal control structure, and complying with laws
and regulations relating to safety and soundness, and (ii) an assessment of the
effectiveness of such structures and compliance effort. The institution's
independent public accountant will then be required to attest to and report to
separately on the assertions of the institution's management.
Under FDICIA, the appropriate federal banking agencies have issued
regulations requiring insured depository institutions to have annual independent
audits (which can be performed only by accounting firms which have, among other
points, agreed to provide related working papers, policies and procedures to the
FDIC, and the appropriate federal and state banking authorities, if so
requested). In the case of institutions that are subsidiaries of holding
companies, the audit requirement can be met by an audit of the holding company.
The accountants must issue reports in compliance with generally accepted
accounting principles and FDICIA. The scope of the audit shall include a review
of whether the financial statements of the institution are presented fairly in
accordance with generally accepted accounting principles and whether they comply
with such other disclosure requirements as the federal banking agencies may
prescribe. Also, the accountants must apply procedures agreed upon by the FDIC
to determine objectively if an institution is in compliance with laws and
regulations. Institutions are
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required to provide their accountants copies of reports of condition,
examination reports and information concerning any agency enforcement actions.
Copies of the accounting firm reports are to be provided to the FDIC and the
appropriate federal banking agency.
Each insured depository institution is required to have an independent
audit committee made up entirely of outside directors who are independent of
management of the institution and who satisfy any specific requirements the FDIC
may establish. Their duties are to include review of the various new reports
required under FDICIA. In the case of any insured depository institution which
the FDIC determines to be a "large institution", the audit committee must
include members with banking or related financial expertise. Also, in the case
of such large institutions, the committee must have access to its own outside
counsel, and may not include any large customers of the institution. There are
certain exemptions for institutions that are part of a holding company
structure, but the institution must have total assets of less than $9 billion,
and an examination rating of 1 or 2.
FDICIA amends the Federal Deposit Insurance Act by inserting a new
provision concerning accounting objectives, standards and requirements. Among
other matters, the federal banking agencies are required to: (i) review the
accounting principles used by depository institutions in preparing financial
reports required to be filed with a federal banking agency and related matters
with respect to such reports; (ii) modify or eliminate any accounting principles
or reporting requirements which are inconsistent with FDICIA's objectives of
effective supervision, prompt corrective action and increased accuracy of
financial statements; (iii) prescribe regulations which require that all assets
and liabilities, including contingent assets and liabilities, of insured
depository institutions be reported in, or otherwise taken into account of, in
the preparation of any balance sheet, financial statement, report of condition,
or other report required to be filed with the federal banking agency; and (iv)
develop jointly with the other appropriate federal banking agencies, a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practical, in any such reports. All financial reports and statements are to
be prepared in accordance with generally accepted accounting principles, except
that each federal banking agency has the power to implement more stringent
procedures in certain instances.
FDICIA also imposes certain operational and managerial standards on
financial institutions relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. FDICIA imposes new restrictions on activities and investments of
insured state banks, and prescribes limitations on risks posed by exposure of
insured banks to other depository institutions, including adoption of policies
to limit overnight credit exposures to correspondent banks.
FDICIA requires the federal banking regulators to adopt rules prescribing
certain safety and soundness standards for insured depository institutions and
their holding companies. Proposed regulations implementing these standards to
cover operations and management, asset quality and earnings, and employee
compensation are pending adoption. The standards are intended to enable the
regulatory agencies to address problems at depository institutions and holding
companies before the problems cause significant deterioration in the financial
condition of the institution. The proposal would establish the objectives of
proper operations and management, but would leave specific methods for achieving
those objectives to each institution.
Under FDICIA, the federal banking agencies adopted regulations providing
standards for extensions of credit that are secured by liens on interest in real
estate or made for the purpose of financing the construction of building or
other improvements of real estate. In prescribing standards, the agencies are to
consider the risk posed to the deposit insurance fund, the need for safe and
sound operation of depository institutions and the availability of credit.
Various other legislation, including proposals to overhaul the banking
regulatory system and to limit the investments that a depository institution may
make with insured funds are from time to time introduced in Congress. Signet
cannot determine the ultimate effect that FDICIA and the implementing
regulations to be adopted thereunder, or any other potential legislation, if
enacted, would have upon its financial condition or operations.
DESCRIPTION OF SIGNET CAPITAL STOCK
The capital stock of Signet consists of 100,000,000 authorized shares of
Common Stock, par value $5 per share, and 5,000,000 authorized shares of
Preferred Stock, par value $20 per share. The shares of Preferred Stock
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are issuable in series, with relative rights, preferences and limitations of
each series fixed by the Company's Board of Directors. No shares of Preferred
Stock are currently issued and outstanding.
COMMON STOCK
Signet had 56,718,841 shares of Common Stock outstanding at March 31, 1994.
Each share of Common Stock is entitled to one vote on all matters submitted to a
vote of shareholders. Subject to certain limitations on the payment of
dividends, holders of Signet Common Stock are entitled to receive dividends when
and as declared by the Signet Board of Directors out of funds legally available
therefor, but only if all dividends on any outstanding Preferred Stock for the
then current period and all prior periods have been paid or provided for.
The issued and outstanding shares of Common Stock are fully paid and
non-assessable. Holders of Signet Common Stock have no preemptive or conversion
rights and are not subject to further calls on assessments by Signet.
In the event of the voluntary or involuntary dissolution, liquidation or
winding up of Signet, holders of Signet Common Stock are entitled to receive,
pro rata, after satisfaction in full of the prior rights of creditors and
holders of Preferred Stock, if any, all the remaining assets of Signet available
for distribution.
Directors are elected by a vote of the holders of Signet Common Stock.
Holders of Signet Common Stock are not entitled to cumulative voting rights.
Mellon Bank, N.A. acts as the transfer agent for the Signet Common Stock.
Signet maintains a dividend reinvestment plan providing for the purchase of
additional shares of Signet Common Stock by reinvestment of cash dividends paid
on the outstanding capital stock and also by optional direct cash payments by
shareholders. Dividends reinvested are applied to the purchase of shares of
Signet Common Stock at 95% of the market value at the time of purchase. Optional
cash purchases may be made at 100% of the market value of the Signet Common
Stock at the time of purchase.
Signet also maintains stock option plans providing for the issuance of
options to purchase shares of Signet Common Stock to certain key personnel of
Signet. At March 31, 1994, options to purchase a total of 1,191,020 shares of
Common Stock were outstanding, at an average per share option price of $20.28.
See "Capitalization" for a discussion of the shares of Common Stock reserved for
issuance under current and proposed stock option, employee stock purchase and
other plans.
Holders of Signet Common Stock do not have the right to vote on mergers of
banks which are subsidiaries of the Company.
PREFERRED STOCK
The Signet Board of Directors is authorized to designate with respect to
each new series of Preferred Stock the number of shares in each series, the
dividend rates and dates of payment, voluntary and involuntary liquidation
preferences, redemption prices, whether or not dividends shall be cumulative
and, if cumulative, the date or dates from which the same shall be cumulative,
the sinking fund provisions, if any, for redemption or purchase of shares, the
rights, if any, and the terms and conditions on which shares can be converted
into or exchanged for, or the rights to purchase, shares of any other class or
series, and the voting rights, if any. Any Preferred Stock issued will rank
prior to the Signet Common Stock as to dividends and as to distributions in the
event of liquidation, dissolution or winding up of Signet. The ability of the
Signet Board of Directors to issue Preferred Stock, while providing flexibility
in connection with possible acquisitions and other corporate purposes, could,
among other things, adversely affect the voting powers of holders of Signet
Common Stock and, under certain circumstances, may discourage an attempt by
others to gain control of Signet.
VIRGINIA STOCK CORPORATION ACT
The VSCA contains provisions governing "Affiliated Transactions." These
provisions, with several exceptions discussed below, require approval of
material acquisition transactions between a Virginia corporation and any holder
of more than 10% of any class of its outstanding voting shares (an "Interested
Shareholder") by the holders of at least two-thirds of the remaining voting
shares. Affiliated Transactions subject to this approval requirement include
mergers, share exchanges, material dispositions of corporate assets not in the
ordinary course of business, any dissolution of the corporation proposed by or
on behalf of an Interested Shareholder, or any
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reclassification, including reverse stock splits, recapitalization or merger of
the corporation with its subsidiaries which increases the percentage of voting
shares owned beneficially by an Interested Shareholder by more than 5%.
For three years following the time that an Interested Shareholder becomes
an owner of 10% of the outstanding voting shares, a Virginia corporation cannot
engage in an Affiliated Transaction with such Interested Shareholder without
approval of two-thirds of the voting shares other than those shares beneficially
owned by the Interested Shareholder, and majority approval of the "Disinterested
Directors." A Disinterested Director means, with respect to a particular
Interested Shareholder, a member of the Company's Board of Directors who was (1)
a member on the date on which an Interested Shareholder became an Interested
Shareholder and (2) recommended for election by, or was elected to fill a
vacancy and received the affirmative vote of, a majority of the Disinterested
Directors then on the Board. At the expiration of the three year period, the
statute requires approval of Affiliated Transactions by two-thirds of the voting
shares other than those beneficially owned by the Interested Shareholder.
The principal exceptions to the special voting requirement apply to
transactions proposed after the three year period has expired and require either
that the transaction be approved by a majority of the corporation's
Disinterested Directors or that the transaction satisfy the fair-price
requirements of the statute. In general, the fair-price requirement provides
that in a two-step acquisition transaction, the Interested Shareholder must pay
the shareholders in the second step either the same amount of cash or the same
amount and type of consideration paid to acquire the Virginia corporation's
shares in the first step.
None of the foregoing limitations and special voting requirements applies
to a transaction with an Interested Shareholder whose acquisition of shares
making such person an Interested Shareholder was approved by a majority of the
Virginia corporation's Disinterested Directors.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. Signet has not "opted out" of (i.e., elected
not to be governed by) the Affiliated Transactions provisions.
Virginia law provides that shares acquired in a transaction that would
cause the acquiring person's voting strength to meet or exceed any of three
thresholds (20%, 33% or 50%) have no voting rights unless granted by a majority
vote of shares not owned by the acquiring person or any officer or
employee-director of the Virginia corporation. This provision empowers an
acquiring person to require the Virginia corporation to hold a special meeting
of shareholders to consider the matter within 50 days of the request.
SHAREHOLDERS' RIGHTS PLAN
Signet has adopted a Shareholders' Rights Plan which is intended to protect
shareholders in the event of unsolicited offers or attempts to acquire Signet,
including offers that do not treat all shareholders equally, acquisitions in the
open market of shares sufficient to obtain control without offering fair value
to all shareholders, and other coercive or unfair takeover tactics that could
impair the Signet Board of Directors' ability to represent shareholders'
interests fully. Pursuant to the Shareholders' Rights Plan, the Signet Board of
Directors declared a dividend distribution of one right (a "Right") for each
outstanding share of Signet Common Stock to shareholders of record at the close
of business on June 5, 1989 (the "Record Date") and authorized the issuance of
one Right (as adjusted pursuant to the Rights Agreement, as described below) for
each share of Signet Common Stock issued between the Record Date and the
Distribution Date (as described below). Each Right entitles the registered
holder to purchase from Signet a unit consisting of one one-hundredth of a share
(a "Unit") of Series A Junior Participating Preferred Stock at a price of $70
per Unit, subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement dated as of May 23, 1989, between Signet and Mellon
Bank, N.A., as Rights Agent. One Right will be attached to each of the shares of
Signet Common Stock issued in exchange for shares of PFC Common Stock in
connection with the Holding Company Merger. The Rights contain certain transfer
restrictions in accordance with Virginia law.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person that attempts to acquire Signet without the
approval of the Signet Board of Directors unless the offer is conditioned
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on a substantial number of Rights being acquired. The Rights, however, should
not affect offers for all outstanding shares of Signet Common Stock at a fair
price and otherwise in the best interests of Signet and its shareholders as
determined by the Signet Board of Directors, since the Signet Board of Directors
may, at its option, redeem all, but not fewer than all, of the then outstanding
Rights.
Initially, the Rights are and will be attached to all certificates
representing outstanding Signet Common Stock. The Rights will separate from the
Signet Common Stock and become exercisable on the Distribution Date, which,
unless extended by the Signet Board of Directors, will occur 10 days after a
person or group either acquires 20% or more of the Signet Common Stock or
announces an offer which would result in such person or group owning 20% or more
of the Signet Common Stock (even if no purchases actually occur).
If Signet is acquired in a merger or other business combination
transaction, each Right will entitle its holder to purchase, at the Right's then
current exercise price, a number of the acquiror's shares having a market price
at that time of twice the Right's exercise price.
If any person or group acquires 20% or more of the Signet Common Stock and
thereupon engages in certain specified "self-dealing" transactions or acquires
ownership of 25% or more of the Signet Common Stock (other than through a cash
tender offer for all shares in which such person or group acquires 90% or more
of the outstanding shares), the "flip-in" provision of the Rights will be
triggered. Under this provision, the Rights will entitle a holder (except that
person or group involved in a self-dealing transaction) to buy a number of
additional shares of Signet Common Stock having a market value at that time of
twice the exercise price of each share.
Following the acquisition by any person or group of 20% or more of the
Signet Common Stock, but prior to the acquisition by a person or group of 50% of
the Signet Common Stock, the Signet Board of Directors will also have the
ability to exchange the Rights (except those Rights held by such person or group
following a "self-dealing" transaction), in whole or in part, for either one
share of Signet Common Stock or one Unit of Series A Junior Participating
Preferred Stock.
Prior to the acquisition by a person or group of beneficial ownership of
20% or more of the Signet Common Stock, the Rights are redeemable, at the option
of the Signet Board of Directors, for $0.01 per Right.
COMPARATIVE RIGHTS OF SHAREHOLDERS
GENERAL
Signet and PFC are both corporations subject to the provisions of the VSCA.
Shareholders of PFC, whose rights are governed by PFC's Articles and Bylaws and
by the VSCA will, upon consummation of the Holding Company Merger, become
shareholders of Signet. The rights of such shareholders as shareholders of
Signet will then be governed by the Articles and Bylaws of Signet and by the
VSCA.
Except as set forth below, there are no material differences between the
rights of a PFC shareholder under PFC's Articles and Bylaws and under the VSCA,
on the one hand, and the rights of a Signet shareholder under the Articles and
Bylaws of Signet and under the VSCA, on the other hand. THIS SUMMARY DOES NOT
PURPORT TO BE A COMPLETE DISCUSSION OF, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO, THE GOVERNING LAW AND THE ARTICLES OF INCORPORATION AND BYLAWS OF
EACH CORPORATION.
AUTHORIZED CAPITAL
PFC. PFC's Articles authorize the issuance of up to 10,000,000 shares of
PFC Common Stock, par value $1.00 per share, of which 2,351,132 shares were
issued and outstanding as of the Record Date, and up to 10,000,000 shares of
serial preferred stock, par value $1.00 per share. PFC preferred stock is
issuable in series, each having such rights and preferences as PFC's Board of
Directors may, by adoption of an amendment of PFC's Articles, fix and determine.
As of the Record Date, no shares of PFC preferred stock were issued and
outstanding.
SIGNET. Signet's authorized capital is set forth under "Description of
Signet Capital Stock."
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AMENDMENT OF ARTICLES OR BYLAWS
PFC. PFC's Articles provide for amendment in the manner prescribed by law
and further provide that an amendment requires the affirmative vote of not less
than two-thirds of all shares entitled to vote. However, amendments relating to
the aggregate number of shares of capital stock as well as the number of shares
of common stock and preferred stock that may be issued only require the
affirmative vote of a majority of the shares entitled to vote.
PFC's bylaws provide that the PFC shareholders may amend the bylaws by a
vote of not less than two-thirds of the outstanding shares cast at a
shareholders' meeting called for that purpose. Additionally, the Board of
Directors may amend the bylaws by a two-thirds vote.
SIGNET. As permitted by the VSCA, Signet's Articles provide that, unless a
greater vote is required by law, by the Articles of Signet or by a resolution of
the Board of Directors, Signet's Articles may be amended if the amendment is
adopted by the Board of Directors and approved by a vote of the holders of a
majority of the votes entitled to be cast on the amendment by each voting group
entitled to vote thereon. Amendments to the Articles that reduce the shareholder
vote to approve a merger, a statutory share exchange, a sale of all or
substantially all of the assets of Signet or the dissolution of Signet must be
approved by the vote of more than two thirds of all votes entitled to be cast by
each voting group.
Signet's Bylaws generally provide that the Board of Directors may, by a
majority vote when a quorum is present, amend the Bylaws.
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS
PFC. PFC's Articles provide for a Board of Directors comprised of between
seven and fifteen directors. The PFC bylaws provide that the Board of Directors
shall consist of ten members, although the Board of Directors may vote to change
the number within the limits set forth under the Articles. Under the Articles,
the Board of Directors is divided into three classes, only one class of which is
elected each year for a three-year term.
SIGNET. Signet's Bylaws provide for a Board of Directors consisting of 11
members.
VACANCIES AND REMOVAL OF DIRECTORS
PFC. PFC's Articles provide that a vacancy in the Board of Directors shall
be filled by a vote of two-thirds of the remaining directors, and a director so
chosen shall serve until the next annual meeting of stockholders at which the
term of the class to which the director has been chosen expires and when the
director's successor is elected and qualified.
Under PFC's Articles, a director may be removed for cause upon the
affirmative vote of at least two-thirds of the outstanding shares entitled to
vote at a shareholders' meeting called for that purpose.
SIGNET. The Bylaws of Signet provide that any vacancy occurring on the
Board of Directors may be filled in the manner provided in the VSCA. The VSCA
provides that unless the Articles of Incorporation provide otherwise, vacancies
on the Board of Directors, including a vacancy resulting from an increase in the
number of directors, may be filled by the Board of Directors, the shareholders
or, if the directors remaining in office constitute less than a quorum, a
majority vote of the directors remaining in office.
Signet's Articles and Bylaws do not contain any provisions relating to the
removal of directors. The VSCA provides that the shareholders may remove a
director with or without cause, unless the Articles provide that directors may
be removed only with cause, and that if a director is elected by a voting group
of shareholders, only the members of that voting group may vote to remove him or
her.
DIRECTOR AND OFFICER EXCULPATION
PFC. The PFC Articles provide that a director of PFC shall not have any
personal liability to PFC or its shareholders for breach of a director's duty as
a director, excluding certain acts and omissions. The Articles do not contain a
similar provision for officers.
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SIGNET. The Articles of Incorporation of Signet provide that to the full
extent that the VSCA permits the limitation or elimination of the liability of
directors or officers, a director or officer of Signet shall not be liable to
Signet or its shareholders for monetary damages in an amount greater than one
dollar.
INDEMNIFICATION
PFC. The PFC Articles provide for indemnification in the manner permitted
under the VSCA of any person who is or was a director, officer, employee or
agent of PFC and who is or was a party to any proceeding by reason of the fact
that he is or was such a director, officer, employee or agent or is or was
serving at PFC's request in such capacity with another corporation, partnership,
joint venture, trust or other enterprise.
SIGNET. The Articles of Incorporation of Signet provide that to the full
extent permitted by the VSCA and any other applicable law, Signet shall
indemnify a director or officer of Signet who is or was a party to any
proceeding by reason of the fact that he is or was such a director or officer or
is or was serving at the request of the corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise.
SPECIAL MEETINGS OF SHAREHOLDERS
PFC. The PFC Articles and Bylaws provide that special meetings may be
called at any time only by the chairman of the Board of Directors, the president
of PFC, a majority of the Board of Directors, or a committee of the Board of
Directors whose powers include calling such a meeting.
SIGNET. The Bylaws of Signet provide that special meetings of the
shareholders for any purpose or purposes may be called at any time by the
Chairman of the Board of Directors, by the President, or by the Board of
Directors.
DIRECTOR NOMINATIONS
PFC. The PFC Articles provide for nomination of directors by the Board of
Directors and by shareholders. The PFC bylaws restrict consideration of
nominations by shareholders that do not follow the procedures for nomination in
the PFC Articles if nominations are made by the Board of Directors on a timely
basis.
SIGNET. Neither the Articles nor the Bylaws of Signet contain any
provisions governing the nomination of directors.
SHAREHOLDER PROPOSALS
PFC. The PFC Articles provide that shareholder proposals must be submitted
in writing to PFC prior to the respective shareholder meeting and must satisfy
certain requirements as set forth in the PFC Articles.
SIGNET. Neither the Articles nor the Bylaws of Signet contain any
provisions governing the submission of shareholder proposals at shareholder
meetings.
SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LISTS
PFC. The bylaws of PFC provide that a shareholder may review the
shareholder list for the ten-day period preceding a shareholder meeting. The PFC
bylaws also provide that a shareholder may inspect the shareholder list during
usual business hours if the demand for inspection is made in good faith and for
a proper purpose and the list of shareholders is directly connected to his
purpose.
SIGNET. The Articles of Incorporation and Bylaws of Signet do not contain
any provisions which govern shareholder inspection rights or shareholder lists.
Under the VSCA, the shareholder of a Virginia corporation is entitled to inspect
and copy certain books and records of the corporation, including a list of
shareholders, if (i) the shareholder has been a shareholder of record for at
least six months immediately preceding his or her written demand or is the
holder of at least 5% of the corporation's outstanding shares, (ii) the
shareholder's demand is made in good faith and for a proper purpose, (iii) the
shareholder describes with reasonable particularity the purpose of the request
and the records desired to be inspected and (iv) the records are directly
connected with the stated purpose. The VSCA also provides that a corporation
shall make available for inspection by any shareholder during usual business
hours, at least 10 days before each meeting of shareholders, a complete list of
the shareholders entitled to vote at such meeting.
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REQUIRED SHAREHOLDER VOTE FOR CERTAIN ACTIONS
The VSCA generally requires the approval of a majority of a corporation's
Board of Directors and the holders of more than two-thirds of all the votes
entitled to be cast thereon by each voting group entitled to vote on any plan of
merger or consolidation, plan of share exchange or sale of substantially all of
the assets of a corporation not in the ordinary course of business. The VSCA
also specifies additional voting requirements for Affiliated Transactions and
transactions that would cause an acquiring person's voting power to meet or
exceed specified thresholds, as discussed under "Description of Signet Capital
Stock -- Virginia Stock Corporation Act." None of these additional voting
requirements are applicable to the Holding Company Merger.
STATE ANTI-TAKEOVER STATUTES
For a description of certain provisions of the VSCA which may be deemed to
have an anti-takeover effect and which are applicable to both Signet and PFC as
Virginia corporations, see "Description of Signet Capital Stock -- Virginia
Stock Corporation Act."
SHAREHOLDER RIGHTS PLAN
PFC. PFC has not adopted any shareholder rights agreement.
SIGNET. For a description of a shareholder rights agreement which has been
adopted by Signet, see "Description of Signet Capital Stock -- Shareholders'
Rights Plan."
DISSENTERS' RIGHTS
The provisions of Article 15 of the VSCA which provide shareholders of a
Virginia corporation the right to dissent from, and obtain payment of the fair
value of his shares in the event of, mergers, consolidations and certain other
corporate transactions are applicable to both Signet and PFC as Virginia
corporations. However, because Signet has more than 2,000 record shareholders,
unlike PFC, shareholders of Signet are less likely to have rights to dissent
from mergers, consolidations and certain other corporate transactions to which
Signet is a party because Article 15 of the VSCA provides that holders of shares
of a Virginia corporation which has shares listed on a national securities
exchange or which has at least 2,000 record shareholders are not entitled to
dissenters' rights unless certain requirements are met. For additional
information in this regard, see "The Holding Company Merger -- Dissenters'
Rights."
DIVIDENDS AND OTHER DISTRIBUTIONS
The VSCA generally provides that a corporation may make distributions to
its shareholders unless, after giving effect to the distribution, (i) the
corporation would not be able to pay its debts as they become due in the usual
course of business or (ii) the corporation's total assets would be less than the
sum of its total liabilities plus (unless the articles of incorporation permit
otherwise, which in the case of PFC and Signet they do not) the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. These requirements are applicable to both Signet and PFC as
Virginia corporations.
In addition to the limitations set forth in the VSCA, there are various
regulatory requirements which are applicable to distributions by bank holding
companies such as Signet and savings and loan holding companies such as PFC. For
a description of the regulatory limitations on distributions by Signet, see
"Supervision and Regulation -- Limits on Dividends and Other Payments."
VOLUNTARY DISSOLUTION
The VSCA generally provides that a corporation's board of directors may
propose dissolution for submission to shareholders and that to be authorized
dissolution must be approved by the holders of more than two-thirds of all votes
entitled to be cast on the proposal, unless the articles of incorporation of the
corporation require a greater or lesser vote. There are no provisions in the
Articles of Incorporation of PFC or Signet which would modify the statutory
requirements for dissolution under the VSCA.
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RESALE OF SIGNET COMMON STOCK
Signet Common Stock has been registered under the Securities Act, thereby
allowing such shares to be traded freely and without restriction by those
holders of PFC Common Stock who receive such shares following consummation of
the Holding Company Merger and who are not deemed to be "affiliates" (as defined
under the Securities Act, but generally including directors, certain executive
officers and ten percent or more shareholders) of PFC or Signet. The Agreement
provides that each holder of PFC Common Stock who is deemed by PFC to be an
affiliate of PFC will enter into an agreement with Signet prior to the Effective
Time of the Holding Company Merger providing, among other things, that such
affiliate will not transfer any Signet Common Stock received by such holder in
the Holding Company Merger except in compliance with the Securities Act. This
Proxy Statement/Prospectus does not cover any resales of Signet Common Stock
received by affiliates of PFC.
PROPOSAL II
ADJOURNMENT OF THE SPECIAL MEETING
Approval of the Merger Proposal requires the affirmative vote of more than
two-thirds of the votes entitled to be cast by the holders of PFC Common Stock.
In the event there is an insufficient number of shares present in person or by
proxy at the Special Meeting to approve the Merger Proposal, the Board of
Directors intends to adjourn the Special Meeting to a later date. The place and
date to which the Special Meeting would be adjourned would be announced at the
Special Meeting, but would in no event be more than 29 days after the date of
the Special Meeting.
The effect of any such adjournment would be to permit PFC to solicit
additional proxies for approval of the Merger Proposal. While such an
adjournment would not invalidate any proxies previously filed, including those
filed by stockholders voting against the Merger Proposal, it would give PFC the
opportunity to solicit additional proxies in favor of the Merger Proposal.
THE BOARD OF DIRECTORS OF PFC RECOMMENDS A VOTE FOR APPROVAL OF THE
ADJOURNMENT UNDER THE CIRCUMSTANCES DESCRIBED HEREIN. APPROVAL OF THE
ADJOURNMENT REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
SHARES OF PFC COMMON STOCK PRESENT IN PERSON OR BY PROXY AT THE SPECIAL MEETING.
EXPERTS
The consolidated financial statements of Signet incorporated by reference
in Signet's Annual Report (Form 10-K) for the year ended December 31, 1993, have
been audited by Ernst & Young, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements and schedules of PFC incorporated by reference in
this Proxy Statement/Prospectus have been audited by BDO Seidman, independent
certified public accountants, to the extent and for the periods set forth in
their report incorporated herein by reference, and are incorporated herein in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
LEGAL OPINION
The legality of the Signet Common Stock to be issued in the Holding Company
Merger will be passed on for Signet by McGuire, Woods, Battle & Boothe,
Richmond, Virginia.
44
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ANNEX I
COMPOSITE AND CONFORMED COPY
(REFLECTING AMENDMENT DATED AS OF JUNE 1, 1994)
REORGANIZATION AND MERGER AGREEMENT
BY AND BETWEEN
SIGNET BANKING CORPORATION
AND
PIONEER FINANCIAL CORPORATION
DATED AS OF FEBRUARY 16, 1994
<PAGE>
REORGANIZATION AND MERGER AGREEMENT
THIS REORGANIZATION AND MERGER AGREEMENT ("Agreement") is dated as of
February 16, 1994, by and among Signet Banking Corporation, a Virginia
corporation ("SBC") and Pioneer Financial Corporation, a Virginia corporation
("Company"). In addition, Pioneer Federal Savings Bank, Chester, Virginia
("Savings"), a federally chartered savings bank and a wholly-owned subsidiary of
Company, is joining this Agreement specifically for the purpose of (i) making
the representations and warranties contained in Article II herein and (ii)
making the covenants contained in Article IV herein.
BACKGROUND:
SBC is a Virginia bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). Company is a Virginia unitary
savings and loan holding company registered under the Home Owners Loan Act, as
amended ("HOLA").
The Boards of Directors of SBC and the Company have determined that it is
in the best interests of their respective companies and their shareholders to
consummate the business combination transaction provided for herein in which
Company will, subject to the terms and conditions set forth herein, merge (the
"Merger") with and into SBC.
As soon as practicable after the execution and delivery of this Agreement,
it is contemplated that Signet Bank/Virginia, a Virginia banking corporation and
a wholly owned subsidiary of SBC ("Virginia Bank") and Savings will enter into a
Subsidiary Agreement and Plan of Merger (the "Subsidiary Merger") of Savings
with and into Virginia Bank, and it is intended that the Subsidiary Merger will
be consummated immediately after the consummation of the Merger.
As a condition and inducement to SBC's willingness to enter into this
Agreement, concurrently with the execution and delivery of this Agreement, SBC
and Company are entering into a Stock Option Agreement, dated as of the date
hereof (the "Stock Option Agreement"), attached hereto as Annex I, pursuant to
which Company is granting to SBC an option (the "Stock Option") to purchase
19.9% of the currently outstanding shares of the Company Common Stock.
NOW THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
ARTICLE I
THE MERGER AND RELATED MATTERS
1.1 PLAN OF MERGER. Subject to the terms and conditions of this Agreement,
Company shall be merged with and into SBC in accordance with the Plan of Merger
to be mutually agreed upon and attached hereto as Exhibit 1.1 and the provisions
of the Virginia Stock Corporation Act (the "Virginia Act") and the separate
corporate existence of Company shall cease. SBC shall be the surviving
corporation of the Merger (sometimes referred to herein as the "Surviving
Corporation") and shall continue to be governed by the laws of Virginia. SBC may
at any time change the method of effecting the acquisition of the Company by SBC
if and to the extent it deems such change to be desirable to provide for (i) a
merger of a wholly owned subsidiary of SBC with and into Company, in which
Company is the surviving corporation, or (ii) a merger of Company directly into
a wholly owned subsidiary of SBC, in which such subsidiary is the surviving
corporation, PROVIDED, HOWEVER, that no such change shall (A) alter or change
the amount or kind of consideration to be issued to holders of Company Common
Stock as provided for in this Agreement, (B) adversely affect the tax treatment
to Company shareholders as a result of receiving the Merger Consideration or (C)
materially impede or delay the consummation of the transactions contemplated by
this Agreement.
1.2 EFFECTIVE TIME OF THE MERGER. As soon as practicable after each of the
conditions set forth in Article V hereof have been satisfied or waived, SBC and
Company will file, or cause to be filed, articles of merger with the State
Corporation Commission of Virginia for the Merger which articles of merger shall
be in the form required by and executed in accordance with the applicable
provisions of the Virginia Act. The Merger shall become effective at the time
(the "Effective Time") the articles of merger for such merger are filed with,
and a certificate
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of merger is issued by, the State Corporation Commission of Virginia (which
filing shall occur immediately following the Closing (as defined in Section 1.10
herein) and on the same day as the Closing if practicable), or at such later
date or time as is specified in such articles of merger.
1.3 CONVERSION OF SHARES.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of SBC or Company or the holders of shares of SBC or Company Common
Stock:
(i) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be cancelled
in accordance with Section 1.3(a)(ii) below and other than Dissenting
Shares (as defined below)) shall cease to be outstanding and shall be
converted into .6232 shares of the common stock, par value $5.00 per share,
of SBC (the "SBC Common Stock") (the "Exchange Ratio"); PROVIDED, HOWEVER,
in the event the Average Closing Price (as defined below) of the SBC Common
Stock is greater than $40.12 (subject to adjustment as provided in the
immediate next sentence) the Exchange Ratio shall be equal to $25.00
divided by the Average Closing Price (as defined below) of the SBC Common
Stock, and PROVIDED FURTHER, in the event that the Exchange Ratio is
adjusted pursuant to the proviso contained in Section 5.4(e) hereof the
Exchange Ratio shall be the Exchange Ratio as so adjusted. If prior to the
Effective Time, the outstanding shares of SBC Common Stock shall have been
increased, decreased, changed into or exchanged for a different number or
kind of shares or securities through a reorganization, reclassification,
stock dividend, stock split, reverse stock split, or other similar change
in SBC's capitalization appropriate adjustments will be made to the
Exchange Ratio (or to applicable dollar amounts herein or in Section 5.4(e)
herein); provided that no such adjustments shall be made on account of
ordinary quarterly cash dividends paid by SBC (including any increases
which SBC may make in such quarterly cash dividends). For purposes of this
Agreement the term "Average Closing Price" shall mean the average of the
closing prices of the shares of SBC Common Stock as reported on the New
York Stock Exchange Composite Tape (or if SBC Common Stock is not quoted on
the New York Stock Exchange Composite Tape, on the National Association of
Securities Dealers Automated Quotations System, or on the principal trading
market on which such shares are traded as reported by a recognized source)
for the ten consecutive trading days (the "Valuation Period") ending on the
business day prior to the later of (A) the date on which all requisite
federal and state bank and thrift regulatory approvals required to
consummate the transactions contemplated by this Agreement are obtained
(and SBC shall notify the Company in writing promptly of the date when all
such approvals are obtained), including for these purposes the period of
any requisite waiting periods in respect thereof or (B) the date of the
Company's shareholders meeting to be held pursuant to Section 4.4 herein.
(ii) Any shares of Company Common Stock which are owned or held by
Company or any of its wholly owned subsidiaries (other than in a fiduciary
capacity or as a result of debts previously contracted) or by SBC or any of
SBC's wholly owned subsidiaries (other than in a fiduciary capacity or as a
result of debts previously contracted) at the Effective Time shall cease to
exist, and the certificates for such shares shall as promptly as
practicable be cancelled and no consideration therefor shall be paid,
issued or exchanged therefor.
(iii) Each share of Common Stock of SBC issued and outstanding
immediately prior to the Effective Time shall remain unchanged as an
outstanding share of Common Stock of SBC.
(iv) The holders of certificates representing shares of Company Common
Stock shall cease to have any rights as stockholders of the Company, except
such rights, if any, as they may have pursuant to applicable Virginia law.
(b) Notwithstanding any other provision of this Agreement, neither
certificates nor scrip for fractional shares of SBC Common Stock shall be issued
in the Merger. Each holder who otherwise would have been entitled to a fraction
of a share of SBC Common Stock shall receive in lieu thereof cash (without
interest) in an amount determined by multiplying the fractional share interest
to which such holder would otherwise be entitled by the average closing sales
prices of the SBC Common Stock as reported on the New York Stock Exchange
Composite Tape for the last five trading days immediately preceding the date of
the Effective Time. No such holder shall be entitled to dividends, voting rights
or any other rights in respect of any fractional share.
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(c) Notwithstanding anything in this Agreement to the contrary, shares of
Company Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by a shareholder who has the right (to the
extent and only to the extent such right is available under the Virginia Act) to
demand and receive payment of the fair value of his or her shares of Company
Common Stock ("Dissenting Shares") pursuant to the Virginia Act shall not be
converted into or be exchangeable for the right to receive the consideration
provided for in Section 1.3(a) of this Agreement, unless and until such holder
shall fail to perfect his or her right to dissent or shall have effectively
withdrawn or lost such right under the Virginia Act, as the case may be. If such
holder shall have so failed to perfect his right to dissent or shall have
effectively withdrawn or lost such right, each of his or her shares of Company
Common Stock shall thereupon be deemed to have been converted into, at the
Effective Time of the Merger, the right to receive shares of SBC Common Stock as
provided in Section 1.3. The Company shall promptly notify SBC of any demands
for dissenters rights made by Company shareholders.
1.4 SURVIVING CORPORATION IN THE MERGER.
(a) The Articles of Incorporation of SBC in effect on the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation as the
Surviving Corporation.
(b) The bylaws of SBC, together with all amendments thereto, if any, as in
effect immediately prior to the Effective Time, shall thereafter be the bylaws
of the Surviving Corporation, until amended as provided therein or by law.
(c) The directors and officers of SBC immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation, each to
hold office in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
(d) From and after the Effective Time:
(i) The Surviving Corporation shall possess all assets and property of
every description, and every interest in the assets and property, wherever
located, and the rights, privileges, immunities, powers, franchises, and
authority, of a public as well as of a private nature, of each of the
Company and SBC, and all obligations belonging or due to each of the
Company and SBC, all of which are vested in the Surviving Corporation
without further act of deed as provided in Section 13.1-721 of the Virginia
Act. Title to any real estate or any interest in the real estate vested in
the Company or SBC shall not revert or in any way be impaired by reason of
the Merger.
(ii) The Surviving Corporation will be liable for all the obligations
of each of the Company and SBC. Any claim existing, or action or proceeding
pending, by or against the Company or SBC, may be prosecuted to judgment,
with right of appeal, as if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place as provided in
Section 13.1-721 of the Virginia Act.
(iii) All the rights of creditors of each of the Company and SBC are
preserved unimpaired, and all liens upon the property of the Company and
SBC are preserved unimpaired, on only the property affected by such liens
immediately prior to the Effective Time as provided in Section 13.1-721 of
the Virginia Act.
1.5 EXCHANGE AND SURRENDER OF STOCK CERTIFICATES.
(a) After the Effective Time, holders of certificates ("Certificates")
theretofore evidencing outstanding shares of Company common stock (other than as
provided in Section 1.3(a)(ii) and other than holders of Dissenting Shares, if
applicable), upon surrender of such certificates to an exchange agent appointed
by SBC (the "Exchange Agent"), (such Exchange Agent to be subject to the
approval of Company, which approval shall not be unreasonably withheld), shall
be entitled to receive a certificate or certificates representing the number of
full shares of SBC Common Stock into which the Certificate so surrendered shall
have been converted pursuant to this Agreement and any distribution theretofore
declared and not yet paid with respect to such shares of SBC Common Stock
without interest, and cash in respect of any fractional shares as provided in
Section 1.3(b) without interest (the "Merger Consideration"). As soon as
practicable after the Effective Time, the Exchange Agent will send a notice and
transmittal form to each Company shareholder of record at the Effective Time
advising such shareholder of the effectiveness of the Merger and the procedure
for surrendering to the Exchange Agent outstanding certificates formerly
evidencing Company Common Stock in exchange for the Merger Consideration. Upon
surrender, each certificate evidencing Company Common Stock shall be cancelled
and promptly upon such
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surrender the Merger Consideration to be issued to such holder in accordance
with the provisions of this Agreement shall be issued to the former Company
shareholder.
(b) The Exchange Agent shall accept Certificates upon compliance with such
reasonable terms and conditions as SBC or the Exchange Agent may impose to
effect an orderly exchange thereof in accordance with customary exchange
practices. Certificates shall be appropriately endorsed or accompanied by such
instruments of transfer as SBC or the Exchange Agent may require.
(c) Each outstanding Certificate shall until duly surrendered to the
Exchange Agent be deemed to evidence ownership of the consideration into which
the stock previously represented by such Certificate shall have been converted
pursuant to this Agreement.
(d) After the Effective Time, holders of Certificates shall cease to have
rights with respect to the stock previously represented by such Certificates,
and their sole rights shall be to exchange such Certificates for the
consideration provided for in this Agreement. After the Effective Time, there
shall be no further transfer on the records of the Company of Certificates, and
if such Certificates are presented to the Company for transfer, they shall be
cancelled against delivery of the consideration provided therefor in this
Agreement. SBC shall not be obligated to deliver the consideration to which any
former holder of Company Common Stock is entitled as a result of the Merger
until such holder surrenders the Certificates as provided herein. No dividends
declared will be remitted to any person entitled to receive SBC Common Stock
under this Agreement until such person surrenders the Certificate representing
the right to receive such SBC Common Stock, at which time such dividends shall
be remitted to such person, without interest and less any taxes that may have
been imposed thereon. Certificates surrendered for exchange by any person
constituting an "affiliate" of Company for purposes of Rule 145 of the
Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged for certificates representing SBC Common Stock until SBC has received
a written agreement from such person as specified in Section 4.6. Neither the
Exchange Agent nor any party to this Agreement nor any affiliate thereof shall
be liable to any holder of stock represented by any Certificate for any
consideration paid to a public official pursuant to applicable abandoned
property, escheat or similar laws. SBC and the Exchange Agent shall be entitled
to rely upon the stock transfer books of Company to establish the identity of
those persons entitled to receive consideration specified in this Agreement,
which books shall be conclusive with respect thereto. In the event of a dispute
with respect to ownership of stock represented by any Certificate, SBC and the
Exchange Agent shall be entitled to deposit any consideration represented
thereby in escrow with an independent third party and thereafter be relieved
with respect to any claims thereto.
(e) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed, and if required by SBC, the posting
by such person of a bond in such amount as SBC may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of SBC Common Stock and cash in lieu of fractional shares
deliverable in respect thereof pursuant to this Agreement.
1.6 SHAREHOLDERS' MEETING. The Company shall, at the earliest practicable
date, hold a meeting of its shareholders (the "Company Shareholders' Meeting")
to submit for shareholder approval this Agreement, the Plan of Merger and the
Merger. The affirmative vote of the number of issued and outstanding shares of
Company Common Stock as is required under the Virginia Act shall be required for
such approval.
1.7 COMPANY STOCK OPTIONS. Immediately prior to the Effective Time, each
holder of an outstanding option (a "Company Stock Option") under the Company's
Stock Option and Incentive Plan (the "Company Option Plan") shall receive in
cancellation of such option per share of Company Common Stock subject to a
Company Stock Option a cash payment in an amount equal to the excess of (A) the
product of the Exchange Ratio and the closing price of the shares of SBC Common
Stock (as determined from the source set forth in Section 1.3(a)(i)) on the
trading date prior to the date of the Effective Time over (B) the exercise price
of such Company Stock Option.
1.8 REGISTRATION STATEMENT; PROSPECTUS/PROXY STATEMENT.
(a) For the purposes (i) of holding the Company Shareholders' Meeting and
(ii) of registering the SBC Common Stock to be issued to holders of Company
Common Stock in connection with the Merger with the Securities and Exchange
Commission ("SEC") and with applicable state securities authorities, the parties
hereto
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shall cooperate in the preparation of an appropriate proxy
statement/registration statement (such registration statement, together with all
and any amendments and supplements thereto, being herein referred to as the
"Registration Statement"), including the prospectus/proxy statement satisfying
all applicable requirements of applicable state laws, and of the Securities Act
of 1933 (the "1933 Act") and the Securities Exchange Act of 1934 (the "1934
Act") and the rules and regulations thereunder (such prospectus/proxy statement,
together with any and all amendments or supplements thereto, being herein
referred to as the "Prospectus/Proxy Statement").
(b) SBC shall furnish such information concerning SBC as is necessary in
order to cause the Prospectus/Proxy Statement, insofar as it relates to SBC to
comply with Section 1.8(a) hereof. SBC agrees promptly to advise the Company if
at any time prior to the Effective Time any information provided by SBC in the
Prospectus/Proxy Statement becomes incorrect or incomplete in any material
respect and to provide the information needed to correct such inaccuracy or
omission. SBC shall furnish the Company with such supplemental information as
may be necessary in order to cause such Prospectus/Proxy Statement, insofar as
it relates to SBC, to comply with Section 1.8(a).
(c) The Company shall furnish SBC with such information concerning the
Company as is necessary in order to cause the Prospectus/Proxy Statement,
insofar as it relates to the Company, to comply with Section 1.8(a) hereof. The
Company agrees promptly to advise SBC if at any time prior to the Effective Time
any information provided by the Company in the Prospectus/Proxy Statement
becomes incorrect or incomplete in any material respect and to provide SBC with
the information needed to correct such inaccuracy or omission. Company shall
furnish SBC with such supplemental information as may be necessary in order to
cause the Prospectus/Proxy Statement, insofar as it relates to the Company, to
comply with Section 1.8(a).
(d) SBC shall promptly file the Registration Statement and the Company
shall promptly file the proxy statement with the SEC and applicable state
securities agencies. SBC and the Company shall use all reasonable efforts to
cause the Registration Statement to become effective under the 1933 Act and the
1934 Act, if applicable, and applicable state securities laws at the earliest
practicable date. The Company authorizes SBC to utilize in the Registration
Statement the information concerning the Company provided to SBC for the purpose
of inclusion in the Prospectus/Proxy Statement. The Company shall have the right
to review and comment on the form of proxy statement included in the
Registration Statement prior to its filing with the SEC. SBC shall advise the
Company promptly when the Registration Statement has become effective and of any
supplements or amendments thereto, and SBC shall furnish Company with copies of
all such documents. Prior to the Effective Time or the termination of this
Agreement, each party shall consult with the other with respect to any material
(other than the Prospectus/Proxy Statement) that might constitute a "prospectus"
relating to the Merger within the meaning of the 1933 Act.
(e) The Company shall consult with SBC in order to determine whether any
directors, officers or shareholders of the Company may be deemed to be
"affiliates" of Company ("affiliated persons") within the meaning of Rule 145 of
the SEC promulgated under the 1933 Act. The Company shall take such action as
may be necessary or appropriate to ensure that its affiliated persons are aware
of and provide written confirmations of their agreement to comply with the
guidelines of the SEC with respect to the sale by affiliates of stock of
companies subject to Rule 145.
1.9 COOPERATION; REGULATORY APPROVALS. The parties shall cooperate, and
shall cause each of their affiliates and subsidiaries to cooperate, in the
preparation and submission by them, of such applications, petitions, and other
documents and materials (other than the Registration Statement/Proxy Statement
which shall be prepared and filed in accordance with Section 1.8 herein) as any
of them may reasonably deem necessary or desirable to the Office of Thrift
Supervision ("OTS"), Board of Governors of the Federal Reserve System ("FRB"),
Federal Deposit Insurance Corporation ("FDIC"), Comptroller of the Currency
("OCC"), Bureau of Financial Institutions of the Virginia State Corporation
Commission ("SCC"), Federal Trade Commission ("FTC"), Department of Justice
("DOJ"), and any other regulatory authorities, and any other persons for the
purpose of obtaining any approvals or consents necessary to consummate the
transactions contemplated by this Agreement. Each party will have the right to
review and comment on such applications, petitions and other documents and
materials prior to their filing or submission thereof.
1.10 CLOSING. If (i) this Agreement has been duly approved by the
shareholders of Company, and (ii) all relevant conditions of this Agreement have
been satisfied or waived, a closing (the "Closing") shall take place as
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promptly as practicable thereafter at the principal office of SBC at which the
parties hereto will exchange certificates, opinions, letters and other documents
as required hereby and will make the filings described in Section 1.2 hereof.
Such Closing will take place on the date of the Effective Time.
1.11 CLOSING OF TRANSFER BOOKS. At the Effective Time, the transfer books
for Company Common Stock shall be closed, and no transfer of shares of Company
Common Stock shall thereafter be made on such books.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SAVINGS
Company and Savings represent and warrant to SBC that, except as disclosed
in Schedule I delivered by Company to SBC concurrently with the execution of
this Agreement (reference to a matter in a section of Schedule I shall also be
deemed a reference to such matter in any other section of Schedule I where
relevant whether or not specifically disclosed therein):
2.1 ORGANIZATION, GOOD STANDING, AUTHORITY, INSURANCE, ETC. Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Virginia. Section 2.1 of Schedule I lists each "subsidiary" of
Company and Savings within the meaning of Section 10(a)(1)(G) of the Home
Owners' Loan Act ("HOLA"), (individually a "Company Subsidiary" and collectively
the "Company Subsidiaries") (unless otherwise noted herein all references to a
"Company Subsidiary" or to the "Company Subsidiaries" shall include Savings).
Each of the Company Subsidiaries is duly organized, validly existing, and in
good standing under the laws of the respective jurisdiction under which it is
organized. The Company and each Company Subsidiary has all requisite power and
authority and is duly qualified and licensed to own, lease and operate its
properties and conduct its business as it is now being conducted. The Company
has delivered to SBC a true, complete and correct copy of the articles of
incorporation, charter, or other organizing document and the bylaws of Company
and each Company Subsidiary. The Company and each Company Subsidiary is
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which qualification is necessary under applicable law,
except to the extent that any failures to so qualify would not, in the
aggregate, have a material adverse effect on the business, financial condition
or results of operations of the Company and the Company Subsidiaries, taken as a
whole. Savings is a member in good standing of the Federal Home Loan Bank of
Atlanta and all eligible accounts issued by Savings are insured by the Savings
Association Insurance Fund ("SAIF") to the maximum extent permitted under
applicable law. Savings is a "domestic building and loan association" as defined
in Section 7701(a)(19) of the Internal Revenue Code of 1986, as amended (the
"Code"), and is a "qualified thrift lender" as defined in Section 10(m) of the
HOLA and the rules and regulations thereunder. The Company is duly registered as
a savings and loan holding company under the HOLA.
The minute books of the Company and the Company's Subsidiaries contain
complete and accurate records of all meetings and other corporate actions held
or taken of their respective shareholders and Boards of Directors (including the
committees of such Boards). Company and each Company Subsidiary is presently
insured, and during each of the past three calendar years has been insured, for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business of comparable size
would, in accordance with good business practice, customarily be insured.
2.2 CAPITALIZATION. The authorized capital stock of the Company consists of
(i) 10,000,000 shares of common stock, par value $1.00 per share, of which
2,346,799 shares were issued and outstanding as of the date of this Agreement,
and (ii) 10,000,000 shares of preferred stock, of which no shares were
outstanding as of the date of this Agreement. All outstanding shares of Company
common stock are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. Except for outstanding options under the Company
Option Plan as set forth in Section 2.2 of Schedule I, as of the date of this
Agreement, there are no options, convertible securities, warrants, or other
rights (preemptive or otherwise) to purchase or acquire any of the Company's
capital stock from the Company and no oral or written agreement, contract,
arrangement, understanding, plan or instrument of any kind to which the Company
or any of its affiliates is subject with respect to the issuance, voting or sale
of issued or unissued shares of the Company's capital stock. A true and complete
copy of the Company's Option Plan, as in effect on the date of this Agreement,
is attached as Section 2.2 of Schedule I.
2.3 OWNERSHIP OF SUBSIDIARIES; OTHER CAPITAL STOCK. (a) All the outstanding
shares of the capital stock of the Company Subsidiaries are validly issued,
fully paid, nonassessable and owned beneficially and of record by the
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Company or a Company Subsidiary free and clear of any lien, claim, charge,
restriction or encumbrance (collectively, "Encumbrance"). There are no options,
convertible securities, warrants, or other rights (preemptive or otherwise) to
purchase or acquire any capital stock of any Company Subsidiary and no contracts
to which the Company or any of its affiliates is subject with respect to the
issuance, voting or sale of issued or unissued shares of the capital stock of
any of the Company Subsidiaries.
(b) Except for capital stock of Company Subsidiaries, shares of stock of
the Federal Home Loan Bank, and as otherwise set forth in Section 2.3 of
Schedule I, Company does not own beneficially, directly or indirectly, any
shares of any class of equity securities or similar interests of any
corporation, bank, business trust, association or similar organization or any
interest in a partnership or joint venture of any kind.
2.4 FINANCIAL STATEMENTS. Company has delivered to SBC: (i) consolidated
statements of condition, consolidated statements of operations, consolidated
statements of changes in stockholders' equity and statements of cash flows of
the Company and the Company Subsidiaries for the years ended September 30, 1993
and 1992, certified by BDO Seidman; and (ii) a consolidated statement of
condition, statement of operations, statement of stockholders' equity and
statement of cash flows of the Company and the Company subsidiaries for the
three-month period ended December 31, 1993. Each of the foregoing financial
statements fairly presents the consolidated financial condition, assets,
liabilities and results of operations of the Company and the Company
Subsidiaries, at their respective dates and for the respective periods then
ended and has been prepared in accordance with generally accepted accounting
principles consistently applied, except as otherwise noted in a footnote thereto
and subject, in the case of interim financial statements, to normal recurring
year-end adjustments, which are not material in any case or in the aggregate.
The allowance for possible loan and lease losses shown in the Company's
financial statements for the period ending September 30, 1993, was, in the
opinion of management of the Company, adequate in all material respects as of
September 30, 1993, including under the requirements of generally accepted
accounting principles, to provide for all known and reasonably anticipated
possible losses, net of recoveries relating to loans previously charged off, on
loans outstanding as of such date, and as of September 30, 1993 other real
estate owned had been written down or reserved for in such financial statements
in accordance with the requirements of generally accepted accounting principles.
2.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in Section 2.5
of Schedule I, or as reflected, noted or adequately reserved against in the
financial statements referred to in Section 2.4 herein, the Company and the
Company Subsidiaries did not have any material liabilities (whether accrued,
absolute, contingent or otherwise) which were required to be reflected, noted or
reserved against in such financial statements under generally accepted
accounting principles or which were in the aggregate material. Except as
disclosed in Section 2.5 of Schedule I, since September 30, 1993, to the date
hereof the Company and the Company Subsidiaries have not incurred any such
liability, other than liabilities of the same nature as those set forth in the
financial statements referred to in Section 2.4 herein, all of which have been
reasonably incurred in the ordinary course of business.
2.6 ABSENCE OF CHANGES. Since September 30, 1993, the Company and the
Company Subsidiaries have conducted their respective businesses in the ordinary
course of business and, except as disclosed in Section 2.6 of Schedule I, the
Company and the Company Subsidiaries have not undergone any change in condition
(financial or otherwise), assets, liabilities, business or operations, other
than changes in the ordinary course of business which have not been, either in
any case or in the aggregate, materially adverse on a consolidated basis.
Without limiting the foregoing, except as disclosed in Section 2.6 of Schedule
I, since September 30, 1993, to the date hereof:
(i) Company and the Company Subsidiaries have conducted their
respective businesses in the ordinary and usual course consistent with past
practices; (ii) Company has not issued, sold, granted, conferred or awarded
any of its equity securities (except shares of Company Common Stock upon
exercise of Company Stock Options), or options to acquire its equity
securities, or any corporate debt securities which would be classified
under GAAP as long-term debt on the balance sheets of Company; (iii)
Company has not effected any stock split or adjusted, combined,
reclassified or otherwise changed its capitalization; (iv) neither Company
nor any Company Subsidiary has discharged or satisfied any material lien or
paid any material obligation or liability (absolute or contingent), other
than in the ordinary course of business; (v) neither Company nor any
Company Subsidiary has sold, assigned, transferred, leased, exchanged, or
otherwise disposed of any of its properties or assets other than for a fair
consideration in the ordinary course of business;
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(vi) except as required by contract or law or except in the ordinary course
of business consistent with past practice, neither Company nor any Company
Subsidiary has (A) increased the rate of compensation of, or paid any bonus
to, any of its directors, officers, or other employees, except merit or
promotion increases in accordance with existing policy, (B) entered into
any new, or amended or supplemented any existing, employment, management,
consulting, deferred compensation, severance, or other similar contract,
(C) entered into, terminated, or substantially modified any of the Employee
Plans (as defined in Section 2.16 hereafter) or (D) agreed to do any of the
foregoing; (vii) neither Company nor any Company Subsidiary has suffered
any material damage, destruction, or loss, whether as a result of fire,
explosion, earthquake, accident, casualty, labor trouble, requisition, or
taking of property by any regulatory authority, flood, windstorm, embargo,
riot, act of God or the enemy, or other casualty or event, and whether or
not covered by insurance; (viii) neither Company nor any Company Subsidiary
has cancelled or compromised any debt, except for debts charged off or
compromised in accordance with the past practice of Company and its
Subsidiaries; (ix) neither the Company nor any Company Subsidiary has (A)
entered into any transaction that would (if such transaction were entered
into between the date hereof and the Effective Time) be prohibited by (or
require prior consultation under) paragraph (e) of Section 4.2 hereof or
(B) made any investment in any subsidiary engaged in the business of real
estate development or otherwise invested in any real estate development;
and (x) neither the Company nor any Company Subsidiary has entered into any
material transaction, contract or commitment outside the ordinary course of
business (as such ordinary course of business is reasonably determined by
the Company).
2.7 DIVIDENDS, DISTRIBUTIONS AND STOCK PURCHASES AND SALES. Except as
disclosed in Section 2.7 of Schedule I, since September 30, 1993, to the date
hereof the Company has not declared, set aside, made or paid any dividend or
other distribution in respect of Company Common Stock, or purchased, redeemed,
retired, repurchased, or exchanged or otherwise acquired or disposed of,
directly or indirectly, any of its equity securities, whether pursuant to the
terms of such equity securities or otherwise.
2.8 PROSPECTUS/PROXY STATEMENT. At the time the Prospectus/Proxy Statement
is mailed to the shareholders of Company for the solicitation of proxies for the
approval referred to in Section 1.6 hereof and at all times subsequent to such
mailing up to and including the Effective Time, such Prospectus/Proxy Statement
(including any supplements thereto), with respect to all information set forth
therein relating to the Company (including the Company Subsidiaries) and its
shareholders, Company Common Stock, this Agreement, the Merger and all other
transactions contemplated hereby, will:
(a) Comply in all material respects with applicable provisions of the 1933
Act, the 1934 Act and the rules and regulations under such Acts; and
(b) Not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements contained therein, in light of the circumstances under which it
is made, not misleading.
2.9 NO BROKER'S OR FINDER'S FEES. Except as set forth in Section 2.9 of
Schedule I, no agent, broker, investment banker, person or firm acting on behalf
or under authority of the Company or any of the Company Subsidiaries is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee directly or indirectly in connection with the Merger or any other
transaction contemplated hereby.
2.10 CONTRACTS. Each written or oral contract entered into by the Company
or any Company Subsidiary (other than deposit contracts with customers entered
into by the Company or any Company Subsidiary in the ordinary course of
business) (i) which involves aggregate payments or receipts in excess of
$500,000 or annual payments or receipts in excess of $100,000 per year, (other
than in each case contracts with respect to lending arrangements), (ii) not in
the ordinary course of business (as reasonably determined by the Company), (iii)
involving investments in equity securities or partnerships or joint ventures,
(iv) containing any material restriction on the operations of the Company and
its Subsidiaries or (v) which constitute a "material contract" within the
meaning of Item 601(b)(10) of Regulation S-K (collectively referred to herein as
"Material Contracts") is identified in Section 2.10 of Schedule I. Except as
disclosed in Schedule I, all Material Contracts are valid and in full force and
effect and the Company is not, and to the best knowledge of the Company no other
party is, in default of any material obligations thereunder.
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2.11 LITIGATION. Except as disclosed in Section 2.11 of Schedule I: (i)
there is no litigation, investigation or proceeding pending, or to the knowledge
of the senior officers of the Company threatened, that involves the Company or
any Company Subsidiary or any of their respective properties and that, if
determined adversely, would materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business or operations of the
Company, taken as a whole or the ability of the Company to consummate the
transaction contemplated by this Agreement; (ii) there are no outstanding
orders, writs, injunctions, judgments, decrees, regulations, directives, consent
agreements or memoranda of understanding issued by any federal, state or local
court or governmental authority or arbitration tribunal issued against or with
the consent of the Company or any Company Subsidiary that materially and
adversely affect the condition (financial or otherwise), assets, liabilities,
business or operations of the Company, taken as a whole, that restrict in any
material manner the right of the Company or any Company Subsidiary to conduct
its businesses as presently conducted or otherwise could materially adversely
affect the Company's ability to consummate the transactions contemplated by this
Agreement.
2.12 COMPLIANCE WITH LAW. The Company and the Company Subsidiaries are in
compliance in all material respects with all laws and regulations applicable to
their respective operations or with respect to which compliance is a condition
of engaging in the business thereof, except for failures to comply, which, in
the aggregate, would not have a material adverse effect on the business,
financial condition or results of operations of the Company and the Company
Subsidiaries, taken as a whole, and the Company has not received notice from any
federal, state or local government or governmental agency of any material
violation of any of the above.
2.13 CORPORATE ACTIONS. The Boards of Directors of the Company and Savings
have (i) duly adopted this Agreement and (ii) authorized their respective
officers to execute and deliver this Agreement and to take all action necessary
to consummate the Merger and the other transactions contemplated hereby (other
than as of the date hereof adoption of the Plan of Merger and a plan of merger
related to the Subsidiary Merger).
2.14 AUTHORITY. The execution, delivery and performance of this Agreement
by the Company and Savings (including, without limitation, the consummation of
the Subsidiary Merger) does not violate any of the provisions of, or constitute
a default under or give any person the right to terminate or accelerate payment
or performance under the articles of incorporation or bylaws of the Company, the
articles of incorporation, charter or bylaws of any Company Subsidiary, any
regulatory restraint on the acquisition of the Company or Savings or control
thereof, or any statute, rule, order or injunction applicable to the Company or
any Company Subsidiary (subject in each case, as applicable, to receipt of all
required regulatory approvals), or except as set forth in Section 2.14 of
Schedule I, any Material Contract to which the Company or any of the Company
Subsidiaries is a party or is subject or by which any of their properties or
assets is bound except for such violation, default, termination or, acceleration
which would not, in the aggregate, have a material adverse effect on the
business, financial condition or operations of the Company and the Company
Subsidiaries, taken as a whole. The Company and Savings have all requisite
corporate power and authority to enter into this Agreement and to perform their
respective obligations hereunder, except the approval of the Company's
shareholders required under the Virginia Act and subject to receipt of all
regulatory approvals. This Agreement constitutes the valid and binding
obligation of the Company and Savings and is enforceable in accordance with its
terms, except as enforceability may be limited by applicable laws relating to
bankruptcy, insolvency or credits' rights generally and general principles of
equity. The transactions contemplated by this Agreement are exempt from any
applicable state takeover statutes.
2.15 LABOR RELATIONS AND EMPLOYMENT AGREEMENTS. Neither the Company nor any
Company Subsidiary is a party to or bound by any collective bargaining
agreement. The Company and each Company Subsidiary enjoy good working
relationships with their employees and there are no labor disputes pending, or
to the knowledge of the senior officers of the Company or Savings threatened,
that might materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business or operations of the Company or
Savings, taken as a whole. Except as disclosed in Section 2.15 of Schedule I,
neither the Company nor any Company Subsidiary has any employment contract,
severance agreement, deferred compensation agreement, consulting agreement or
similar obligation ("Employment Obligation") with any director, officer,
employee, consultant or agent.
2.16 EMPLOYEE BENEFITS. (a) Section 2.16 of Schedule I lists each pension,
retirement, profit-sharing, deferred compensation, bonus, incentive,
performance, stock option, stock appreciation, phantom stock, stock purchase,
restricted stock, medical, hospitalization, vision, dental or other health,
life, disability, severance, termination or other employee benefit plan,
program, arrangement, agreement, policy or understanding, including, without
limitation, each "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income
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Security Act of 1974, as amended ("ERISA"), whether written or unwritten, to
which the Company or any Company Subsidiaries, or any Related Person (as defined
below) contributes or is or has been obligated to contribute or is or has been a
party or is or has been bound or under which the Company, any Company Subsidiary
or any Related Person may have any liability (each, an "Employee Plan"). Each
Employee Plan complies in all material respects, and has been operated and
administered in accordance, with all applicable requirements of all laws and
regulations of any public body or authority, including, but not limited to,
ERISA and the Code, except to the extent that such non-compliance would not, in
the aggregate, have a material adverse effect on the financial condition,
business or operations of the Company and the Company Subsidiaries, taken as a
whole. None of the Company or any Company Subsidiary would be liable for any
material amount pursuant to section 4062, 4063 or 4064 of ERISA if any Employee
Plan were to terminate as of the Closing Date. All contributions required under
applicable law, the terms of any plan or the terms of any collective bargaining
agreement to be made by the Company or any Company Subsidiary and each other
trade or business, whether or not incorporated, which, together with the Company
or any Company Subsidiary, would, as of any date of determination, be treated as
a single employer under section 414 of the Code (each such trade or business
hereinafter referred to as a "Related Person") to each Employee Plan and to any
other employee benefit plan have been made within the earliest time prescribed
by such law, plan or collective bargaining agreement. No Employee Plan is a
"multiemployer plan" within the meaning of section 4001(a)(3) of ERISA or a
"multiple employer" plan within the meaning of section 4063 or 4064 of ERISA.
The consummation of the transactions contemplated by this Agreement will not
result in an increase in the amount of compensation or benefits or accelerate
the vesting or timing of payment of any benefits payable to or in respect of any
employee or former employee of the Company or any Company Subsidiary or the
beneficiary or descendent of any such employee or former employee. No amounts
paid or payable by any of the Company or the Company Subsidiaries will fail to
be deductible for federal income tax purposes by reason of section 280G of the
Code. None of Company or any of the Company Subsidiaries has incurred or
reasonably expects to incur any material liability to the Pension Benefit
Guaranty Corporation except for required premium payments which, to the extent
due and payable, have been paid. To the extent the Employee Plans are intended
to be qualified under Section 401(a) of the Code they are and the Company is not
aware of any fact which would adversely affect the qualified status of any such
plans. Except as set forth in Section 2.16 of Schedule I, neither the Company
nor any of the Company Subsidiaries (a) provides health, medical, death or
survivor benefits to any former employee or beneficiary thereof, or (b)
maintains any form of current (exclusive of base salary and base wages) or
deferred compensation, bonus, stock option, stock appreciation right, benefit,
severance pay, retirement, incentive, group or individual health insurance,
welfare or similar plan or arrangement for the benefit of any single or class of
directors, officers or employees, whether active or retired (collectively
"Benefit Arrangements").
(b) To the best knowledge of the Company and Savings, (i) no condition
exists that could constitute grounds for the termination of any Employee Plan
under Section 4042 of ERISA; (ii) no "prohibited transaction," as defined in
Section 406 of ERISA and Section 4975 of the Code, has occurred with respect to
any Employee Plan, or any other employee benefit plan maintained by Company or
any Company Subsidiary; and (iii) neither the Company nor any Company Subsidiary
has incurred or expects to incur, directly or indirectly, any material liability
under Title IV of ERISA arising in connection with the termination of, or a
complete or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA. The fair market value of the assets of any Employee Plan
subject to Title IV of ERISA equals or exceeds the accrued benefits under such
plan.
2.17 PROPERTY AND ASSETS. The Company and the Company Subsidiaries have
good and marketable title to all of their real property and good title to all of
their personal property reflected in the financial statements at December 31,
1993 referred to in Section 2.4 herein, or acquired subsequent thereto, free and
clear of all Encumbrances, except for (a) such items shown in such financial
statements or in the notes thereto, (b) liens on real property for current real
estate taxes not yet delinquent, (c) customary title exceptions that have no
material adverse effect upon the value of such property, (d) property sold or
transferred in the ordinary course of business since the date of such financial
statements, (e) pledges or liens incurred in the ordinary course of business,
(f) such failure which would not, in the aggregate, have a material adverse
effect on the business, financial condition, or operations of the Company and
the Company Subsidiaries, taken as a whole and (g) as otherwise specifically
indicated in Section 2.17 of Schedule I. The Company and the Company
Subsidiaries enjoy peaceful and undisturbed possession under all material leases
for the use of real property under which they are the lessee; all of such leases
are valid and binding and in full force and effect and neither Company nor any
Company Subsidiary is in default in any material respect under any such lease.
All property and assets material to their
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business and currently used by Company and the Company Subsidiaries are, in all
material respects, in good operating condition and repair, normal wear and tear
excepted. The documentation relating to each loan made by Company or a Company
Subsidiary, including as to security interests, mortgages and other liens with
respect to the collateral for such loans, conforms to applicable industry and
regulatory standards except to the extent any such non-conformance would not
have, in the aggregate, a material adverse effect on the financial condition,
business or operations of the Company and the Company Subsidiaries, taken as a
whole.
2.18 TAX MATTERS. (a) The Company and each of the Company Subsidiaries have
duly and properly filed all federal, state, local and other tax returns required
to be filed by them and have made timely payments of all taxes due and payable,
whether disputed or not; the current status of audits of such returns by the
Internal Revenue Service ("IRS") and other applicable agencies is as set forth
in Section 2.18 of Schedule I; and, except as set forth in Section 2.18 of
Schedule I, there is no agreement by the Company or any Company Subsidiary for
the extension of time or for the assessment or payment of any taxes payable.
Except as set forth in Section 2.18 of Schedule I, neither the IRS nor any other
taxing authority is now asserting or, to the best knowledge of Company,
threatening to assert any deficiency or claim for additional taxes in material
amount (or interest thereon or penalties in connection therewith), nor is
Company aware of any basis for any such assertion or claim. All taxes required
to be withheld by or on behalf of the Company or any of the Company Subsidiaries
or with respect to the business or assets thereof have been withheld, and such
withheld taxes have either been duly and timely paid to the proper governmental
agencies or authorities or set aside in accounts for such purpose.
(b) Adequate provision for any federal, state, local, or foreign taxes due
or to become due for the Company or any of the Company Subsidiaries for any
period or periods through and including September 30, 1993 has been made and is
reflected on the September 30, 1993 Company consolidated financial statements
and has been or will be made with respect to periods ending after September 30,
1993.
2.19 ENVIRONMENTAL MATTERS. None of the assets of the Company and the
Company Subsidiaries (defined for purposes of this subsection as the real
property and tangible personal property owned or leased by the Company or any
Company Subsidiary as of the date of this Agreement and as of the Effective
Time) contain any hazardous materials (defined as any substance whose nature
and/or quantity or existence, use, manufacture or effect render it subject to
federal, state or local regulation as potentially injurious to public health or
welfare, including, without limitation, friable asbestos or PCBs ("Hazardous
Materials")) other than in such quantities which are incidental and customary
for the maintenance and operation of such assets (e.g., cleaning fluids) or not
otherwise reasonably likely, in the aggregate, to have a material adverse effect
on the financial condition, business or operations of the Company and the
Company Subsidiaries, taken as a whole ("Incidental Quantities"). Except as set
forth in Section 2.19 of Schedule I, to the Company's best knowledge without
inquiry, no collateral securing any loan made by the Company or any Company
Subsidiary, as of the date of this Agreement and as of the Effective Time,
contains any Hazardous Materials, other than in Incidental Quantities. Neither
of the Company nor any Company Subsidiary is aware of, nor has the Company or
any Company Subsidiary received written notice from any governmental or
regulatory body of any past, present or future conditions, activities, practices
or incidents which may interfere with or prevent compliance or continued
compliance with hazardous substance laws or any regulation, order, decree,
judgment or injunction, issued, entered, promulgated or approved thereunder, or
which may give rise to any common law or legal liability, or otherwise form the
basis of any claim, action, suit, proceeding, hearing or investigation based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, of any pollutant, contaminant or
chemical, or industrial, toxic or hazardous substance or waste except in all
cases to the extent that it would not, in the aggregate, have a material adverse
effect on the financial condition, business or operations of the Company and the
Company Subsidiaries, taken as a whole. There is no civil, criminal or
administrative claim, action, suit, proceeding, hearing or investigation pending
or, to the knowledge of the Company's senior officers, threatened against
Company or any Company Subsidiary relating in any way to such hazardous
substance laws or any regulation, order, decree, judgment or injunction issued,
entered, promulgated or approved thereunder except in all cases to the extent
that it would not, in the aggregate, have a material adverse effect on the
financial condition, business or operations of the Company and the Company
Subsidiaries, taken as a whole.
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2.20 GOVERNMENTAL APPROVALS AND OTHER CONDITIONS. Neither Company nor
Savings is aware of any reason why (i) the regulatory approvals that are
required to be obtained by the Company or SBC in connection with the
transactions contemplated herein should not be granted, or (ii) such regulatory
approvals should be conditioned on any requirement that would present a
significant impediment to SBC's future ability to carry on its businesses, or
(iii) any of the conditions precedent as specified in Article V to the
obligation of either SBC or the Company to consummate the transactions
contemplated herein are unlikely to be fulfilled within the applicable time
period or periods required for satisfaction of such condition or conditions.
2.21 SEC FILINGS. No registration statement, offering circular, proxy
statement, schedule or report (taken together with any amendments thereto) filed
and not withdrawn since January 1, 1991 by the Company or Savings with the SEC
under the Securities Act of 1933, as amended (1933 Act) or the 1934 Act, on the
date of effectiveness (in the case of such registration statements or offering
circulars) or on the date of filing (in the case of such reports or schedules)
or on the date of mailing (in the case of such proxy statements), contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SBC
SBC represents and warrants that, except as disclosed in Schedule II
delivered by SBC to Company and Savings concurrently with the execution of this
Agreement:
3.1 ORGANIZATION, GOOD STANDING, AUTHORITY, INSURANCE, ETC. SBC is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Virginia. Exhibit 22.1 of SBC's Annual Report on Form 10-K
for the year ended December 31, 1992 lists each material subsidiary of SBC
(within the meaning of Rule 12b-1 of the 1934 Act) (individually an "SBC
Subsidiary" and collectively the "SBC Subsidiaries"). Each of the SBC
Subsidiaries is duly organized, validly existing, and in good standing under the
laws of the respective jurisdiction under which it is organized. SBC and each
SBC Subsidiary has all requisite power and authority and is duly qualified and
licensed to own, lease and operate its properties and conduct its business as it
is now being conducted. SBC has delivered to the Company a true, complete and
correct copy of the certificate of incorporation or charter and bylaws of SBC.
SBC and each SBC Subsidiary is qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which qualification is necessary
under applicable law, except to the extent that any failures to so qualify would
not, in the aggregate, have a material adverse effect on the business, financial
condition or results of operations of SBC and the SBC Subsidiaries, taken as a
whole.
3.2 CAPITALIZATION. The authorized capital stock of SBC consists of
100,000,000 shares of SBC common stock, par value $5.00 per share, of which
56,645,326 shares were issued and outstanding as of January 31, 1994, and
5,000,000 shares of preferred stock, par value of $20.00 per share, of which no
shares were outstanding as of the date of this Agreement. All outstanding shares
of SBC common stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights.
3.3 OWNERSHIP OF SUBSIDIARIES. All the outstanding shares of the capital
stock of the SBC Subsidiaries are validly issued, fully paid, nonassessable and
owned beneficially and of record by SBC or a SBC Subsidiary free and clear of
any Encumbrance. There are no options, convertible securities, warrants, or
other rights (preemptive or otherwise) to purchase or acquire any capital stock
of any SBC Subsidiary and no contracts to which SBC or any of its affiliates is
subject with respect to the issuance, voting or sale of issued or unissued
shares of the capital stock of any of the SBC Subsidiaries.
3.4 FINANCIAL STATEMENTS. SBC has delivered to the Company the following
financial statements: (i) consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity, and
statements of cash flows of SBC for the years ended December 31, 1992 and
December 31, 1991, certified by Ernst & Young and (ii) consolidated balance
sheets and the related consolidated statements of operations and changes in
stockholders' equity of SBC for the three-month and nine-month periods ended
September 30, 1993. Each of the foregoing financial statements fairly presents
the consolidated financial position, assets, liabilities and results of
operations of SBC and the SBC Subsidiaries at their respective dates and for the
respective periods then ended and has been prepared in accordance with generally
accepted accounting principles consistently
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applied, except as otherwise noted in a footnote thereto and subject, in the
case of the interim financial statements, to normal recurring year-end
adjustments, which are not material in any case or in the aggregate.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in Section 3.5
of Schedule II or as reflected, noted or adequately reserved against in the
financial statements referred to in Section 3.4 herein, SBC and the SBC
subsidiaries did not have any material liabilities (whether accrued, absolute,
contingent or otherwise) which are required to be reflected, noted or reserved
against in such financial statements under generally accepted accounting
principles or which are in any case or in the aggregate material. Except as
disclosed in Section 3.5 of Schedule II or in the SBC SEC Filings (as defined
hereafter), since September 30, 1993, to the date hereof, SBC and the SBC
Subsidiaries have not incurred any such liability, other than liabilities of the
same nature as those set forth in the financial statements referred to in
Section 3.4 herein, all of which have been reasonably incurred in the ordinary
course of business.
3.6 ABSENCE OF CHANGES. Since September 30, 1993, except as otherwise
disclosed in the SBC SEC filings (as defined hereafter) through the date hereof,
SBC and the SBC Subsidiaries have not undergone any change in condition
(financial or otherwise), assets, liabilities, business or operations, other
than changes in the ordinary course of business which have not been, either in
any case or in the aggregate, materially adverse on a consolidated basis.
3.7 LITIGATION. Except as disclosed in Section 3.7 of Schedule II or in the
SBC SEC Filings (as defined hereafter) through the date hereof: (i) there is no
litigation, investigation or proceeding pending, or to the knowledge of the
senior officers of SBC threatened, that involves SBC or any SBC Subsidiary or
any of their respective properties and that management of SBC believes will
materially and adversely affect the condition (financial or otherwise), assets,
liabilities, business or operations of SBC; (ii) there are no outstanding
orders, writs, injunctions, decrees, consent agreements, memoranda of
understanding or other directives of any federal, state or local court or
governmental authority or of any arbitration tribunal against or with the
consent of SBC or any SBC Subsidiary that materially and adversely affect the
condition (financial or otherwise), assets, liabilities, business or operations
of SBC, taken as a whole, or restrict in any material manner the right of SBC or
any SBC Subsidiary to conduct its businesses as presently conducted.
3.8 PROSPECTUS/PROXY STATEMENT. At the time the Registration Statement
becomes effective and at the time the Prospectus/Proxy Statement is mailed to
the shareholders of the Company for the solicitation of proxies for the approval
referred to in Section 1.6 hereof and at all times subsequent to such mailing up
to and including the Effective Time, such Registration Statement and
Prospectus/Proxy Statement (including any supplements thereto), with respect to
all information set forth therein relating to SBC (including the SBC
Subsidiaries) and its shareholders, SBC Common Stock, this Agreement, the Merger
and all other transactions contemplated hereby, will:
(a) comply in all material respects with applicable provisions of the
1933 Act, the 1934 Act and the rules and regulations under such Acts; and
(b) not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements contained therein, in light of the circumstances
under which it is made, not misleading.
3.9 NO BROKER'S OR FINDER'S FEES. Except as set forth in Section 3.9 of
Schedule II, no agent, broker, investment banker, person or firm acting on
behalf or under authority of SBC or any of the SBC Subsidiaries is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly in connection with the Merger or any other transaction
contemplated hereby.
3.10 COMPLIANCE WITH LAW. SBC and the SBC Subsidiaries are in compliance in
all material respects with all laws and regulations applicable to their
respective operations or with respect to which compliance is a condition of
engaging in the business thereof, except for failures to comply, which, in the
aggregate, would not have a material adverse effect on the business, financial
condition or results of operations of SBC and the SBC Subsidiaries, taken as a
whole, and SBC has not received notice from any federal, state or local
government or governmental agency of any material violation of, any of the
above.
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3.11 CORPORATE ACTIONS. The Board of Directors of SBC has authorized its
officers to execute and deliver this Agreement and to take all action necessary
to consummate the Merger and the other transactions contemplated hereby (other
than as of the date hereof adoption of the Plan of Merger and a plan of merger
related to the Subsidiary Merger). The shareholders of SBC are not required to
approve this Agreement, the Plan of Merger or the Merger.
3.12 AUTHORITY. The execution, delivery and performance of this Agreement
by SBC does not violate any of the provisions of, or constitute a default under
or give any person the right to accelerate payment or performance under the
certificate of incorporation or bylaws of SBC, the certificate of incorporation,
articles of association, charter or bylaws of any SBC Subsidiary, any regulatory
restraint on the acquisition of Company or Savings or any statute, law, rule,
order or injunction applicable to SBC or any SBC Subsidiary (subject in each
case, as applicable, to receipt of all required regulatory approvals), or any
material contract to which SBC or any of the SBC Subsidiaries is a party or is
subject to or by which any of their properties or assets is bound. SBC has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder, subject to receipt of all required regulatory
approvals. This Agreement constitutes the valid and binding obligation of SBC
and is enforceable in accordance with its terms, except as enforceability may be
limited by applicable laws relating to bankruptcy, insolvency or creditors'
rights generally and general principles of equity.
3.13 TAX MATTERS. (a) SBC and each of the SBC Subsidiaries have duly and
properly filed all federal, state, local and other tax returns required to be
filed by them and have made timely payments of all taxes due and payable,
whether disputed or not; the current status of audits of such returns by the IRS
and other applicable agencies is as set forth in Section 3.13 of Schedule II,
except for such audits that, in the aggregate, are not reasonably likely to have
a material adverse effect on SBC and the SBC Subsidiaries, taken as a whole;
and, except as set forth in Section 3.13 of Schedule II, there is no agreement
by SBC or any SBC Subsidiary for the extension of time or for the assessment or
payment of any taxes payable. Except as set forth in Section 3.13 of Schedule
II, neither the IRS nor any other taxing authority is now asserting or, to the
best knowledge of SBC, threatening to assert any deficiency or claim for
additional taxes (or interest thereon or penalties in connection therewith), nor
is SBC aware of any basis for any such assertion or claim.
(b) Adequate provision for any federal, state, local, or foreign taxes due
or to become due for SBC or any of the SBC Subsidiaries for any period or
periods through and including September 30, 1993, has been made and is reflected
on the September 30, 1993 SBC consolidated financial statements and has been or
will be made with respect to periods ending after September 30, 1993.
3.14 ENVIRONMENTAL MATTERS. Except as disclosed in Section 3.14 of Schedule
II, or in the SBC SEC Filings (as defined hereafter) through the date hereof or
as reflected, noted or adequately reserved against in the SBC financial
statements referred to in Section 3.4 herein, SBC has no knowledge of any
material liability relating to any environmental contaminant, pollutant, toxic
or hazardous waste or other similar substance that has been used, generated,
stored, processed, disposed of or discharged onto any of the real estate now or
previously owned or acquired (including without limitation real estate acquired
by means of foreclosure or other exercise of any creditor's right) or leased by
SBC and which is required to be reflected, noted or adequately reserved against
in SBC's consolidated financial statements under generally accepted accounting
principles, except in all cases to the extent that it would not, in the
aggregate, have a material adverse effect on the financial condition, business
or operations of SBC and the SBC Subsidiaries, taken as a whole.
3.15 SEC FILINGS. No registration statement, offering circular, proxy
statement, schedule or report (together with any amendments thereto), filed and
not withdrawn since January 1, 1991, by SBC with the SEC under the 1933 Act or
the 1934 Act (collectively, the "SBC SEC Filings"), on the date of effectiveness
(in the case of such registration statements or offering circulars) or on the
date of filing (in the case of such reports or schedules) or on the date of
mailing (in the case of such proxy statements), contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statement therein, in light of the
circumstances under which they were made, not misleading.
3.16 CONSIDERATION. SBC has reserved for issuance sufficient shares of SBC
Common Stock for issuance in the Merger; however, it is SBC's current intention
to repurchase such number of shares prior to or substantially concurrent with
the consummation of the Merger.
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3.17 GOVERNMENTAL APPROVALS AND OTHER CONDITIONS. SBC is unaware of any
reason why (i) the regulatory approvals that are required to be obtained by SBC
in connection with the transactions contemplated herein should not be granted,
or (ii) such regulatory approvals should be conditioned on any requirement that
would present a significant impediment to SBC's future ability to carry on its
business, or (iii) any of the conditions precedent as specified in Article V to
the obligations of either SBC or the Company to consummate the transactions
contemplated herein are unlikely to be fulfilled within the applicable time
period or periods required for satisfaction of such condition or conditions.
ARTICLE IV
COVENANTS
4.1 INVESTIGATIONS; ACCESS AND COPIES. Between the date of this Agreement
and the Effective Time, each party agrees to give to the other party and its
respective representatives and agents full access (to the extent lawful) to all
of the premises, books, records and employees of it and its subsidiaries at all
reasonable times, and to furnish and cause its subsidiaries to furnish to the
other party and its respective agents or representatives access to and true and
complete copies of such financial and operating data, all documents with respect
to matters to which reference is made in Articles II or III of this Agreement or
on any list, schedule or certificate delivered or to be delivered in connection
herewith, and such other documents, records, or information with respect to the
business and properties of it and its subsidiaries as the other party or its
respective agents or representative shall from time to time reasonably request;
PROVIDED, HOWEVER, that any such inspection (a) shall be conducted in such
manner as not to interfere unreasonably with the operation of the business of
the entity inspected and (b) shall not affect any of the representations and
warranties hereunder. Each party will also give prompt written notice to the
other party of any event or development (x) which, had it existed or been known
on the date of this Agreement, would have been required to be disclosed under
this Agreement, (y) which would cause any of its representations and warranties
contained herein to be inaccurate or otherwise materially misleading, or (z)
which materially relate to the satisfaction of the conditions set forth in
Article V of this Agreement.
4.2 CONDUCT OF BUSINESS OF THE COMPANY AND SAVINGS. Except as otherwise
provided in this Agreement, between the date of this Agreement and the Effective
Time, the Company and Savings agree:
(a) That the Company and the Company Subsidiaries shall conduct their
business and maintain their books and records in the ordinary course of
business and in accordance with past practices;
(b) That the Company shall not, without the prior written consent of
SBC: (i) declare, set aside or pay any dividend or make any other
distribution with respect to Company's capital stock or reacquire any of
Company's outstanding shares, except that the Company shall be permitted to
pay its usual $.05 per quarter cash dividend until the Effective Time; (ii)
issue or sell or buy any shares of capital stock of the Company or any
Company Subsidiary, except shares of Company Common Stock issued pursuant
to the Company Option Plan; (iii) effect any stock split, stock dividend or
other reclassification of Company's Common Stock; or (iv) grant any options
or issue any warrants exercisable for or securities convertible or
exchangeable into capital stock of Company or any Company Subsidiary or
grant any stock appreciation or other rights with respect to shares of
capital stock of Company or of any Company Subsidiary;
(c) That Company and the Company Subsidiaries shall not, without the
prior written consent of SBC: (i) sell or dispose of any significant assets
of the Company or of any Company Subsidiary other than in the ordinary
course of business consistent with past practices; (ii) change the articles
of incorporation, charter documents or other governing instruments of the
Company or any Company Subsidiary; (iii) grant to any employee of the
Company or any Company Subsidiary an increase in compensation, bonus or
benefits except in the aggregate in a manner and amount consistent with
past practice; (iv) adopt any new or amend or terminate any existing
Employee Plans or Benefit Arrangements of any type, except to comply with
applicable law; provided, however, prior to the Effective Time, the Company
and the Company Subsidiaries shall be permitted, consistent with past
practices, to make contributions to the Company's Profit Sharing/401(k)
plan; (v) authorize severance pay or other benefits for any employee of the
Company or any Company Subsidiary except that severance provided in
conformance with Section 7.1 herein is permitted; (vi) incur any material
obligation, including any contingent obligation, or enter into or extend
any Material Contract other than in the ordinary course of business
consistent with past practice; (vii) engage in any lending activities other
than in the ordinary course of business consistent with past practice;
(viii) form any
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new subsidiary or cause or permit a material change in the activities
presently conducted by any Company Subsidiary or make additional
investments in subsidiaries in excess of $100,000, except that the Company
and its Subsidiaries may contribute an amount not in excess of an aggregate
of $1.8 million for the expenditures related to the "Rivers Bend" project
that are set forth in Exhibit 4.2(c) hereto; (ix) purchase any equity
securities other than Federal Home Loan Bank stock; (x) make any investment
which would cause Savings to not be a qualified thrift lender under Section
10(m) of the HOLA, or not to be a "domestic building and loan association"
as defined in Section 7701(a)(19) of the Code; (xi) enter into any
settlement or closing agreement with the Internal Revenue Service or any
other taxing authority; or (xii) knowingly take any action which would
cause any of the representations or warranties set forth in Article II to
become untrue in any material respect;
(d) That the Company shall not take any action that would (i)
materially impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of SBC or Company to obtain
any approval of any regulatory authority required for the transactions
contemplated by this Agreement or to perform its covenants and agreements
under this Agreement or (ii) prevent the transactions contemplated hereby
from qualifying as a reorganization within the meaning of Section 368 of
the Code; or
(e) That the Company and the Company Subsidiaries shall not (except as
provided below) (i) enter into, increase, modify, renew or otherwise extend
the maturity date of any loan or credit commitment (including stand-by
letters of credit) or otherwise make any investment (collectively "Make
Loans") of the following types:
(A) residential mortgage loans exceeding $350,000 other than single
family residential loans that are saleable and for which investor
commitments have been received;
(B) commercial or commercial mortgage loans in excess of $500,000
or having a maturity of five (5) years or more;
(C) residential construction lines/limits in excess of $1,500,000;
(D) consumer loans in excess of $100,000; and
(E) loans on investment properties in excess of $500,000;
PROVIDED that Company or any Company Subsidiary may make any such loan described
above in the event (A) Company or any Company Subsidiary has delivered to SBC a
notice of its intention to make such loan and such information as SBC may
reasonably require in respect thereof and (B) SBC shall not have reasonably
objected to such loan by giving written or facsimile notice of such objection
within two business days following the delivery to SBC of the notice of
intention and information as aforesaid; or (ii) Make Loans to any person or
entity any of the loans or other extensions of credit to which or investments in
which are on a "watch list" or similar internal report of Company or any Company
Subsidiary (except those denoted "pass" thereon), in an amount in excess of
$50,000; PROVIDED, HOWEVER, that nothing in this paragraph (e) shall prohibit
Company or any Company Subsidiary from (x) honoring any contractual obligation
or issuing stand-by letters of credit with respect to acquisition and
development loans, in each case with respect to such obligations or loans in
existence on the date of this Agreement, or, (y) with respect to loans described
in clause (i) above, making such loans after consulting with SBC.
4.3 NO SOLICITATION. The Company will not authorize or permit any officer,
director, employee, investment banker, financial consultant, attorney,
accountant or other representative of the Company or any Company Subsidiary,
directly or indirectly, to initiate contact with any person or entity in an
effort to solicit, initiate or encourage any "Takeover Proposal" (as such term
is defined below). Except as the fiduciary duties of the Company's Board of
Directors may otherwise require, the Company will not authorize or permit any
officer, director, employee, investment banker, financial consultant, attorney,
accountant or other representative of the Company or any Company Subsidiary,
directly or indirectly, (A) to cooperate with, or furnish or cause to be
furnished any non-public information concerning its business, properties or
assets to, any person or entity in connection with any Takeover Proposal; (B) to
negotiate any Takeover Proposal with any person or entity; or (C) to enter into
any agreement, letter of intent or agreement in principle as to any Takeover
Proposal. The Company will promptly give written notice to SBC upon becoming
aware of any Takeover Proposal. As used in this Agreement with
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respect to the Company, "Takeover Proposal" shall mean any proposal, other than
as contemplated by this Agreement, for a merger or other business combination
involving the Company or Savings or for the acquisition of a ten percent (10%)
or greater equity interest in the Company or Savings, or for the acquisition of
any material portion of the assets of the Company or Savings.
4.4 SHAREHOLDER APPROVALS. (a) The Company shall call the meeting of its
shareholders to be held for the purpose of voting upon the Merger and related
matters, as referred to in Section 1.6 hereof, as soon as practicable. In
connection with such meeting, the Company Board of Directors shall recommend
approval of the Merger subject to the fiduciary duties of the Company's Board of
Directors and receipt of an updated fairness opinion from Baxter Fentriss &
Company, financial advisor to the Company, immediately prior to the date of
mailing of the Proxy Statement. The Company shall use its best efforts to
solicit from its shareholders proxies in favor of approval and to take all other
action necessary or helpful to secure a vote of the holders of the shares of its
common stock in favor of the Merger except as the fiduciary duties of the
Company's Board of Directors may otherwise require.
(b) Prior to the time that the Registration Statement becomes effective,
the Board of Directors of the Company shall adopt the Plan of Merger and the
Board of Directors of Savings shall adopt a plan of merger, to be mutually
agreed upon by the parties hereto, related to the Subsidiary Merger.
(c) Prior to the time that the Registration Statement becomes effective,
the Board of Directors of SBC shall adopt the Plan of Merger and the Board of
Directors of Virginia Bank shall adopt a plan of merger, to be mutually agreed
upon by the parties hereto, related to the Subsidiary Merger.
4.5 FILING OF REGULATORY APPLICATIONS. SBC and the Company shall use all
reasonable efforts to prepare and file within forty-five (45) days of the date
hereof all required applications for regulatory approval (other than any
approvals required from the SEC or under any state securities or "blue sky"
laws) of the Merger and other transactions contemplated herein. SBC shall
provide copies of each such application to Company and its counsel for their
review at least five (5) days prior to the proposed date of filing. SBC shall
use all reasonable efforts to obtain prompt approval of each required
application.
4.6 RESALE LETTER AGREEMENTS. Within five (5) business days prior to the
Effective Time, (i) Company shall use its best efforts to deliver to SBC from
each person who may be deemed to be an "affiliate" of Company within the meaning
of Rule 145, a written letter agreement regarding restrictions on resale of the
shares of SBC common stock received by such persons in the Merger to ensure
compliance with applicable resale restrictions imposed under the federal
securities laws.
4.7 PUBLICITY. Between the date of this Agreement and the Effective Time,
neither SBC, the Company nor any of their subsidiaries shall, without the prior
approval of the other, issue or make, or permit any of its directors, employees,
officers or agents to issue or make, any press release, disclosure or statement
to the press or any third party with respect to the Merger or the transactions
contemplated hereto, except as required by law. The parties shall cooperate when
issuing or making any press release, disclosure or statement with respect to
Merger or the transactions contemplated hereby.
4.8 COOPERATION GENERALLY. Between the date of this Agreement and the
Effective Time, SBC, Company and their subsidiaries shall use their best
efforts, and take all actions necessary or appropriate, to consummate the Merger
and the other transactions contemplated by this Agreement at the earliest
practicable date. If, at any time after the Effective Time, SBC or the Surviving
Corporation shall consider or be advised that any further deeds, assignments or
assurances or any other acts are necessary or desirable to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its right, title
or interest in, to or under any of the rights, properties or assets of Company
or SBC or otherwise carry out the purposes of this Agreement, Company and SBC
and each of their respective officers and directors, shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to execute
and deliver all such deeds, assignments or assurances and to do all acts
necessary or desirable to vest, perfect or confirm title and possession to such
rights, properties or assets in the Surviving Corporation and otherwise to carry
out the purposes of this Agreement, and the officers and directors of the
Surviving Corporation are authorized in the name of Company or otherwise to take
any and all such action.
4.9 ADDITIONAL FINANCIAL STATEMENTS AND REPORTS. As soon as reasonably
practicable after they become publicly available, the Company shall furnish to
SBC and SBC shall furnish to the Company, respectively, its balance sheet and
related statements of operations, cash flows and changes in stockholders' equity
for all periods
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prior to the Effective Time. Such financial statements will be prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and fairly present the financial condition, results of operations and cash
flows of the Company or SBC, as the case may be, (subject, in the case of
unaudited financial statements, to (a) normal year-end audit adjustments, (b)
any other adjustments described therein and (c) the absence of notes which, if
presented, would not differ materially from those included in its most recent
audited consolidated balance sheet, and all of such financial statements will be
prepared in conformity with the requirements of Form 10-Q or Form 10-K, as the
case may be, under the 1934 Act.
4.10 FORBEARANCES OF SBC. During the period from the date of this Agreement
to the Effective Time, SBC shall not and shall not permit any of its
subsidiaries to, without the prior written consent of Company, take any action
that would (A) materially adversely affect or delay the ability of SBC or
Company to obtain the Governmental Approvals required for the transactions
contemplated by this Agreement or to perform its covenants and agreements under
this Agreement or (B) prevent or impede the transactions contemplated hereby
from qualifying as a reorganization within the meaning of Section 368 of the
Code.
ARTICLE V
CONDITIONS OF THE MERGER;
TERMINATION OF AGREEMENT
5.1 GENERAL CONDITIONS. The obligations of SBC and the Company to effect
the Merger shall be subject to the following conditions:
(a) STOCKHOLDER APPROVAL. The holders of the outstanding shares of
Company Common Stock shall have approved this Agreement, the Plan of Merger
and the Merger as specified in Section 1.6 hereof or as otherwise required
by applicable law.
(b) NO PROCEEDINGS. No order shall have been entered and remain in
force restraining or prohibiting the Merger or the Subsidiary Merger in any
legal, administrative, arbitration, investigatory or other proceedings
(collectively, "Proceedings") by any governmental or judicial or other
authority.
(c) GOVERNMENT APPROVALS. To the extent required by applicable law or
regulation, all approvals of or filings with any governmental authority
(collectively, "Governmental Approvals"), including without limitation
those of the OTS, the FDIC, the OCC, the FRB, the SCC, applicable state
regulatory authorities, the FTC, DOJ, the SEC, and any state securities or
blue sky authorities, shall have been obtained or made and any waiting
periods shall have expired in connection with the consummation of the
Merger and the Subsidiary Merger. All other statutory or regulatory
requirements for the valid consummation of the Merger and the Subsidiary
Merger and related transactions shall have been satisfied.
(d) REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective and shall not be subject to a stop order of the SEC and,
if the offer and sale of SBC's common stock in the Merger pursuant to this
Agreement is subject to the Blue Sky laws of any state, shall not be
subject to a stop order of any state securities commissioner.
(e) FEDERAL TAX OPINION. The Company and SBC shall have received an
opinion of Wachtell, Lipton, Rosen & Katz, in form and substance
satisfactory to the Company and SBC, substantially to the effect that the
Merger will constitute one or more tax free reorganizations under Section
368 of the Code, and that (i) the shareholders of the Company will not
recognize any gain or loss to the extent that such shareholders exchange
shares of Company Common Stock solely for shares of SBC Common Stock in the
Merger, (ii) the basis of the SBC Common Stock received by a Company
shareholder who exchanges Company Common Stock solely for SBC Common Stock
will be the same as the basis of the Company Common Stock surrendered in
exchange therefor (subject to any adjustments required as the result of
receipt of cash in lieu of a fractional share of SBC Common Stock), (iii)
the holding period of the SBC Common Stock received by a Company
shareholder receiving SBC Common Stock will include the period during which
the Company Common Stock surrendered in exchange therefore was held
(provided that the Company Common Stock of such Company shareholder was
held as a capital asset at the Effective Time), and (iv) cash received by a
Company shareholder in lieu of a fractional share interest of SBC Common
Stock will be treated as having been received as a distribution in full
payment in exchange for the fractional share interest of SBC Common Stock
which he would otherwise be entitled to receive.
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5.2 CONDITIONS TO OBLIGATIONS OF SBC. The obligations of SBC to effect the
Merger and the transactions contemplated herein shall be subject to the
following additional conditions:
(a) OPINION OF COUNSEL FOR COMPANY. SBC shall have received from
counsel to Company an opinion dated as of the Closing covering the
following matters:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia.
(ii) Savings is a federal savings bank duly organized, validly
existing, and in good standing under the laws of the United States of
America;
(iii) This Agreement and the Plan of Merger have been duly and
validly authorized, executed and delivered by the Company and Savings
and (assuming that this Agreement and the Plan of Merger are binding
obligations of SBC) constitutes a valid and binding obligation of the
Company and Savings enforceable in accordance with their respective
terms, subject as to enforceability to applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and to the application of
equitable principles and judicial discretion; and
(iv) To the actual knowledge of such counsel, no consent or
approval, which has not already been obtained, from any governmental
authority is required for execution and delivery by the Company or
Savings of the Agreement and the Plan of Merger or any of the documents
to be executed and delivered by the Company or Savings in connection
therewith.
Such opinion may (i) expressly rely as to matters of fact upon
certificates furnished by appropriate officers of the Company or Savings or
appropriate government officials; (ii) in the case of matters of law
governed by the laws of the states in which they are not licensed,
reasonably rely upon the opinions of legal counsel duly licensed in such
states and may be limited, in any event, to Federal Law and the State of
Virginia and (iii) incorporate, be guided by, and be interpreted in
accordance with, the Legal Opinion Accord of the ABA Section of Business
Law (1991).
(b) NO MATERIAL ADVERSE CHANGE. Between the date of this Agreement and
the date of Closing, there shall not have occurred any material adverse
change in the financial condition, business or results of operations of
Company and the Company Subsidiaries, taken as a whole, other than any such
change attributable to or resulting from (1) changes in law, regulation or
generally accepted accounting principles of general application to the
banking and thrift industries or (2) changes in economic conditions that
affect the banking and thrift industries generally, including changes in
the general level of interest rates.
(c) REPRESENTATIONS AND WARRANTIES TO BE TRUE; FULFILLMENT OF
COVENANTS AND CONDITIONS. The representations and warranties of the Company
and Savings set forth in Article II shall be true and correct in all
material respects as of the date of this Agreement and as of the Effective
Time with the same effect as though made at the Effective Time (except in
the case of any representation or warranty which specifically relates to an
earlier date and as contemplated by this Agreement); Company and Savings
shall have performed all obligations and complied with their covenants,
taken as a whole, in all material respects, under this Agreement on their
parts to be performed or complied with at or prior to the Effective Time;
and Company shall have delivered to SBC a certificate, dated the Effective
Time and signed by its chief executive officer and chief financial officer,
to such effect.
(d) ACCEPTANCE OF LEGAL MATTERS. The form and substance of all legal
matters contemplated hereby and all papers delivered hereunder shall be
reasonably acceptable to counsel to SBC.
5.3 CONDITIONS TO OBLIGATIONS OF COMPANY AND SAVINGS. The obligations of
Company and Savings to effect the Merger and the transactions contemplated
herein shall be subject to the following additional conditions:
(a) OPINION OF COUNSEL FOR SBC. Company shall have received from
counsel to SBC, an opinion dated as of the Closing covering the following
matters:
(i) SBC is a Virginia corporation duly organized, validly existing,
and in good standing under the laws of the State of Virginia;
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(ii) This Agreement and the Plan of Merger have been duly and
validly authorized, executed and delivered by SBC and (assuming this
Agreement and the Plan of Merger are binding obligations of the Company
and Savings) constitutes a valid and binding obligation of SBC
enforceable in accordance with its terms, subject as to enforceability
to applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally
and to the application of equitable principles and judicial discretion;
(iii) To the actual knowledge of such counsel, no consent or
approval, which has not already been obtained from any government
authority, is required for execution and delivery by SBC of this
Agreement or any of the documents to be executed and delivered by SBC in
connection therewith; and
(iv) The shares of SBC common stock to be issued in the names of
the Company record holders and delivered in exchange for their Company
Common Stock will be duly authorized, validly issued, fully paid and
non-assessable.
Such opinion may (i) expressly rely as to matters of fact upon
certificates furnished by appropriate officers of SBC or appropriate
government officials; (ii) in the case of matters of law governed by the
laws of the states in which they are not licensed, reasonably rely upon the
opinions of legal counsel duly licensed in such states and may be limited,
in any event, to Federal Law and the State of Virginia and (iii)
incorporate, be guided by, and be interpreted in accordance with, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
(b) REPRESENTATIONS AND WARRANTIES TO BE TRUE; FULFILLMENT OF
COVENANTS AND CONDITIONS. The representations and warranties of SBC set
forth in Article III shall be true and correct in all material respects as
of the date of this Agreement and at the Effective Time with the same
effect as though made at the Effective Time (except in the case of any
representation or warranty which specifically relates to an earlier date
and as contemplated by this Agreement); SBC shall have performed all
obligations and complied with its covenants, taken as a whole, in all
material respects, and all conditions under this Agreement on its part to
be performed or complied with at or prior to the Effective Time; and SBC
shall have delivered to Company a certificate, dated the Effective Time and
signed by its chief executive officer and chief financial officer, to such
effect.
(c) ACCEPTANCE OF LEGAL MATTERS. The form and substance of all legal
matters contemplated hereby and all papers delivered hereunder shall be
reasonably acceptable to counsel to the Company.
(d) RECEIPT OF CONSIDERATION. The Exchange Agent shall acknowledge in
writing to the Company that it is in receipt of (i) certificates
representing the aggregate number of shares of SBC Common Stock to be
issued to the shareholders of the Company pursuant to the provisions of
Section 1.3(a) herein and (ii) sufficient cash to pay the Company
shareholders their fractional share interest as provided in Section 1.3(b)
herein.
(e) LISTING OF SHARES. Any shares of SBC Common Stock to be issued in
connection with the Merger shall be authorized for listing on the
applicable exchange.
5.4 TERMINATION OF AGREEMENT AND ABANDONMENT OF MERGER. This Agreement and
the Plan of Merger may be terminated at any time before the Effective Time,
whether before or after approval thereof by shareholders of Company, as provided
below:
(a) MUTUAL CONSENT. By mutual consent of the parties, evidenced by
their written agreement.
(b) CLOSING DELAY. At the election of either party, evidenced by
written notice, if the Closing shall not have occurred on or before
December 31, 1994, or such later date as shall have been agreed to in
writing by the parties; PROVIDED, HOWEVER, that the right to terminate
under this Section 5.4(b) shall not be available to any party whose failure
to perform an obligation hereunder has been the cause of, or has resulted
in, the failure of the Closing to occur on or before such date.
(c) CONDITIONS TO SBC PERFORMANCE NOT MET. By SBC upon delivery of
written notice of termination to Company if any event occurs which renders
impossible of satisfaction in any material respect one or more of the
conditions to the obligations of SBC to effect the Merger set forth in
Sections 5.1 and 5.2 and noncompliance is not waived by SBC.
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(d) CONDITIONS TO COMPANY PERFORMANCE NOT MET. By the Company upon
delivery of written notice of termination to SBC if any event occurs which
renders impossible of satisfaction in any material respect one or more of
the conditions to the obligations of Company and Savings to effect the
Merger set forth in Sections 5.1 and 5.3 and noncompliance is not waived by
Company.
(e) BY THE COMPANY. By the Company, by action of its Board of
Directors, whether before or after approval of the Merger by the Company's
stockholders, by giving written notice of such election to SBC within two
trading days after the later to occur of (x) the receipt of the written
notice from SBC required pursuant to Section 1.3(a)(i) of this Agreement or
(y) the Company's shareholder meeting to be held pursuant to Section 4.4
hereof, in the event that the Average Closing Price of the SBC Common Stock
is less than $33.30 per share of SBC Common Stock (subject to adjustment in
accordance with the next to last sentence of Section 1.3(a)(i) herein);
PROVIDED, HOWEVER, the Company shall not be permitted to terminate this
Agreement and the Merger pursuant hereto in the event that SBC determines
(by giving written notice to the Company within one day following receipt
of the Company's notice) to adjust the Exchange Ratio to equal such number
of shares of SBC Common Stock as equal the quotient of $20.75 divided by
such Average Closing Price.
ARTICLE VI
TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES
6.1 TERMINATION; LACK OF SURVIVAL OF REPRESENTATIONS AND WARRANTIES. In the
event of the termination and abandonment of this Agreement pursuant to Section
5.4 of this Agreement, this Agreement shall become void and have no effect,
except that (i) the provisions of Sections 2.9 and 3.9 (Brokers and Finders),
4.7 (Publicity), 6.2 (Expenses) and 8.2 (Confidentiality) of this Agreement
shall survive any such termination and abandonment, and (ii) a termination
pursuant to Sections 5.4(c) or 5.4(d) of this Agreement shall not relieve the
breaching party from liability for an uncured intentional and willful breach of
a representation, warranty, covenant, or agreement giving rise to such
termination.
The representations, warranties and agreements of the parties set forth in
this Agreement shall not survive the Effective Time, and shall be terminated and
extinguished at the Effective Time, and from and after the Effective Time none
of the parties hereto shall have any liability to the other on account of any
breach or failure of any of those representations, warranties and agreement;
PROVIDED, HOWEVER, that the foregoing clause shall not (i) apply to agreements
of the parties which by their terms are intended to be performed after the
Effective Time, and (ii) shall not relieve any person for liability for fraud,
deception or intentional misrepresentation.
6.2 PAYMENT OF EXPENSES. Each of the parties hereto shall bear and pay all
costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder.
6.3 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and their respective successors and
assigns, and, other than the right to receive the consideration payable in the
Merger pursuant to Article I hereof, is not intended to and shall not confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement, PROVIDED, HOWEVER, that the provisions of:
Sections 7.1 and 7.2 shall inure to the benefit of and be enforceable by the
employees of the Company and the Company Subsidiaries, Section 7.3 shall insure
to the benefit of and be enforceable by the persons named therein, Section 7.4
shall inure to the benefit of and be enforceable by the Company's directors, and
Section 7.5 shall inure to the benefit of and be enforceable by the Indemnified
Parties.
ARTICLE VII
CERTAIN POST-MERGER AGREEMENTS
7.1 EMPLOYEES. (a) SBC agrees that it will (or it will cause the surviving
subsidiary financial institution from the merger with Savings to) make offers of
employment, beginning as of the Effective Time, to all persons who are employees
of the Company or any of the Company's Subsidiaries immediately prior to the
Effective Time, or, in the alternative, to take all reasonable steps to locate
suitable employment for all such persons. If such employment cannot be achieved
for any such persons and such employee's employment with SBC (or an SBC
Subsidiary) following the Effective Time is terminated at any time on or after
the Effective Time up to one (1) year thereafter, such employee shall be
entitled to receive a severance payment in accordance with SBC's Employee
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Displacement Policy (as set forth in Exhibit 7.1). Any Company employee
terminated following such one (1) year period shall be entitled to receive
severance pay in accordance with SBC's severance policy for its employees then
in effect. Employees of the Company or any Company Subsidiary who are terminated
by SBC or any SBC Subsidiary within one (1) year of the Effective Time shall in
addition be entitled to outplacement services provided by SBC.
7.2 EMPLOYEE BENEFIT PLANS (a) Each employee of the Company and any Company
Subsidiary who is actively at work at the Company or any Company Subsidiary on
the date immediately preceding the date of the Merger and who becomes an
employee of SBC or its subsidiaries as a result of the Merger shall be
immediately entitled to participate in all employee benefit plans sponsored by
SBC or its subsidiaries to the same extent as other similarly situated SBC
employees. Such employees shall receive credit for their prior period of service
to the Company or any Company Subsidiary for purposes of determining
eligibility, participation and vesting, but not for purposes of benefit accrual,
in all SBC employee benefit plans and for receiving other employee benefits
including, but not limited to, vacation and sick pay.
(b) The Company will terminate the Company's Profit Sharing/401(k) Plan
prior to the date of the Merger and employees of the Company or any Company
Subsidiary who are participants in the Company's Profit Sharing/401(k) Plan and
who become employees of SBC or its Subsidiaries as of the date of the Merger may
have their account balances transferred to the SBC 401(k) Plan. Employees of the
Company or any Company Subsidiary who are actively at work at the Company or any
Company Subsidiary on the date immediately preceding the date of the Merger and
who become employees of SBC or its Subsidiaries as of the date of the Merger
will have their prior service with the Company or any Company Subsidiary
credited toward vesting service, participation and eligibility under the terms
of the SBC 401(k) Plan.
7.3 EMPLOYMENT AGREEMENTS. As of the Effective Time, SBC or Signet
Bank/Virginia shall enter into three year employment agreements with George R.
Whittemore, H. Lee Rettig, Jacqueline T. Thornton and George E. Moore, III, in
the forms attached hereto as Exhibits 7.3(a), 7.3(b), 7.3(c) and 7.3(d). SBC
will consider Company employees, displaced by the Merger, for any unfilled
comparable positions at SBC.
7.4 ADVISORY DIRECTORS. As of the Effective Time, SBC shall appoint each of
the Company's directors to SBC's Advisory Board. Such persons shall receive fees
for serving on such Advisory Board at least equal in amount to the fees received
by other Advisory Board members.
7.5 INDEMNIFICATION. (a) From and after the Effective Time, SBC (including
any successor thereto) shall indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date hereof or who becomes prior to
the Effective Time, an officer, director or employee of the Company or any of
its subsidiaries (the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorney's fees), liabilities, judgments or
amounts that are paid in settlement of or in connection with any claim, action,
suit, proceeding or investigation (each a "Claim") in which an Indemnified Party
is, or is threatened to be made, a party or a witness based in whole or in part
on or arising in whole or in part out of the fact that such person is or was a
director, officer or employee of the Company or any subsidiary of the Company if
such Claim pertains to any matter or fact arising, existing or occurring prior
to the Effective Time (including, without limitation, the Merger and other
transactions contemplated by this Agreement), regardless of whether such Claim
is asserted or claimed prior to, or at or after, the Effective Time (the
"Indemnified Liabilities") to the full extent permitted under (i) applicable
Virginia or federal law in effect as of the date hereof or as amended applicable
to a time prior to the Effective Time or (ii) under the Company's or Savings'
Articles of Incorporation, Charter and Bylaws. SBC shall pay expenses in advance
of the final disposition of any such claim to each Indemnified Party to the full
extent permitted by Virginia or federal law in effect as of the date hereof or
as amended applicable to a time prior to the Effective Time upon receipt of any
undertaking required by applicable law. Any Indemnified Party wishing to claim
indemnification hereunder upon learning of any Claim, shall notify SBC promptly
after learning of any Claim (but the failure so to notify SBC shall not relieve
them from any liability which they may have under this Section 7.5(a) except to
the extent such failure materially prejudices SBC) and shall deliver to SBC the
undertaking, if any, required by applicable law. SBC shall insure, to the extent
permitted under applicable law, that all limitations of liability existing in
favor of the Indemnified Parties as provided in the Company's or Savings'
Articles of Incorporation, Charter and Bylaws, as in effect as of the date
hereof, or allowed under applicable Virginia or federal law as in effect as of
the date hereof or as amended applicable to a time prior to the Effective Time,
with respect to claims or liabilities arising from facts or events existing or
occurring prior to the Effective
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Time (including, without limitation, the transactions contemplated by this
Agreement), shall survive the Merger. The obligations of SBC described in this
Section 7.5(a) shall continue in full force and effect, without any amendment
thereto, for a period of not less than six (6) years from the Effective Time;
provided, however, that all rights to indemnification in respect of any Claim
asserted or made within such period shall continue until the final disposition
of such Claim.
(b) From and after the Effective Time, the directors, officers and
employees of the Company and its subsidiaries who become directors, officers or
employees of SBC or its subsidiaries, (i) shall have indemnification rights
having prospective application only, except for the indemnification rights set
forth in paragraph (a) above and (ii) shall be covered by the directors,
officers and employees liability insurance policy of SBC and its subsidiaries on
a basis at least equal to the coverage provided to persons in similar positions
with SBC or any of its subsidiaries. The prospective indemnification rights
granted consistent with the provisions hereunder shall consist of such rights to
which directors, officers and employees of SBC or its subsidiaries are entitled
under the provisions of (A) the Articles of Incorporation, or similar governing
documents, of SBC and its subsidiaries, as in effect from time to time after the
Effective Time, as applicable, and (B) provisions of applicable Virginia and
federal law as in effect from time to time after the Effective Time.
(c) The obligations of SBC provided under paragraphs (a) and (b) of this
Section 7.5 are intended to benefit, and be enforceable against SBC directly by,
the Indemnified Parties, and shall be binding on all respective successors and
permitted assigns of SBC and its Subsidiaries.
(d) SBC shall (i) cause its own directors' and officers' liability
insurance to or (ii) permit the Company and Savings to purchase and keep in
force for a period of at least three years following the Effective Time,
directors' and officers' liability insurance to provide coverage to the
Company's and its Subsidiaries' directors and officers for acts or omissions of
the type and in the amount currently covered by the Company's and Savings'
existing directors' and officers' liability insurance for acts or omissions
occurring on or prior to the Effective Time; provided that SBC shall not be
required to spend, or permit the Company or Savings to spend, in respect of such
coverage, an amount in excess of 2.5 times the rate currently paid by the
Company or Savings for directors' and officers' insurance.
ARTICLE VIII
GENERAL
8.1 AMENDMENTS. Subject to applicable law, this Agreement may be amended,
whether before or after any relevant approval of shareholders, by an agreement
in writing executed in the same manner as this Agreement and authorized or
ratified by the Boards of Directors of the parties hereto, PROVIDED THAT, after
the adoption of the Agreement by the shareholders of the Company, no such
amendment without further shareholder approval may change the amount or form of
the consideration to be received by the Company shareholders in the Merger.
8.2 CONFIDENTIALITY. All information disclosed hereafter by any party to
this Agreement to any other party to this Agreement, including, without
limitation, any information obtained pursuant to Section 4.1 hereof, shall be
kept confidential by such other party and shall not be used by such other party
otherwise than as herein contemplated except to the extent that (i) it was known
by such other party on a non-confidential basis when received, (ii) it is or
hereafter becomes lawfully obtainable from other sources, (iii) it is necessary
or appropriate to disclose to the OTS, the FDIC, OCC, FRB, SCC or any other
applicable regulatory authority having jurisdiction over the parties or their
subsidiaries or as may otherwise be required by law, or (iv) to the extent such
duty as to confidentiality is waived by the other party. In the event of the
termination of this Agreement, each party shall return upon request to the other
party all documents (and reproductions thereof) received from such other party
(and, in the case of reproductions, all such reproductions made by the receiving
party) that include information not within the exceptions contained in the first
sentence of this Section 8.2.
8.3 GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Virginia without taking into account a provision regarding choice of
law, except to the extent certain matters may be governed by federal law by
reason of preemption.
8.4 NOTICES. Any notices or other communications required or permitted
hereunder shall be sufficiently given if sent by registered mail or certified
mail, postage prepaid, addressed, if to SBC or Company, to
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<PAGE>
SBC: Signet Banking Corporation
7 North Eighth Street
Richmond, Virginia 23219
Attn: David L. Brantley, Senior Vice President
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attn: Craig M. Wasserman, Esq.
Company: Pioneer Financial Corporation
5601 Ironbridge Parkway
Chester, Virginia 23831
Attn: George R. Whittemore, President
with a copy to:
Housley Goldberg & Kantarian, P.C.
1220 Nineteenth Street, N.W.
Suite 700
Washington, D.C. 20036
Attn: Leonard S. Volin, Esq.
or such other address as shall be furnished in writing by any such party, and
any such notice or communication shall be deemed to have been given two business
days after the date of such mailing (except that the notice of change of address
shall not be deemed to have been given until received by the addressee). Notices
may also be sent by telegram, telex, facsimile transmission or hand delivery and
in such event shall be deemed to have been given as of the date received.
8.5 NO ASSIGNMENT. This Agreement may not be assigned by any of the parties
hereto, by operation of law or otherwise, except as contemplated hereby.
8.6 HEADINGS. The description heading of the several Articles and Sections
of this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
8.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
8.8 CONSTRUCTION AND INTERPRETATION. Except as the context otherwise
requires, (a) all references herein to any state or federal regulatory agency
shall also be deemed to refer to any predecessor or successor agency, and (b)
all references to state and federal statutes or regulations shall also be deemed
to refer to any successor statute or regulation.
8.9 ENTIRE AGREEMENT. This Agreement, together with the schedules, lists,
exhibits and certificates required to be delivered hereunder, and any amendment
hereafter executed and delivered in accordance with Section 8.1, constitutes the
entire agreement of the parties, and supersedes any prior written or oral
agreement or understanding among any of the parties hereto pertaining to the
Merger. This Agreement is not intended to confer upon any other persons any
rights or remedies hereunder except as expressly set forth herein.
8.10 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of the Agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunder duly authorized, all as of the
date set forth above.
<TABLE>
<S> <C>
SIGNET BANKING CORPORATION PIONEER FINANCIAL CORPORATION
By: /s/ David L. Brantley By: /s/ G.R. Whittemore
Name: David L. Brantley Name: G.R. Whittemore
Title: Senior Vice President Title: President
and Treasurer
PIONEER FEDERAL SAVINGS BANK
By: /s/ G.R. Whittemore
Name: G.R. Whittemore
Title: President
</TABLE>
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ANNEX II
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated February 16, 1994, between Pioneer Financial
Corporation, a Virginia corporation ("Issuer"), and Signet Banking Corporation,
a Virginia corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into a Reorganization and Merger
Agreement of even date herewith (the "Merger Agreement"), which agreement has
been executed by the parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 467,013 fully
paid and nonassessable shares of its common stock, par value $1.00 per share
("Common Stock"), at a price of $21.75 per share; PROVIDED, HOWEVER, that in the
event Issuer issues or agrees to issue any shares of Common Stock (other than as
permitted under the Merger Agreement) at a price less than $21.75 per share (as
adjusted pursuant to subsection (b) of Section 5), such price shall be equal to
such lesser price (such price, as adjusted if applicable, the "Option Price");
PROVIDED FURTHER that in no event shall the number of shares for which this
Option is exercisable exceed 19.9% of the Issuer's issued and outstanding common
shares. The number of shares of Common Stock that may be received upon the
exercise of the Option and the Option Price are subject to adjustment as herein
set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the number of shares of Common Stock subject to the
Option shall be increased so that, after such issuance, it equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as hereinafter
defined) and a Subsequent Triggering Event (as hereinafter defined) shall have
occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined), PROVIDED that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2) within
30 days following such Subsequent Triggering Event. Each of the following shall
be an Exercise Termination Event: (i) the Effective Time of the Merger; (ii)
termination of the Merger Agreement in accordance with the provisions thereof if
such termination occurs prior to the occurrence of an Initial Triggering Event;
or (iii) the passage of nine months after termination of the Merger Agreement if
such termination follows the occurrence of an Initial Triggering Event (PROVIDED
that if an Initial Triggering Event continues or occurs beyond such termination,
the Exercise Termination Event shall be six months from the expiration of the
Last Triggering Event but in no event more than 12 months after such
termination). The "Last Triggering Event" shall mean the last Initial Triggering
Event to occur. The term "Holder" shall mean the holder or holders of the
Option.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered
into an agreement to engage in an Acquisition Transaction (as hereinafter
defined) with any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
1934 Act, and the rules and regulations thereunder) other than Grantee or
any of its Subsidiaries (each a "Grantee Subsidiary") or the Board of
Directors of Issuer shall have recommended that the shareholders of Issuer
approve or accept any Acquisition Transaction other than as contemplated by
the Merger Agreement. For purposes of this Agreement, "Acquisition
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<PAGE>
Transaction" shall mean (x) a merger or consolidation, or any similar
transaction, involving Issuer or any Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the SEC) of Issuer, (y) a
purchase, lease or other acquisition of all or substantially all of the
assets of Issuer or any Significant Subsidiary of Issuer other than as
contemplated by the Merger Agreement, or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting power of
Issuer or any Significant Subsidiary of Issuer;
(ii) Any person other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity shall have acquired
beneficial ownership or the right to acquire beneficial ownership of 10% or
more of the outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Option Agreement having the meaning
assigned thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
(iii) Any person other than Grantee or any Grantee Subsidiary shall
have made a proposal to Issuer or its shareholders by public announcement
or written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(iv) Issuer shall have breached any covenant or obligation set forth
in Section 4.3 of the Merger Agreement;
(v) After a proposal is made by a third party to Issuer to engage in
an Acquisition Transaction, Issuer shall have intentionally or knowingly
breached any covenant or obligation contained in the Merger Agreement and
such breach (x) would entitle Grantee to terminate the Merger Agreement and
(y) shall not have been cured prior to the Notice Date (as defined below);
or
(vi) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Office
of Thrift Supervision ("OTS"), the Federal Reserve Board, or other federal
or state bank regulatory authority, which application or notice has been
accepted for processing, for approval to engage in an Acquisition
Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 25% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) shall be 25%;
PROVIDED, HOWEVER, that the Grantee's ability to cause Issuer to repurchase
the Option pursuant to the provisions of Section 7 hereof shall only apply
in the event the percentages referred to in clauses (i) and (ii) above
shall be 50%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date");
PROVIDED that if prior notification to or approval of the OTS, the Federal
Reserve Board or any other regulatory agency is required in connection with
such purchase, the Holder shall promptly file the required notice or
application for approval and shall expeditiously process the same and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification periods have
expired or been terminated or such approvals have been obtained and any
requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
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<PAGE>
(f) At the closing referred to in subsection (e) of this Section 2,
the Holder shall pay to Issuer the aggregate purchase price for the shares
of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated
by Issuer, provided that failure or refusal of Issuer to designate such a
bank account shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer
shall deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder,
and the Holder shall deliver to Issuer a copy of this Agreement and a
letter agreeing that the Holder will not offer to sell or otherwise dispose
of such shares in violation of applicable law or the provisions of this
Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and Issuer and to resale restrictions arising under the Securities Act of
1933, as amended. A copy of such agreement is on file at the principal
office of Issuer and will be provided to the holder hereof without charge
upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the 1933 Act in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the Holder shall have delivered to
Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel,
in form and substance satisfactory to Issuer, to the effect that such legend is
not required for purposes of the 1933 Act; (ii) the reference to the provisions
to this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. (section mark)18a and regulations
promulgated thereunder and (y) in the event, under the Home Owners' Loan Act, as
amended ("HOLA"), the Bank Holding Company Act of 1956, as amended, or the
Change in Bank Control Act of 1978, as amended, or any state banking law, prior
approval of or notice to the OTS, the Federal Reserve Board or to any state
regulatory authority is necessary before the Option may be exercised,
cooperating fully with the Holder in preparing such applications or notices and
providing such information to the Federal Reserve Board or such state regulatory
authority as they may require) in order to permit the Holder to exercise the
Option and Issuer duly and effectively to issue shares of Common Stock pursuant
hereto; and (iv) promptly to take all action provided herein to protect the
rights of the Holder against dilution.
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<PAGE>
4. This Agreement (and the Option granted hereby) are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, in the event of any change in Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions, cash dividends or distributions
in excess of the amounts permitted under the Merger Agreement, or the like, the
type and number, and/or the price, of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 30 days of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a registration statement under the 1933 Act covering any
shares issued or issuable pursuant to this Option and shall use its best efforts
to cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its best efforts to cause such registration statement first to become effective
and then to remain effective for such period not in excess of 180 days from the
day such registration statement first becomes effective or such shorter time as
may be reasonably necessary to effect such sales or other dispositions. Grantee
shall have the right to demand two such registrations; PROVIDED, HOWEVER, that
Issuer shall be required to bear the expenses related only to the first such
registration, and the Grantee shall bear such expenses to the extent related to
the second. The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering of shares of Common
Stock, and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the inclusion of the Holder's Option or Option Shares would interfere
with the successful marketing of the shares of Common Stock offered by Issuer,
the number of Option Shares otherwise to be covered in the registration
statement contemplated hereby may be reduced; and PROVIDED, HOWEVER, that after
any such required reduction the number of Option Shares to be included in such
offering for the account of the Holder shall constitute at least 25% of the
total number of shares to be issued by the Holder and Issuer in the aggregate;
and PROVIDED FURTHER, however, that if such reduction occurs, then the Issuer
shall file a registration statement for the balance as promptly as practical and
no reduction shall thereafter occur. Each such Holder shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If requested by any such Holder in connection
with such registration, Issuer shall become a party to any underwriting
agreement relating to the sale of such shares, but only to the extent of
obligating itself in respect of representations, warranties, indemnities and
other agreements customarily included in such underwriting agreements for the
Issuer. Upon receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to Issuer to be entitled
to registration rights under this Section 6, in each case by promptly mailing
the same, postage prepaid, to the address of record of the persons entitled to
receive such copies.
7. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, (i) at the request of the Holder,
delivered within 30 days of such occurrence (or such later period as provided in
Section 10), Issuer shall repurchase the Option from the Holder at a price (the
"Option Repurchase Price") equal to (x) the amount by which (A) the market/offer
price (as defined below) exceeds (B) the Option Price, multiplied by the number
of shares for which this Option may then be exercised plus (y) Grantee's Out-of-
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<PAGE>
Pocket Expenses (as defined below) (to the extent not previously reimbursed) and
(ii) at the request of the owner of Option Shares from time to time (the
"Owner"), delivered within 30 days of such occurrence (or such later period as
provided in Section 10), Issuer shall repurchase such number of the Option
Shares from the Owner as the Owner shall designate at a price (the "Option Share
Repurchase Price") equal to (x) the market/offer price multiplied by the number
of Option Shares so designated plus (y) Grantee's Out-of-Pocket Expenses (to the
extent not previously reimbursed). The term "Out-of-Pocket Expenses" shall mean
Grantee's reasonable out-of-pocket expenses incurred in connection with the
transactions contemplated by the Merger Agreement, including, without
limitation, legal, accounting and investment banking fees. The term
"market/offer price" shall mean the highest of (i) the price per share of Common
Stock at which a tender offer or exchange offer therefor has been made, (ii) the
price per share of Common Stock to be paid by any third party pursuant to an
agreement with Issuer, (iii) the highest closing price for shares of Common
Stock within the six-month period immediately preceding the date the Holder
gives notice of the required repurchase of this Option or the Owner gives notice
of the required repurchase of Option Shares, as the case may be, or (iv) in the
event of a sale of all or substantially all of Issuer's assets, the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized investment
banking firm selected by the Holder or the Owner, as the case may be, divided by
the number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the market/offer price, the value of consideration other
than cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; PROVIDED, HOWEVER, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Purchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator of which
is the Option Repurchase Price, or (B) to the Owner, a certificate for the
Option Shares it is then so prohibited from repurchasing.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged
II-5
<PAGE>
for stock or other securities of any other person or cash or any other property
or the then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as hereinafter defined) or
(y) any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; PROVIDED that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
(c) The Substitute Option shall have the same terms as the Option,
PROVIDED, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option shall
also enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement, which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to (x) the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised plus (y) Grantee's Out-of-Pocket Expenses (to the extent
not previously reimbursed), and at the request of the owner (the "Substitute
Share Owner") of shares of Substitute Common Stock (the "Substitute Shares"),
the Substitute
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<PAGE>
Option Issuer shall repurchase the Substitute Shares at a price (the "Substitute
Share Repurchase Price") equal to (x) the Highest Closing Price multiplied by
the number of Substitute Shares so designated plus (y) Grantee's Out-of-Pocket
Expenses (to the extent not previously reimbursed). The term "Highest Closing
Price" shall mean the highest closing price for shares of Substitute Common
Stock within the six-month period immediately preceding the date the Substitute
Option Holder gives notice of the required repurchase of the Substitute Option
or the Substitute Share Owner gives notice of the required repurchase of the
Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or the portion thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; PROVIDED, HOWEVER, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
Substitute Option Repurchase Price and the Substitute Share Repurchase Price,
respectively, in full (and the Substitute Option Issuer shall use its best
efforts to receive all required regulatory and legal approvals as promptly as
practicable in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, the Substitute Option Issuer
shall promptly (i) deliver to the Substitute Option Holder or Substitute Share
Owner, as appropriate, that portion of the Substitute Option Repurchase Price or
the Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Option Shares it is then so prohibited
from repurchasing.
10. The 30-day period for exercise of certain rights under Sections 2, 6, 7
and 12 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and for the expiration of all
statutory waiting periods; and (ii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer
II-7
<PAGE>
and no other corporate proceedings on the part of Issuer are necessary to
authorize this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Issuer. This
Agreement is the valid and legally binding obligation of Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 30
days following such Subsequent Triggering Event (or such later period as
provided in Section 10); PROVIDED, HOWEVER, that until the date 30 days
following the date on which the OTS, the Federal Reserve Board approves an
application by Grantee under the HOLA, the Bank Holding Company Act to acquire
the shares of Common Stock subject to the Option, Grantee may not assign its
rights under the Option except in (i) a widely dispersed public distribution,
(ii) a private placement in which no one party acquires the right to purchase in
excess of 2% of the voting shares of Issuer, (iii) an assignment to a single
party (E.G., a broker or investment banker) for the purpose of conducting a
widely dispersed public distribution on Grantee's behalf, or (iv) any other
manner approved by the Federal Reserve Board.
13. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement.
14. Notwithstanding anything to the contrary herein, in the event that the
Holder or Owner or any Related Person thereof is a person making an offer or
proposal to engage in an Acquisition Transaction (other than the transaction
contemplated by the Merger Agreement), then (i) in the case of a Holder or any
Related Person thereof, the Option held by it shall immediately terminate and be
of no further force or effect, and (ii) in the case of an Owner or any Related
Person thereof, the Option Shares held by it shall be immediately repurchasable
by Issuer at the Option Price. A Related Person of a Holder or Owner means any
Affiliate (as defined in Rule 12b-2 of the rules and regulations under the 1934
Act) of the Holder or Owner and any person that is the beneficial owner of 20%
or more of the voting power of the Holder or Owner, as the case may be.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full fore and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
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<PAGE>
19. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
PIONEER FINANCIAL CORPORATION
By:
President
SIGNET BANKING CORPORATION By:
Senior Vice President & Treasurer
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ANNEX III
HOLDING COMPANY PLAN OF MERGER OF
PIONEER FINANCIAL CORPORATION
INTO
SIGNET BANKING CORPORATION
SECTION 1. Pioneer Financial Corporation ("Company") shall, upon the filing
of articles of merger with, and the issuance of a certificate of merger by, the
State Corporation Commission of Virginia (the "Effective Time"), be merged (the
"Merger"), pursuant to the provisions of this Plan of Merger, the Reorganization
and Merger Agreement, dated as of February 16, 1994, between the Company and SBC
(the "Agreement") and the Virginia Stock Corporation Act, into Signet Banking
Corporation ("SBC") which shall be the Surviving Corporation.
SECTION 2. CONVERSION OF STOCK. (a) At the Effective Time, by virtue of the
Merger and without any action on the part of SBC or Company or the holders of
shares of SBC Common Stock or Company Common Stock (as such terms are defined
below):
(i) Each share of common stock, par value $1.00 per share ("Company
Common Stock"), of the Company issued and outstanding immediately prior to
the Effective Time (other than shares to be cancelled in accordance with
Section 2(a)(ii) below and other than Dissenting Shares (as defined below))
shall cease to be outstanding and shall be converted into .6232 shares of
the common stock, par value $5.00 per share, of SBC (the "SBC Common
Stock") (the "Exchange Ratio"); PROVIDED, HOWEVER, that in the event the
Average Closing Price (as defined below) of the SBC Common Stock is greater
than $40.12 (subject to adjustment as provided in the next sentence) the
Exchange Ratio shall be equal to $25.00 divided by the Average Closing
Price (as defined below) of the SBC Common Stock, and PROVIDED FURTHER, in
the event that the Exchange Ratio is adjusted pursuant to the proviso
contained in Section 2(d) hereof the Exchange Ratio shall be the Exchange
Ratio as so adjusted. If after February 16, 1994 and prior to the Effective
Time, the outstanding shares of SBC Common Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of
shares or securities through a reorganization, reclassification, stock
dividend, stock split, reverse stock split, or other similar change in
SBC's capitalization appropriate adjustments will be made to the Exchange
Ratio (or applicable dollar amounts herein or in Section 2(d) below);
provided that no such adjustments shall be made on account of ordinary
quarterly cash dividends paid by SBC (including any increases which SBC may
make in such quarterly cash dividends). The term "Average Closing Price"
shall mean the average of the closing prices of the shares of SBC Common
Stock as reported on the New York Stock Exchange Composite Tape (or if SBC
Common Stock is not quoted on the New York Stock Exchange Composite Tape,
on the National Association of Securities Dealers Automated Quotations
System, or on the principal trading market on which such shares are traded
as reported by a recognized source) for the ten consecutive trading days
(the "Valuation Period") ending on the business day prior to the later of
(A) the date on which all requisite federal and state bank and thrift
regulatory approvals required to consummate the transactions contemplated
by the Agreement are obtained (and SBC shall notify the Company in writing
promptly of the date when all such approvals are obtained), including for
these purposes the period of any requisite waiting periods in respect
thereof or (B) the date of the Company's shareholders meeting to be held
pursuant to Section 4.4 of the Agreement.
(ii) Any shares of Company Common Stock which are owned or held by
Company or any of its wholly owned subsidiaries (other than in a fiduciary
capacity or as a result of debts previously contracted) or by SBC or any of
SBC's wholly owned subsidiaries (other than in a fiduciary capacity or as a
result of debts previously contracted) at the Effective Time shall cease to
exist, and the certificates for such shares shall as promptly as
practicable be cancelled and no consideration shall be paid, issued or
exchanged therefor.
(iii) Each share of SBC Common Stock issued and outstanding
immediately prior to the Effective Time shall remain unchanged as an
outstanding share of SBC Common Stock.
(iv) The holders of certificates representing shares of Company Common
Stock shall cease to have any rights as stockholders of the Company, except
such rights, if any, as they may have pursuant to applicable Virginia law.
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<PAGE>
(b) Neither certificates nor scrip for fractional shares of SBC Common
Stock shall be issued in the Merger. Each holder who otherwise would have been
entitled to a fraction of a share of SBC Common Stock shall receive in lieu
thereof cash (without interest) in an amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the average closing sales prices of the SBC Common Stock as reported on the New
York Stock Exchange Composite Tape for the last five trading days immediately
preceding the date of the Effective Time. No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any fractional share.
(c) Shares of Company Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by a shareholder who
has the right (to the extent and only to the extent such right is available
under the Virginia Stock Corporation Act) to demand and receive payment of the
fair value of his or her shares of Company Stock ("Dissenting Shares") pursuant
to the Virginia Stock Corporation Act shall not be converted into or be
exchangeable for the right to receive the consideration provided for in clauses
(a) and (b) of this Section 2, unless and until such holder shall fail to
perfect his or her right to dissent or shall have effectively withdrawn or lost
such right under the Virginia Stock Corporation Act, as the case may be. If such
holder shall have so failed to perfect his right to dissent or shall have
effectively withdrawn or lost such right, each of his or her shares of Company
Common Stock shall thereupon be deemed to have been converted into, at the
Effective Time of the Merger, the right to receive shares of SBC Common Stock
(and cash in lieu of fractional shares) as provided in clauses (a) and (b) of
this Section 2. The Company shall promptly notify SBC of any demands for
dissenters rights made by Company shareholders.
(d) This Plan of Merger may be terminated under the circumstances set forth
in Section 5.4 of the Agreement, including without limitation by the Company, by
action of its Board of Directors, whether before or after approval of the Merger
by the Company's stockholders, by giving written notice of such election to SBC
within two trading days after the later to occur of (x) the receipt of the
written notice from SBC required pursuant to Section 2(a)(i) hereof or (y) the
Company's shareholder meeting to be held pursuant to Section 4.4 of the
Agreement, in the event that the Average Closing Price of the SBC Common Stock
is less than $33.30 per share of SBC Common Stock (subject to adjustment in
accordance with the next to last sentence of Section 2(a)(i) herein); PROVIDED,
HOWEVER, the Company shall not be permitted to terminate this Plan of Merger
pursuant hereto or pursuant to Section 5.4(e) of the Agreement in the event that
SBC determines (by giving written notice to the Company within one day following
receipt of the Company's notice) to adjust the Exchange Ratio to equal such
number of shares of SBC Common Stock as equal the quotient of $20.75 divided by
such Average Closing Price.
SECTION 3. EXCHANGE AND SURRENDER OF STOCK CERTIFICATES. (a) After the
Effective Time, holders of certificates ("Certificates") theretofore evidencing
outstanding shares of Company Common Stock (other than as provided in Section
2(a)(ii) and other than holders of Dissenting Shares, if applicable), upon
surrender of such certificates to Mellon Bank (the "Exchange Agent"), shall be
entitled to receive a certificate or certificates representing the number of
full shares of SBC Common Stock into which the Certificate so surrendered shall
have been converted pursuant to this Agreement and any distribution theretofore
declared and not yet paid with respect to such shares of SBC Common Stock
without interest, and cash in respect of any fractional shares as provided in
Section 2(b) without interest (the "Merger Consideration"). As soon as
practicable after the Effective Time, the Exchange Agent will send a notice and
transmittal form to each Company shareholder of record at the Effective Time
advising such shareholder of the effectiveness of the Merger and the procedure
for surrendering to the Exchange Agent outstanding certificates formerly
evidencing Company Common Stock in exchange for the Merger Consideration. Upon
surrender, each certificate evidencing Company Common Stock shall be cancelled
and promptly upon such surrender the Merger Consideration to be issued to such
holder in accordance with the provisions of this Agreement shall be issued to
the former Company shareholder.
(b) The Exchange Agent shall accept Certificates upon compliance with such
reasonable terms and conditions as SBC or the Exchange Agent may impose to
effect an orderly exchange thereof in accordance with customary exchange
practices. Certificates shall be appropriately endorsed or accompanied by such
instruments of transfer as SBC or the Exchange Agent may require.
(c) Each outstanding Certificate shall until duly surrendered to the
Exchange Agent be deemed to evidence ownership of the consideration into which
the stock previously represented by such Certificate shall have been converted
pursuant hereto.
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(d) After the Effective Time, holders of Certificates shall cease to have
rights with respect to the stock previously represented by such Certificates,
and their sole rights shall be to exchange such Certificates for the
consideration provided for herein. After the Effective Time, there shall be no
further transfer on the records of the Company of Certificates, and if such
Certificates are presented to the Company for transfer, they shall be cancelled
against delivery of the consideration provided therefor herein. SBC shall not be
obligated to deliver the consideration to which any former holder of the Company
Common Stock is entitled as a result of the Merger until such holder surrenders
the Certificates as provided herein. No dividends declared will be remitted to
any person entitled to receive SBC Common Stock hereunder until such person
surrenders the Certificate representing the right to receive SBC Common Stock,
at which time such dividends shall be remitted to such person, without interest
and less any taxes that may have been imposed thereon. Certificates surrendered
for exchange by any person constituting an "affiliate" of Company for purposes
of Rule 145 of the Securities Act of 1933, as amended (the "Securities Act"),
shall not be exchanged for certificates representing such SBC Common Stock until
SBC has received a written agreement from such person as specified in Section
4.6 of the Agreement. Neither the Exchange Agent nor any party to this Agreement
nor any affiliate thereof shall be liable to any holder of stock represented by
any Certificate for any consideration paid to a public official pursuant to
applicable abandoned property, escheat or similar laws. SBC and the Exchange
Agent shall be entitled to rely upon the stock transfer books of Company to
establish the identity of those persons entitled to receive consideration
specified in this Agreement, which books shall be conclusive with respect
thereto. In the event of a dispute with respect to ownership of stock
represented by any Certificate, SBC and the Exchange Agent shall be entitled to
deposit any consideration represented thereby in escrow with an independent
third party and thereafter be relieved with respect to any claims thereto.
(e) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed, and if required by SBC, the posting
by such person of a bond in such amount as SBC may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of SBC Common Stock and cash in lieu of fractional shares
deliverable in respect thereof pursuant hereto.
SECTION 4. COMPANY STOCK OPTIONS. Immediately prior to the Effective time,
each holder of an outstanding option (a "Company Stock Option") under the
Company's Stock Option and Incentive Plan (the "Company Option Plan") shall
receive in cancellation of such option per share of Company Common Stock subject
to a Company Stock Option a cash payment in an amount equal to the excess of (A)
the product of the Exchange Ratio and the closing price of the shares of SBC
Common Stock (as determined from the source set forth in Section 2(a)(i)) on the
trading date prior to the date of the Effective Time over (B) the exercise price
of such Company Stock Option.
SECTION 5. ARTICLES OF INCORPORATION, BYLAWS AND DIRECTORS OF THE SURVIVING
CORPORATION. At the Effective Time of the Merger, there shall be no change
caused by the Merger in the articles of incorporation (except any change caused
by the filing of the articles of merger relating to the Merger), by-laws, or
board of directors of the Surviving Corporation.
SECTION 6. CONDITIONS TO MERGER. Consummation of the Merger is subject to
the satisfaction or waiver of the conditions set forth in Sections 5.1, 5.2 and
5.3 of the Agreement.
SECTION 7. EFFECT OF THE MERGER. The Merger, upon the Effective Time of the
Merger, shall have the effect provided by Section 13.1-721 of the of Virginia
Stock Corporation Act.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Plan of
Merger to be executed on its behalf by its officers thereunder duly authorized,
as of , 1994.
SIGNET BANKING CORPORATION
By
David L. Brantley
Senior Vice President and
Treasurer
PIONEER FINANCIAL CORPORATION
By
G.R. Whittemore
President
III-4
<PAGE>
ANNEX IV
July , 1994
The Board of Directors
Pioneer Financial Corporation
5601 Ironbridge Parkway
Post Office Box C-9000
Chester, Virginia 23831-9000
Dear Members of the Board:
Pioneer Financial Corporation of Chester, Virginia ("Pioneer") and Signet
Banking Corporation of Richmond, Virginia ("Signet") have entered into an
Agreement providing for the acquisition of Pioneer by Signet ("Acquisition").
The terms of the Acquisition are set forth in a Reorganization and Merger
Agreement dated February 16, 1994.
The terms of the Acquisition provide that, with the possible exception of those
shares as to which dissenter's rights may be perfected, each common share of
Pioneer ($1.00 par value) will be exchanged for .6232 shares of Signet common
stock ($5.00 par value) subject to certain adjustments for the changing market
price of Signet.
You have asked our opinion as to whether the proposed transaction pursuant to
the terms of the Acquisition are fair to the respective shareholders of Pioneer
from a financial point of view.
In rendering our opinion, we have evaluated the consolidated financial
statements of Pioneer and Signet which were available to us from published
sources. In addition, we have, among other things: (a) to the extent deemed
relevant, analyzed selected public information of certain other financial
institutions and compared Pioneer and Signet from a financial point of view to
the other financial institutions; (b) reviewed the historical market price
ranges of the common stock of Pioneer; (c) compared the terms of the Acquisition
with the terms of certain other comparable transactions to the extent
information concerning such acquisitions was publicly available; (d) reviewed
the Agreement and Plan of Reorganization and related documents; and (e) made
such other analyses and examinations as we deemed necessary. We have also met
with various senior officers of Pioneer and Signet to discuss the foregoing as
well as other matters we believe relevant to our opinion.
We have not conducted a due diligence review of Signet nor have we reviewed
registration statements, proxy materials, regulatory applications or other
documents which must be prepared prior to completion of any transaction.
We have not independently verified the financial and other information
concerning Pioneer, or Signet or other data which we have considered in our
review. We have assumed the accuracy and completeness of all such information;
however, we have no reason to believe that such information is not accurate and
complete. Our conclusion is rendered on the basis of securities market
conditions prevailing as of the date hereof and on the conditions and prospects,
financial and otherwise, of Pioneer and Signet as they exist and are known to us
as of December 31, 1993.
We have acted as financial advisor to Pioneer in connection with the Acquisition
and will receive from Pioneer a fee for our services, a significant portion of
which is contingent upon the consummation of the Acquisition.
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<PAGE>
It is understood that this opinion may be included in its entirety in any
communication by Pioneer or the Board of Directors to the stockholders of
Pioneer. The opinion may not, however, be summarized, excerpted from or
otherwise publicly referred to without our prior written consent.
Based on the foregoing, and subject to the limitations described above, we are
of the opinion that the terms of the Acquisition are fair to the shareholders of
Pioneer from a financial point of view.
Very truly yours,
Baxter Fentriss and Company
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<PAGE>
ANNEX V
ARTICLE 15.
DISSENTERS' RIGHTS.
(SECTION MARK) 13.1-729. DEFINITIONS. -- In this article:
"CORPORATION" means the issuer of the shares held by a dissenter before the
corporate action, except that (i) with respect to a merger, "corporation" means
the surviving corporation by merger of that issuer, and (ii) with respect to a
share exchange, "corporation" means the acquiring corporation by share exchange,
rather than the issuer, if the plan of share exchange places the responsibility
for dissenter's rights on the acquiring corporation.
"DISSENTER" means a shareholder who is entitled to dissent from corporate
action under (section mark) 13.1-730 and who exercises that right when and in
the manner required by (section mark)(section mark) 13.1-732 through 13.1-739.
"FAIR VALUE" with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable.
"INTEREST" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at a rate that is fair and equitable
under all the circumstances.
"RECORD SHAREHOLDER" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
"BENEFICIAL SHAREHOLDER" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"SHAREHOLDER" means the record shareholder or the beneficial shareholder.
(1985, c. 522.)
(SECTION MARK) 13.1-730. RIGHT TO DISSENT. -- A. A shareholder is entitled
to dissent from and obtain payment of the fair value of his shares in the event
of any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a party (i)
if shareholder approval is required for the merger by (section mark) 13.1-718 or
the articles of incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is merged with its parent
under (section mark) 13.1-719;
2. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will acquired. If the shareholder is
entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all of the
property of the corporation other than in the usual and regular course of
business, if the shareholder in entitled to vote on the sale or exchange,
including a sale is dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with respect to a
plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
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<PAGE>
1. The articles of incorporation of the corporation issuing such shares
provide otherwise;
2. The holders of the class or series are required under the plan of merger
or share exchange or the agreement for the sale or exchange of property to
accept for such shares anything except:
a. Cash;
b. Shares or shares and cash in lieu of fractional shares of the surviving
or acquiring corporation or of any other corporation which, at the record date
fixed to determine the shareholders entitled to receive notice of and to vote at
the meeting at which the plan of merger or share exchange is to be acted on,
were either listed subject to notice of issuance on a national securities
exchange or held of record by at least 2,000 record shareholders; or
c. A combination of cash and shares as set forth in paragraph 2a and 2b of
this subsection; or
3. The transaction to be voted on is an "affiliated transaction" as defined
in (section mark) 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair
value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation. (Code 1950 (section mark)(section mark) 13-85, 13.1-75, 13.1-78;
1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c.
522.)
(SECTION MARK) 13.1-731. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- A. A
record shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if;
1. He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote (Code 1950,
(section mark)(section mark) 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c.
733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
(SECTION MARK)13.1-732. NOTICE OF DISSENTERS' RIGHTS. -- A. If proposed
corporate action creating dissenters' rights under (section mark) 13.1-730 is
submitted to a vote at a shareholders' meeting, the meeting notice shall state
that shareholders are or may be entitled to assert dissenters' rights under this
article and be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under (section mark)
13.1-730 is taken without a vote of shareholders, the corporation, during the
ten-day period after the effectuation of such corporate action, shall notify in
writing all record shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in
(section mark) 13.1-734. (1985, c. 522.)
(SECTION MARK) 13.1-733. NOTICE OF INTENT TO DEMAND PAYMENT. -- A. If
proposed corporate action creating dissenters' rights under (section mark)
13.1-730 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (i) shall deliver to the corporation before
the vote is taken written notice of his intent to demand payment for his shares
if the proposed action is effectuated and (ii) shall not vote such shares in
favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for his shares under this article. (Code
1950, (section mark)(section mark) 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968,
c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
(SECTION MARK) 13.1-734. DISSENTERS' NOTICE. -- A. If proposed corporate
action creating dissenters' rights under (section mark) 13.1-730 is authorized
at a shareholders' meeting, the corporation, during the ten-day period after the
effectuation of such corporate action, shall deliver a dissenters' notice in
writing to all shareholders who satisfied the requirements of (section mark)
13.1-733.
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<PAGE>
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before or
after that date;
4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the date
of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article. (Code 1950,
(section mark)(section mark) 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c.
733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
(SECTION MARK) 13.1-735. DUTY TO DEMAND PAYMENT. -- A. A shareholder sent a
dissenters' notice described in (section mark) 13.1-734 shall demand payment,
certify that he acquired beneficial ownership of the shares before or after the
date required to be set forth in the dissenters' notice pursuant to paragraph 3
of subsection B of (section mark) 13.1-734, and, in the case of certificated
shares, deposit his certificates in accordance with the terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection A of this
section retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article. (Code 1950,
(section mark)(section mark) 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c.
733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
(SECTION MARK) 13.1-736. SHARE RESTRICTIONS. -- A. The corporation may
restrict the transfer of uncertificated shares from the date the demand for
their payment is received.
B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder except to the extent that these
rights are canceled or modified by the taking of the proposed corporate action.
(Code 1950, (section mark)(section mark) 13-85, 13.1-75, 13.1-78; 1956, c. 428;
1968, c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
(SECTION MARK) 13.1-737. PAYMENT. -- A. Except as provided in
(section mark) 13.1-738, within thirty days after receipt of a payment demand
made pursuant to (section mark) 13.1-735, the corporation shall pay the
dissenter the amount the corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the corporation under this
paragraph may be enforced (i) by the circuit court in the city or county where
the corporation's principal office is located, or, if none in this Commonwealth,
where its registered office is located or (ii) at the election of any dissenter
residing or having its principal office in the Commonwealth, by the circuit
court in the city or county where the dissenter resides or has its principal
office. The court shall dispose of the complaint on an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the effective date of the corporate action
creating dissenters' rights, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest available interim
financial statements, if any;
2. An explanation of how the corporation estimated the fair value of the
shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under
(section mark) 13.1-739; and
4. A copy of this article. (Code 1950, (section mark)(section mark) 13-85,
13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500; 1984,
c. 613; 1985, c. 522.)
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<PAGE>
(SECTION MARK) 13.1-738. AFTER-ACQUIRED SHARES. -- A. A corporation may
elect to withhold payment required by (section mark) 13.1-737 from a dissenter
unless he was the beneficial owner of the shares on the date of the first
publication by news media or the first announcement to shareholders generally,
whichever is earlier, of the terms of the proposed corporate action, as set
forth in the dissenters' notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under (section mark) 13.1-739. (1985, c. 522.)
(SECTION MARK) 13.1-739. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT
OR OFFER. -- A. A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under (section mark) 13.1-737), or
reject the corporation's offer under (section mark) 13.1-738 and demand payment
of the fair value of his shares and interest due, if the dissenter believes that
the amount paid under (section mark) 13.1-737 or offered under (section mark)
13.1-738 is less than the fair value of his shares or that the interest due is
incorrectly calculated.
B. A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection A of this
section within thirty days after the corporation made or offered payment for his
shares. (Code 1950, (section mark)(section mark) 13-85, 13.1-75, 13.1-78; 1956,
c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
(SECTION MARK) 13.1-740. COURT ACTION. -- A. If a demand for payment under
(section mark) 13.1-739 remains unsettled, the corporation shall commence a
proceeding within sixty days after receiving the payment demand and petition the
circuit court in the city or county described in subsection B of this section to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or county
where its principal office is located, or, if none in this Commonwealth, where
its registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not residents of
this Commonwealth, whose demands remain unsettled parties to the proceeding as
in an action against their shares and all parties shall be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
D. The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this article. If the court determines that such
shareholder has not complied with the provisions of this article, he shall be
dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced under
subsection B of this section is plenary and exclusive. The court may appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
F. Each dissenter made a party to the proceeding is entitled to judgment
(i) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation or (ii) for
the fair value, plus accrued interest, of his after-acquired shares for which
the corporation elected to withhold payment under (section mark) 13.1-738. (Code
1950, (section mark)(section mark) 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968,
c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
(SECTION MARK) 13.1-741. COURT COSTS AND COUNSEL FEES. -- A. The court in
an appraisal proceeding commenced under (section mark) 13.1-740 shall determine
all costs of the proceeding, including the reasonable compensation and expenses
of appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court
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may assess costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters did not act in
good faith in demanding payment under (section mark) 13.1-739.
B. The court may also assess the reasonable fees and expenses of experts,
excluding those of counsel, for the respective parties, in amounts the court
finds equitable:
1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of (section mark)(section mark) 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed did not act in good faith with respect to the rights provided by this
article.
C. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
D. In a proceeding commenced under subsection A of (section mark) 13.1-737
the court shall assess the costs against the corporation, except that the court
may assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding. (Code
1950, (section mark)(section mark) 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968,
c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
V-5
<PAGE>
ANNEX VI
<PAGE>
Pioneer Financial Corporation, a Virginia Corporation, was incorporated in
November, 1987, for the purpose of becoming the savings and loan holding company
of Pioneer Federal Savings and Loan Association, a federally chartered stock
savings and loan association. In May, 1988, following approval by the
Association's stockholders and regulatory authorities, the Corporation became
the holding company for the Association. On that date each outstanding share of
common stock and preferred stock of the Association was exchanged for one share
of common stock and preferred stock, respectively, of the Corporation. In June,
1988, Pioneer Federal Savings and Loan Association's name was changed to Pioneer
Federal Savings Bank ("Pioneer Federal" or the "Savings Bank"), a federally
chartered savings bank, and the headquarters of the Corporation and the Savings
Bank moved to Chester, Virginia, approximately ten miles west of Hopewell,
Virginia.
The Corporation is currently conducting business as a unitary,
nondiversified savings and loan holding company. At September 30, 1993, its
principal asset, on an unconsolidated basis, is all of the outstanding capital
stock of the Savings Bank with a carrying value of $43.4 million representing
the total equity of the Savings Bank.
Financial Highlights............................................... 2
President's Letter, 1993........................................... 3
Management's Discussion and Analysis of
Financial Condition and Results of Operation. .................4
Consolidated Statements of Condition............................... 6
Consolidated Statements of Operations.............................. 7
Consolidated Statements of Stockholders' Equity ................... 9
Consolidated Statements of Cash Flows............................. 10
Summary of Accounting Policies.................................... 12
Notes to Consolidated Financial Statements........................ 15
Report of Independent Certified Public Accountants.................31
Corporate Information............................................. 32
VI-1
<PAGE>
Financial Highlights
BALANCE SHEET DATA
The following table sets forth certain information concerning the
consolidated financial position of the Corporation, at the dates indicated:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS, SEPTEMBER 30,
EXCEPT PER SHARE DATA. 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Loans receivable $210,399 $179,183 $192,083 $250,121 $329,271
Securities 136,891 129,850 122,237 216,811 168,733
Assets 408,647 468,386 498,922 567,789 573,607
Deposits 313,674 302,331 333,320 357,443 405,994
Borrowings 40,300 113,000 115,053 166,808 107,865
Stockholders' equity 50,136 47,836 45,546 38,378 50,224
Book value per fully diluted share $ 21.40 $ 19.46 $ 17.43 $ 13.10 $ 14.06
</TABLE>
INCOME STATEMENT DATA
The following table summarizes the Corporation's consolidated results of
operations for each of the periods indicated.
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS, YEAR ENDED SEPTEMBER 30,
EXCEPT PER SHARE DATA. 1993 1992 1991 1990 1989
<S> <C> <C> <C>
Interest income $ 31,950 $ 33,812 $ 42,187 $ 51,555 $ 59,875
Interest expense 18,631 26,195 33,332 40,846 48,859
Net interest income 13,319 7,617 8,855 10,709 11,016
Noninterest income 6,461 8,921 11,770 3,505 35,247
Noninterest expense 11,113 11,277 14,956 13,553 15,236
Income tax expense 2,747 1,261 2,986 749 10,341
Income (loss) before extraordinary item 5,920 4,000 2,683 (88) 20,686
Extraordinary item 2,216 - 272 - -
Net income (loss) $ 3,704 $ 4,000 $ 2,411 $ (88) $ 20,686
Earnings (loss) per share-
Income (loss) before extraordinary item $ 2.37 $ 1.59 $ 0.98 $ (0.02) $ 5.13
Extraordinary item (0.89) - (0.10) - -
EARNINGS (LOSS) PER SHARE- $ 1.48 $ 1.59 $ 0.88 $ (0.02) $ 5.13
Cash dividends declared $ 0.15 $ 0.10 $ 0.10 $ 0.06 $ 0.28
</TABLE>
(Three Graphs here: Assets, Stockholders' Equity and Net Income (Loss)
See Appendix for plot points)
VI-2
<PAGE>
President's Letter 1993;
To Our Stockholders, Customers and
Friends:;
We are pleased to report that fiscal year
1993 was a good year for Pioneer.
Income before extraordinary items for the
fiscal year ended September 30, 1993 was
$5,920,000, or $2.37 per share. During the
June 1993 quarter we prepaid $45.5 million of
high rate Federal Home Loan Bank debt and
incurred an after tax prepayment penalty
of $2,216,000, or $.89 per share. Net income
for fiscal year 1993, after deducting this
extraordinary expense, was $3,704,000, or
$1.48 per share, based on average shares
outstanding of 2,501,373 as compared to the
prior year's net income of $4,000,000, or
$1.59 per share, based on average shares
outstanding of 2,510,788. There were no
extraordinary items in fiscal year 1992.
Even though during fiscal year 1993 we
repurchased 115,500 shares (4.7% of
shares outstanding at September 30, 1992) at
an average price of $13.84 per share
under our repurchase program, the dilutive
effect of existing stock options had to be
considered in the current year's earnings per
share calculation. The effect was to
increase the current year's average
outstanding shares by 81,973. Stock options
did not affect the earnings per share calculation
in fiscal year 1992.
Total stockholders' equity increased 4.8% to
$50,136,000 ($21.40 per share based
on 2,342,266 shares outstanding at September
30, 1993) from $47,836,000 ($19.46 per
share based on 2,457,768 shares outstanding
at September 30, 1992). Book value per
share increased almost 10% per share during
the fiscal year as a result of our net
income as well as the effects of our
repurchasing shares substantially below book
value.
During the current fiscal year we paid
$365,000 in cash dividends. Given our high
level of capital and the improved operating
environment, the Board of Directors
approved in July 1993 the establishment of a
regular annual cash dividend of $.20 per
share.
Capital remains the key concern for banks and
thrifts as the bank regulatory
agencies continue to try to minimize the risk
of future losses to the government
backed deposit insurance funds. The Federal
Deposit Insurance Corporation
Improvement Act (FDICIA) of 1991 added
Section 38 "Prompt Corrective Action" to the
Federal Deposit Insurance Act. The
provisions of Section 38, which became
effective in December 1992 established a system of new
capital standards for insured depository
institutions and require regulatory action
against depository institutions which are
undercapitalized, significantly
undercapitalized, or critically capitalized.
Pioneer Federal's capital is extremely strong and
FDICIA, for the most part, has little effect
on its operations. Nevertheless, just as FIRREA
(Financial Institutions Reform, Recovery
and Enforcement Act of 1989) brought more
stringent rules and regulations to our
industry, FDICIA is also designed to further
restrict and control the operations of
thrifts. Given the improving economy and low
interest rate environment, the greatest
risk to our industry is the continued burden
of over regulation by the government.
Throughout most of fiscal 1993 interest rates
remained at levels that created
very positive interest margins for all
financial institutions. A comparison of
United States Treasury securities bond equivalent
yields at the start and finish of fiscal year
1993 shows the benefits of owning long-term
securities.
Maturity As of 10/2/92 As of 10/1/93 Annual Change
3 Months 2.68% 2.98% +.30%
6 Months 2.87% 3.11% +.24%
1 Year 2.97% 3.33% +.36%
3 Years 4.14% 4.13% -.01%
5 Years 5.21% 4.71% -.50%
10 Years 6.24% 5.33% -.91%
30 Years 7.33% 5.98% -1.35%
Although short-term rates rose, most
institutions experienced a decrease in their
cost of funds as older higher rate
certificates of deposits matured and repriced
to much lower renewal rates. The interest
spreads between long-term securities and
short-term borrowing costs remained
historically wide. Additionally as long-term
rates fell, the market value of long-term
securities increased significantly resulting
in major gains from the sale of such securities.
This ideal earnings environment now
appears to be under pressure as increased
economic activity threatens to increase
interest rates. If rates do rise interest
margins will contract and gains from the sale
of securities will be reduced.
The offset to the effects of rising interest
rates brought on by an improving
economy will be an improvement in asset
quality. Already there has been a
significant improvement in the real estate markets
including commercial real estate. Such an
improvement will reduce the need for
significant additions to loan and asset
valuation allowances.
During the year the first commercial bank
acquisitions of healthy thrifts occurred
in Virginia. Crestar Bank acquired CFS
Financial ($929 million in assets) and
announced the purchase of Virginia Federal Savings Bank
($766 million in assets), Providence
Savings & Loan ($420 million in assets), and
NVR Federal Savings Bank ($528 million in
assets). The consolidation of the bank and
thrift industry is being speeded up by the
high profitability of commercial banks (and
the related increase in their stock prices),
the lack of loan demand due to a relatively
weak economic recovery, and the need to
reduce operating costs through consolidation
and merger of institutions. It is difficult
to anticipate that this trend will not
continue.
Pioneer Federal was founded in December 1933.
For almost sixty years it has
sought to supply the financial needs in the
communities served. Many people have
had a part in Pioneer's success, most
important of which are those people who
continue to provide the high degree of
service to our customers.
On behalf of our Board of Directors, we would
like to thank our dedicated staff
for all they do to make Pioneer so
successful. To our customers, our thanks for
your continued loyalty and trust. To our
stockholders, thanks for your continued
support.
We look forward to a prosperous year in 1994.
Sincerely,
(Signature of G.R. Whittemore)
VI-3
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
In an effort to increase net interest margins as well as core
earnings, the Corporation restructured several of its asset catego-
ries during the year ended September 30, 1993, resulting in a
$59.7 million or 12.8% decrease in total assets from $468.4
million at September 30, 1992 to $408.6 million at September
30, 1993. Cash equivalents decreased $97.6 million or 79.5% for
the twelve month period. These funds, as well as proceeds from
the sale of securities and principal repayments received on
securities and loans were used to purchase during the first quarter
of the current fiscal year approximately $120.0 million in five year
fixed rate mortgage-backed securities, with an average yield of
6.4%. These funds had previously been invested in overnight
investments yielding approximately 3.0%.
The remainder of these funds as well as funds received from
retail deposits (increased $11.3 million or 3.8% for the fiscal year)
were used to fund loans (increased $31.2 million or 17.4%) and
to retire and repay $83.0 million of Federal Home Loan Bank
Advances ("FHLB"). During the month of May, 1993, the
Corporation announced that its Subsidiary Bank had incurred an
after tax extraordinary loss of $2,216,000 from the early extin-
guishment of $45.5 million of FHLB debt. The debt, originally
borrowed in June and September of 1991, had an average cost of
approximately 8% and an average remaining maturity of approxi-
mately 27 months. An additional $37.5 million of advances
matured during the remainder of the year and were repayed with
no penalty incurred. The $10.3 million in other borrowing
(repurchase agreements) was repaid in early October, 1993.
The sale of two major real estate owned ("REO") projects
during the month of June, 1993 more than offset the reclassifica-
tion to in-substance foreclosure in September, 1993 of a $3.1
million 50% participation loan on an apartment project located in
the Virginia Beach area. Real Estate, net, decreased $1.9 million
or 9.5% for the twelve month period ended September 30, 1993.
Although the Corporation repurchased 115,500 shares of
its outstanding common stock at a total cost of $1.6 million
(average cost of $13.84 per share) and paid a $0.15 per share cash
dividend (total pay out of $365,000), stockholders' equity in-
creased $2.3 million or 4.8% for the current fiscal year.
IMPACT OF INFLATION AND
CHANGING PRICES
The financial statements and related data presented herein
have been prepared in accordance with generally accepted
accounting principles which require the measurement of finan-
cial position and operating results in terms of historical dollars,
without considering changes in the relative purchasing power of
money over time due to inflation.
Virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance
than the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or with the same magni-
tude as the prices of goods and services, since such prices are
affected by inflation. In the current interest rate environment,
liquidity and the maturity structure of Pioneer's assets and liabili-
ties are critical to the maintenance of acceptable performance
levels.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity represents the ability of Pioneer Federal to gener-
ate sufficient cash to meet both current loan demand and
withdrawals from deposits. The principal sources of liquidity are
customer deposits, principal and interest repayments on loans,
sales and maturities of securities, and sales of loans.
For regulatory purposes, liquidity is measured as the ratio
of cash and eligible investments to net withdrawable deposits
payable in one year or less. The regulatory minimum liquidity
ratio for the Savings Bank is 5%, and does not apply to the Holding
Company.
Pioneer Federal's regulatory liquidity ratio at September
30, 1993 was 34.5%.
The Savings Bank's commitments to fund loans at Septem-
ber 30, 1993 were approximately $16,687,000. The resources
previously discussed are adequate to meet these commitments.
(See Note 1-Securities, and Note 7-Securities Sold Under Agree-
ments To Repurchase And Other Borrowings)
Pioneer continues to meet and exceed all of the capital
requirements that resulted with the passage of the Financial
Institution's Reform, Recovery and Enforcement Act (FIRREA) of
1989. Core and tangible capital, which must be 3% and 1.5% of
assets, respectively, totalled $35,505,000 or 8.8% of assets.
FIRREA also requires deductions from core capital for thrifts that
own certain service corporation and other subsidiaries. The
amount of the deduction increases each year until June 30, 1994
when capital will be reduced by the full amount of such activities.
Because the Savings Bank has no intangible assets, core and
tangible capital are the same. Risk-based capital, which is based
on lower capital requirements for lower credit risk assets and
higher capital requirements for assets with greater credit risk,
gives each institution its own unique requirements based on the
mix of on- and off-balance sheet risks which it has assumed.
Pioneer Federal's risk-based ratio at September 30, 1993 was
$37,866,000 or 15.7% compared to the 8.0% of risk-based
assets. The Savings Bank's net worth amounted to $43,382,000
and exceeds the fully phased in capital requirements as previously
discussed. Pioneer has no plans to raise additional capital at this
time.
COMPARISON OF YEARS ENDED
SEPTEMBER 30, 1993 AND 1992
The Corporation reported net income of $3,704,000 or
$1.48 per share of common stock outstanding for the year ended
September 30, 1993 as compared to $4,000,000 or $1.59 per
share for the prior year.
As a direct result of the restructuring of the balance sheet,
net interest income increased $5.7 million or over 74.9% for the
twelve months ended September 30, 1993. This was the first such
increase
VI-4
<PAGE>
in net interest income since fiscal year 1988. Net interest
spread amounted to 2.66% in 1993 verses 1.18% in 1992.
Although the average outstanding balance of both interest earn-
ing assets and interest bearing liabilities decreased in 1993, a
4.6% increase in the average yield on assets was greatly enhanced
by a 20.1% decline in the average cost of liabilities.
Although Management continues to adhere to a very
stringent Asset Classification Policy, provisions for loan losses
have decreased for the twelve month period. Total provisions in
1993 of $534,000 compare favorably with total provisions in
1992 of $1,205,000.
Total noninterest income has decreased $2,460,000 from
$8,922,000 for the twelve months ended September 30, 1992 to
$6,461,000 for the same period in 1993. Also for the current
twelve month period gains from the sale of securities decreased
$166,000 while gain on the sale of loans decreased $802,000
(due to lower volumes of loans originated, closed and sold during
the current fiscal year). Loan servicing fees decreased somewhat
due to payoffs on loans serviced for others as a result of the
"refinance boom" experienced in 1993.
Net loss from real estate operations also increased for the
twelve months ended September 30, 1993 by over $1,000,000.
The majority of this increase was due to income and related
expenses related to the River's Bend 800 acre Planned Unit
Development real estate project, acquired in November, 1992
through a deed-in-lieu of foreclosure. Although income from golf
operations, gross profit on lot sales, realty commissions and
membership dues totalled over $750,000, the related operating
expenses of River's Bend exceeded $1,400,000. Provisions for
real estate losses also increased during 1993 by $386,000.
Total noninterest expense increased only 5% from
$10,072,000 for the twelve months ended September 30, 1992
to $10,579,000 for the same period in 1993. The majority of the
$277,000 increase in occupancy expense was due to write-offs
incurred as a result of management's decision to close its down-
town Richmond retail branch. Advertising expenses, which in-
creased over $186,000 were related to a year-long sixtieth
anniversary celebration as well as an increase in advertising the
Corporation's lending programs.
As previously mentioned the Corporation also incurred a
$2.2 million, net of tax, extraordinary loss as the result of
prepaying $45.5 million of FHLB advances.
COMPARISON OF THE YEARS ENDED
SEPTEMBER 30, 1992 AND 1991
Net income for the year ended September 30, 1992
increased almost $1.6 million from $2,411,000 in 1991 to
$4,000,000 in 1992, an increase of over 65.9%. Earnings per
share on a fully diluted basis amounted to $1.59 for the 1992 twelve month
period as compared to $0.88 per share for the comparable period in 1991.
As has been the trend since the year ended September 30, 1990, interest
income, interest expense and the resultant net interest income have continued to
decrease in both loans receivable and deposits as well as an increase in real
estate. Net interest income before provisions for loan losses for the twelve
months ended September 30, 1992 decreased $1.2 million or 14.0% over the
comparable period in 1991. Both interest income and expense decreased
significantly (19.9% and 21.4% respectively). Although the average outstanding
balance of interest-earning assets increased slightly (0.8%), the average yield
on these assets decreased over 21.1%. The same scenario took place for
interest-bearing liabilities - a slight increase in average outstanding balance
for the year (0.9%) verses a 22.5% decrease in average yield paid.
Management continues to adhere to a very stringent Asset Classification
Policy, to monitor the loan portfolio, and when appropriate, to increase the
provision for loan losses. During the year ended September 30, 1992 the Asset
Classification Policy became even more stringent as regards general valuation
allowance and classified assets. The current policy is as follows:
CLASSIFIED ASSET % GENERAL VALUATION
CATEGORY ALLOWANCE REQUIRED
Special Mention 2%
Substandard 10%
Doubtful 50%
Loss 100%
In changing the policy, an additional $750,000 in general valuation
allowances were required and provisions were made during the third quarter,
1992. The remainder of the current year's provision for loan losses
($455,000) related to specific loans. Of the total $4,644,000 allowance
for losses at September 30, 1992, $3,020,000 is not specifically related
to identified problem loans.
Although to a lesser degree than in prior years, noninterest income
continued to play a major role in the current year's earnings. Total
noninterest income amounted to $8.9 million, a $2.8 million dollar decrease
from the same time period in 1991. The majority of this decrease related
to gains experienced on the sale of securities (down $3.6 million or 37.8%
from that in 1991). This decrease was partially offset by increases in gains
on the sale of loans, and in other income.
Total noninterest expenses decreased slightly for the twelve months ended
September 30, 1992, the direct result of striving to operate in the most
cost-efficient environment as possible. Although compensation and employee
benefits increased 2.4%, insurance increased 3.1%, and other miscellaneous
expenses increased 13.8%, all other categories of noninterest expenses
decreased for the twelve month period.
VI-5
<PAGE>
Consolidated Statements of Condition
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993 1992
<S> <C> <C>
ASSETS
Cash $ 2,309,111 $ 109,820
Interest bearing
deposits 22,639,758 121,534,007
Federal funds sold 197,000 1,132,000
Securities
(Notes 1, 6, 7 and 11)
Held to maturity
(estimated market value of
$488,000 - 1993 and
$18,628,000 - 1992) 487,887 18,231,850
Available for sale
(cost of
$135,294,000 - 1993
and market value of
$111,997,000 - 1992) 136,402,760 111,618,072
Loans receivable, net
(Notes 2, 6 and 11) 210,399,352 179,183,239
Investment in Federal Home
Loan Bank stock 6,763,000 6,380,000
Real estate, net
(Note 3) 18,101,356 20,000,989
Properties and
equipment, net
(Notes 4 and 9) 4,327,431 4,852,444
Accrued
interest receivable
Loans 2,248,921 1,683,963
Securities and other
interest-earning assets 945,073 628,020
Prepaid expenses
and other assets 3,825,987 3,031,929
$408,647,636 $468,386,333
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits (Notes 5 and 9) $313,674,237 $302,330,959
Securities sold under
agreements to
repurchase (Note 7) 10,300,000 -
Advances from
Federal Home Loan
Bank (Note 6) 30,000,000 113,000,000
Advance payments
by borrowers
for taxes and
insurance 1,013,337 1,221,796
Other liabilities 3,524,352 3,997,826
Total liabilities 358,511,926 420,550,581
COMMITMENTS AND CONTINGENCIES (NOTES 1, 10 AND 11)
STOCKHOLDERS' EQUITY (NOTES 10 AND 13)
Common stock, $1 par
value; authorized 10,000,
shares, 2,342,266
and 2,457,768 shares
outstanding 2,342,266 2,457,768
Additional capital 5,811,287 5,880,273
Retained earnings 41,422,422 39,497,711
Net unrealized gain
on securities
available for
sale (Note 1) 559,735 -
Total stockholders'
equity 50,135,710 47,835,752
$408,647,636 $468,386,333
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
VI-6
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable (Note 2)
Real estate loans $17,959,110 $17,428,982 $21,738,500
Other loans 1,426,763 1,454,456 2,109,922
Securities
Held to maturity 4,590,321 2,262,990 5,987,002
Available for sale 6,542,595 6,825,554 6,459,016
Trading 36,087 21,824 1,229,175
Other interest-earning assets 1,395,123 5,818,039 4,663,244
Total interest income 31,949,999 33,811,845 42,186,859
INTEREST EXPENSE
Deposits (Note 5) 13,565,118 18,743,995 24,938,672
Short term borrowings
(Notes 6 and 7) 2,928,991 874,631 6,027,725
Long term borrowings
(Notes 6 and 7) 2,136,573 6,576,603 2,365,507
Total interest expense 18,630,682 26,195,229 33,331,904
NET INTEREST INCOME 13,319,317 7,616,616 8,854,955
Provision for loan
losses (Note 2) 534,306 1,204,524 4,824,456
Net interest income after
provision for loan losses 12,785,011 6,412,092 4,030,499
NONINTEREST INCOME
Gain (loss) from
securities (Note 1)
Held to maturity 176,394 - 503,908
Available for sale 4,839,381 6,221,795 8,701,819
Trading 691,342 (349,115) 230,749
Gain on sale of loans 826,295 1,628,529 998,913
Loan servicing fees 1,041,482 1,225,125 1,306,796
Loss from real
estate operations (Note 3) (1,653,878) (570,356) (591,818)
Gain on sale of branch office
(Note 9) - 265,073 -
Other 540,347 500,600 619,309
Total noninterest income 6,461,363 8,921,651 11,769,676
NONINTEREST EXPENSE
Compensation and
employee benefits (Note 10) 4,718,642 4,845,037 4,729,461
Occupancy (Note 11) 2,377,904 2,101,339 2,433,994
Advertising 453,643 267,093 336,631
Data processing services 155,420 116,388 129,984
Insurance 1,022,523 1,007,837 977,234
Other 1,851,285 1,734,709 1,524,269
Total noninterest expense 10,579,417 10,072,403 10,131,573
Income before income taxes
and extraordinary item 8,666,957 5,261,340 5,668,602
INCOME TAXES (NOTE 8) 2,747,000 1,261,000 2,986,000
Income before extraordinary item 5,919,957 4,000,340 2,682,602
</TABLE>
VI-7
<PAGE>
Consolidated Statements of Operations (continued)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
EXTRAORDINARY ITEM RESULTING FROM EARLY
EXTINGUISHMENT OF DEBT (NET OF INCOME
TAXES OF $1,358,000 AND $139,000) (NOTE 6) 2,216,140 - 271,788
NET INCOME $ 3,703,817 $ 4,000,340 $ 2,410,814
EARNINGS PER SHARE
Income before extraordinary item $2.37 $1.59 $ .98
Extraordinary item (.89) - (.10)
EARNINGS PER SHARE $1.48 $ 1.59 $ .88
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
VI-8
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
DEBT NET UNREALIZED TOTAL
COMMON ADDITIONAL RETAINED GUARANTEED GAIN ON SECURITIES STOCKHOLDERS'
STOCK CAPITAL EARNINGS FOR ESOP AVAILABLE FOR SALE EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1990 $2,929,637 $6,144,645 $36,847,460 $(294,947) $ (7,249,263) $38,377,532
Net income for the year - - 2,410,814 - - 2,410,814
Cash dividends -
Common stock
$.10 per share - - (276,676) - - (276,676)
Repayment of debt
guaranteed for ESOP
(Note 10) - - - 294,947 - 294,947
Repurchase of common
stock (Note 13) (323,101) (176,610) (2,023,647) - - (2,523,358)
Exercise of employee
stock options (6,473
shares) (Note 10) 6,473 1,991 4,650 - - 13,114
Reversal of net unrealized
loss on marketable
equity securities - - - - 7,249,263 7,249,263
BALANCE AT
SEPTEMBER 30, 1991 2,613,009 5,970,026 36,962,601 - - 45,545,636
Net income for the year - - 4,000,340 - - 4,000,340
Cash dividends -
Common stock,
$.10 per share - - (248,757) - - (248,757)
Repurchase of common
stock (Note 13) (155,241) (89,753) (1,216,473) - - (1,461,467)
BALANCE AT
SEPTEMBER 30, 1992 2,457,768 5,880,273 39,497,711 - - 47,835,752
Net income for the year - - 3,703,817 - - 3,703,817
Cash dividends -
Common stock,
$.15 per share - - (364,890) - - (364,890)
Repurchase of common
stock (Note 13) (115,502) (68,986) (1,414,216) - (1,598,704)
Net unrealized gain on
securities available
for sale - - - - 559,735 559,735
BALANCE AT
SEPTEMBER 30, 1993 $2,342,266 $5,811,287 $41,422,422 $ - $ 559,735 $50,135,710
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
VI-9
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,703,817 $4,000,340 $2,410,814
Adjustments
Purchase of trading account
securities (110,876,428) (36,764,539) (84,407,816)
Proceeds from sale
of trading account
securities 111,567,770 36,415,424 119,250,949
Provision for losses 1,671,508 1,955,313 5,120,685
Gain on sale of assets (6,501,564) (7,676,976) (10,318,239)
Amortization and
depreciation 702,489 683,518 823,112
(Increase) decrease in accrued
interest receivable (882,011) 882,393 847,510
Increase (decrease) in
deferred income
taxes (788,000) 301,000 (121,000)
Other (1,082,731) 460,564 473,769
NET CASH PROVIDED
(ABSORBED)
BY OPERATING ACTIVITIES (2,485,150) 257,037 34,079,784
INVESTING ACTIVITIES
Purchase of securities
Held to maturity (121,183,547) - (30,800,688)
Available for sale (316,722,053) (415,409,253) (394,348,124)
Proceeds from
sale of securities
Held to maturity 176,394 500,000 28,692,096
Available for sale 380,826,224 404,364,770 505,749,518
Proceeds from
principal payments
and maturities of securities
Held to maturity 5,524,090 4,174,396 3,989,058
Available for sale 50,263,855 5,312,322 1,884,349
Proceeds from sale
of loans 48,237,774 89,317,243 29,874,700
Loan originations
and principal
payments on loans,
net (82,818,040) (84,301,749) (17,939,209)
Proceeds from sale
of real estate 4,606,128 2,178,374 2,803,418
Purchase of Federal
Home Loan Bank stock (383,000) (405,000) (3,150,800)
Other (143,858) 1,015,904 (193,849)
NET CASH PROVIDED
(ABSORBED) BY
INVESTING
ACTIVITIES $ (31,616,033) $6,747,007 $ 126,560,469
</TABLE>
Consolidated Statements of Cash Flows (continued)
VI-10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 11,343,278 $(30,989,531) $(24,122,154)
Proceeds from Federal Home Loan
Bank advances - 50,000,000 105,500,000
Repayments of Federal Home Loan Bank
advances (83,000,000) (50,000,000) (48,000,000)
Repurchase of common stock (1,598,704) (1,461,467) (1,970,233)
Cash dividends paid on common stock (364,890) (248,757) (276,676)
Proceeds from securities sold under
agreements to repurchase and from
other borrowings 444,302,723 102,587,500 432,798,886
Payments on securities sold under
agreements to repurchase and on
other borrowings (434,002,723) (103,890,625) (543,811,887)
Decrease in escrow deposits (208,459) (265,268) (258,271)
Other - - 13,114
NET CASH ABSORBED BY FINANCING
ACTIVITIES (63,528,775) (34,268,148) (80,127,221)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (97,629,958) (27,264,104) 80,513,032
CASH AND CASH EQUIVALENTS -
beginning of year 122,775,827 150,039,931 69,526,899
CASH AND CASH EQUIVALENTS -
end of year $ 25,145,869 $122,775,827 $150,039,931
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash payments of interest expense $ 19,128,000 $ 26,424,000 $ 34,741,000
Cash payments of income taxes $ 260,000 $ 2,930,000 $ 2,110,000
SUPPLEMENTAL SCHEDULE OF NON CASH
INVESTING AND FINANCING ACTIVITIES
Securitization of loans receivable into
mortgage-backed securities $ - $ - $ 34,834,000
Loans transferred to real estate acquired
through foreclosure $ 182,000 $ 1,059,000 $ 2,480,000
Loans transferred to real estate in-
substance foreclosed $ 3,767,000 $ 7,077,000 $ 4,857,000
Assumption of debt from acquisition
of previously unconsolidated joint
venture $ - $ - $ 1,500,000
Repurchase of common stock through
issuance of debt $ - $ - $ 553,000
Net unrealized gain (loss) on securities $ 560,000 $ - $ (7,249,000)
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
VI-11
<PAGE>
Summary of Accounting Policies
NATURE OF BUSINESS AND
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Pioneer Financial Corporation (the "Corporation") and its wholly-owned
subsidiaries, Pioneer Federal Savings Bank (the "Savings Bank"), Pioneer
Properties, Inc., (a dormant real estate brokerage subsidiary), PTC Corporation,
and all of the wholly-owned subsidiaries of the Savings Bank. The principal
business of the Savings Bank is to attract funds in the form of deposits
acquired from the general public and to invest these funds principally in loans
secured by deeds of trust (mortgages) which constitute first liens on
residential and other real estate to enable borrowers to purchase, refinance,
construct or improve such property, and in other securities. Funds for the
Savings Bank's operations are also provided through borrowings from the Federal
Home Loan Bank and other commercial banks, proceeds from sales of loans and
securities, and from the amortization and repayment of outstanding loans.
Earnings depend primarily upon the difference between interest income from loans
and securities, and interest expense incurred in connection with deposits and
borrowings, gains and losses from the sale of assets, and expenses relating to
the day-to-day operations of the Savings Bank. PTC Corporation was formed on
September 1, 1989 for the purpose of carrying out investment activities as
prescribed by the Board of Directors. During June 1991, PTC Corporation was
dissolved and the assets and liabilities were absorbed by the Corporation. The
Savings Bank's subsidiaries were organized for the purpose of acquiring,
completing, maintaining and marketing real estate properties. All material
intercompany accounts and transactions have been eliminated in consolidation.
REGULATION
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and regulations promulgated thereunder provided for the restructuring
of the federal agencies that insure and supervise savings associations. The
Office of Thrift Supervision ("OTS"), an agency established pursuant to FIRREA,
is the primary regulator for federally chartered savings associations, as well
as savings and loan holding companies. The OTS is an office of the Department
of Treasury under the general oversight of the Secretary of Treasury. Due to
its ownership and control of the Savings Bank, the Corporation is a savings and
loan holding company within the meaning of the Home Owners' Loan Act, as
amended, and thus is subject to that Act's regulation, examination, supervision,
and reporting requirements.
Effective as of the passage of FIRREA, on August 9,
1989, the Federal Deposit Insurance Corporation ("FDIC") became the federal
deposit insurance administrator for both banks and savings associations. The
FDIC maintains separate insurance funds, the Savings Association Insurance Fund
("SAIF") and the Bank Insurance Fund for thrifts and banks respectively, and
assessment rates are set independently. FIRREA also gives the FDIC specified
authority to prescribe and enforce such regulations and issue such orders as it
deems necessary to prevent actions or practices by savings associations that
pose a serious threat to the SAIF.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
was enacted on December 19, 1991. Provisions of the legislation became
effective January 1, 1993. FDICIA introduces regulations that will subject the
Savings Bank to additional supervision than it has encountered in the past.
Specifically, FDICIA contains provisions which will allow regulators to
impose prompt corrective action on undercapitalized institutions in accordance
with a categorized capital-based system. In addition, FDICIA includes
provisions for revising capital requirements to include the effect of interest
rate risk, operating standards in key areas of the Savings Bank's operations,
standards for compensating executives, audit expansion and increased frequency
of regulatory examinations, reducing the scope of deposit insurance coverage,
risk-based deposit insurance assessments, and restricting state banking
activities.
SECURITIES
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115 addresses the accounting
and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. Investments
in securities are to be classified as either held-to-maturity, trading, or
available for sale. SFAS 115 is effective for fiscal years beginning after
December 15, 1993, however, an enterprise may elect to initially apply the
statement as of the end of an earlier fiscal year for which annual financial
statements have not been previously issued. Management has elected to apply
SFAS 115 as of September 30, 1993.
Investments in debt securities classified as held-to-maturity are stated at
cost, adjusted for amortization of premiums and accretion of discounts using the
level yield method. Management has a positive intent and ability to hold these
securities to maturity and, accordingly, adjustments are not made for temporary
declines in their market value below amortized cost. Investment in Federal
Home Loan Bank stock is stated at cost.
Investments in debt and equity securities classified as available-for-sale
are stated at market value with unrealized holding gains and losses excluded
from earnings and reported as a net amount (net of tax effect) in a separate
VI-12
<PAGE>
component of stockholders' equity until realized.
Investments in debt and equity securities classified as trading, forward
commitments and open interest rate futures contracts not treated as hedges
against net interest rate exposure are stated at market value. Unrealized
holding gains and losses for trading securities, closed interest rate futures
contracts not treated as hedges and forward commitments are included in
the statement of operations.
Gains and losses on the sale of securities are determined using the
specific identification method. Gains and losses on interest rate futures
contracts treated as hedges against net interest rate exposure are
deferred and accreted or amortized using the level yield method as an
adjustment to interest income over the estimated remaining lives of the
hedged assets.
Loans Receivable
Loans receivable consists primarily of long-term real estate loans secured
by first deeds of trust on single family residences, other residential
property, commercial property and land located primarily in the state of
Virginia, and are stated at unpaid principal balances, less the allowance for
loan losses, net deferred loan origination fees and unearned discounts.
Interest income on mortgage loans is recorded when earned and is recognized
based on the level yield method. The Corporation provides an allowance for
accrued interest deemed to be uncollectible, which is included in the
allowance for loan losses.
Loan origination fees and certain direct loan origination costs are
treated as an adjustment of the yield on the related loan using the level
yield method.
The Corporation is able to generate funds by selling loans and
participations in loans to the Federal Home Loan Mortgage Corporation and to
other investors. Under participation service agreements, the Corporation
continues to service the loans and the participant is paid its share of
principal and interest collections.
Gain or loss on loan sales is recognized at the
time of the sale. The gain or loss recorded is equal to the present
value of the estimated future interest receipts, net of allowance for
estimated servicing costs and a normal servicing profit on the portion
sold less the present value of interest payments to be remitted to the
buyers. The resulting deferred premium or discount is amortized or accreted
to income using the level yield method. Loan servicing income is recorded
when earned. Loan servicing costs are charged to expense as incurred.
The Corporation places loans on nonaccrual status after being delinquent
greater than 90 days or earlier if the Corporation becomes aware that the
borrower has entered bankruptcy proceedings, or in situations in which the loans
have developed inherent problems prior to being 90 days delinquent that indicate
payments of principal or interest will not be made in full. Whenever the
accrual of interest is stopped, a specific reserve is established through a
charge to expense for previously accrued but uncollected interest income.
Thereafter, interest is recognized only as cash is received until the loan is
brought current.
In May 1993, the Financial Accounting Standards Board issued its Statement
of Financial Accounting Standards No. 114 ("SFAS 114"), "Accounting by
Creditors for Impairment of a Loan". SFAS 114 requires that impaired loans
be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. SFAS 114 is effective for fiscal years beginning after December 15,
1994, and has not been adopted by the Corporation for the year ended
September 30, 1993. Management has not determined whether the application of
the pronouncement will have a material effect on the financial statements of
the Corporation.
Real Estate Owned
Real estate acquired in settlement of loans, whether through actual
foreclosure or in-substance foreclosure, is initially recorded at the lower of
fair market value of the assets received or the recorded investment in the loan
at date of foreclosure. Property that is held for resale is carried at the
lower of cost or fair value minus estimated costs to sell. Property that is
held for development is carried at the lower of cost or estimated net realizable
value. Costs relating to the development and improvement of property are
capitalized, whereas those relating to holding the property are charged to
expense. The portion of interest costs relating to development of real estate
is capitalized.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of
property held for sale or development exceeds its fair value minus estimated
costs to sell or net realizable value, respectively.
Allowance for Losses
It is the policy of the Corporation to provide valuation allowances for
estimated losses on loans and real estate when a significant decline in value
can be identified. In providing valuation allowances, current economic
conditions and prevailing market rates are considered. Major loans, real
estate owned including development projects, and major lending areas are
reviewed periodically to determine potential problems at an early date.
The Corporation's experience has shown that foreclosures on loans result in
some loss. Therefore, in addition to allowances for specific loans, the
Corporation makes an unallocated provision for losses on loans based in
part on loss experience and in part on prevailing market conditions.
Additions to allowances are
VI-13
<PAGE>
Summary of Accounting Policies (continued)
charged to expense. The allowance for losses for loans and real estate owned
is netted against the respective asset in the consolidated statement of
condition.
Properties and Equipment
Properties and equipment are stated at cost less accumulated depreciation
and amortization. Provisions for depreciation and amortization are computed
using the straight-line method over the estimated useful lives of the individual
assets or the terms of the related leases, if shorter, for leasehold
improvements. Expenditures for betterments and major renewals are capitalized
and ordinary maintenance and repairs are charged to operations as incurred.
Securities Repurchase Transactions
The Corporation enters into securities repurchase arrangements using U.S.
Treasury and mortgage-backed securities. Under these arrangements, the
Corporation sells securities and concurrently executes commitments to repurchase
the identical securities at specified future dates. All such transactions are
accounted for as financings with the related interest expense recorded over the
period of each arrangement.
Income Taxes
In computing Federal income taxes, savings banks that meet certain
definitional tests and other conditions prescribed by the Internal Revenue Code
are allowed, within limitations, to deduct from taxable income an
allowance for bad debts based on actual loss experience, a percentage of
taxable income before such deduction or an amount based on a percentage of
eligible loans. The Corporation has utilized the percentage (8%) of taxable
income method for the years ended September 30, 1993 and 1991 and the experience
method for the year ended September 30, 1992. The cumulative bad debt reserve,
upon which no taxes have been paid, was approximately $6,124,000 and $5,884,000
as of September 30, 1993 and 1992, respectively.
Deferred income taxes are provided on income and expenses reported for
financial statement purposes in periods different than for income tax purposes.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." SFAS 109 established new accounting practices for the computation of
income tax expense for financial reporting purposes. SFAS 109 is effective for
annual financial statements for fiscal years beginning after December 15, 1992,
and has not been adopted by the Corporation for the year ended September 30,
1993. Management does not expect the application of the pronouncement to have a
material effect on the consolidated financial statements of the Corporation.
Earnings Per Share
Earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. For the
year ended September 30, 1993, the weighted average number of shares of common
stock was adjusted for the effects of existing stock options, which are
considered common stock equivalents. The calculation of earnings per share for
the years ended September 30, 1992 and 1991, did not include the existing stock
options as their dilutive effect was less than three percent. The weighted
average number of shares of common stock outstanding, adjusted for the effects
of existing stock options for the year ended September 30, 1993, were 2,501,373,
2,510,788 and 2,749,602 for the years ended September 30, 1993, 1992 and 1991,
respectively.
Cash Equivalents
For purposes of reporting cash flows, cash equivalents include
interest bearing deposits and federal funds sold in the accompanying
statements of condition. The Corporation considers all highly liquid
debt instruments with original maturities when purchased of three months
or less to be cash equivalents.
Other
Certain reclassifications have been made in the prior years'
consolidated financial statements to conform to the September 30,
1993 presentation.
VI-14
<PAGE>
Notes to Consolidated Financial Statements
1. Securities
A summary of the amortized cost and estimated market values of securities
is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
HELD TO MATURITY
Corporate securities $ 487,887 $ - $ - $ 487,887
487,887 - - 487,887
AVAILABLE FOR SALE
Mortgage-
backed securities 79,022,098 492,371 946 79,513,523
Corporate securities 2,001,493 16,907 - 2,018,400
United States Treasury 50,657,639 176,736 - 50,834,375
Other securities 3,613,068 569,713 146,319 4,036,462
135,294,298 1,255,727 147,265 136,402,760
$135,782,185 $1,255,727 $ 147,265 $136,890,647
</TABLE>
<TABLE>
SEPTEMBER 30, 1992
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
HELD TO MATURITY
Mortgage-
backed securities $ 17,576,627 $ 521,282 $ 262,367 $ 17,835,542
Other securities 655,223 137,565 - 792,788
18,231,850 658,847 262,367 18,628,330
AVAILABLE FOR SALE
Mortgage-
backed securities 1,912,211 167,273 - 2,079,484
Corporate securities 56,966,882 125,078 - 57,091,960
Collateralized
mortgage obligations 47,077,607 327,586 - 47,405,193
United States Treasury - - - -
Other securities 5,661,372 450,423 691,431 5,420,364
111,618,072 1,070,360 691,431 111,997,001
$129,849,922 $1,729,207 $ 953,798 $130,625,331
</TABLE>
VI-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Securities (continued)
The amortized cost and estimated market value of securities by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993 1992
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 845,790 $1,007,345
Due after one year
through five years 21,957,518 21,999,650 2,001,856 2,091,960
Due after five years
through ten years 31,189,501 31,341,012 54,965,025 55,000,000
Due after ten years 319,341 522,622 49,909,014 50,374,165
53,466,360 53,863,284 107,721,685 108,473,470
Mortgage-backed
securities 79,022,098 79,513,523 19,488,838 19,915,026
Marketable equity
securities 3,293,727 3,513,840 2,639,399 2,236,835
$135,782,185 $ 136,890,647 $129,849,922 $130,625,331
</TABLE>
Proceeds from sales of securities available for sale were approximately
$380,826,000, $404,365,000 and $505,750,000 during the years ended September 30,
1993, 1992, and 1991, respectively. Gross gains of approximately $6,142,000,
$7,174,000 and $16,172,000 and gross losses of approximately $1,302,000,
$952,000 and $7,470,000 were realized on those sales during the years ended
September 30, 1993, 1992, and 1991, respectively.
At September 30, 1993 and 1992, mortgage-backed securities with a carrying
value of approximately $11,422,000 (market value of $11,744,000) and $11,607,000
(market value of $11,681,000), respectively, were pledged as collateral for
industrial revenue bonds which are the liability of a customer of the
Corporation. The Corporation receives a fee for the pledge of assets and holds
a first lien on certain real estate as collateral.
The maximum forward commitments to purchase mortgage-backed securities
outstanding at any one time during the years ended September 30, 1993, 1992
and 1991 were $70,000,000, $145,000,000 and $100,000,000, respectively.
At September 30, 1993, the Corporation had commitments to purchase $20,000,000
in mortgage-backed securities.
VI-16
<PAGE>
2. Loans Receivable
Loans receivable are summarized as follows:
SEPTEMBER 30, 1993 1992
REAL ESTATE LOANS
First mortgage conventional
One to four family $ 66,784,819 $ 64,620,463
Multi-family 45,378,439 52,870,588
Non-residential 48,858,265 43,133,960
Construction 41,882,143 10,852,423
Second mortgage conventional 307,599 509,057
Total real estate loans 203,211,265 171,986,491
Less
Loans in process 8,545,303 2,660,692
Deferred loan fees, net 1,619,196 1,381,196
Allowance for loan losses 4,095,405 4,133,611
Net real estate loans 188,951,361 163,810,992
OTHER LOANS
Consumer 3,434,469 3,559,619
Commercial 18,570,721 12,654,480
Total other loans 22,005,190 16,214,099
Less
Deferred loan fees, net 74,239 139,716
Unearned discounts 97,013 191,962
Allowance for loan losses 385,947 510,174
Net other loans 21,447,991 15,372,247
$210,399,352 $179,183,239
Mortgage loans sold and serviced for others are not included in the
accompanying consolidated statements of condition. The approximate unpaid
principal balances of these loans is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
MORTGAGE LOAN PORTFOLIOS SERVICED FOR:
FHLMC $ 78,130,000 $128,906,000 $174,295,000
VHDA 29,666,000 32,552,000 31,501,000
FNMA 12,789,000 27,566,000 35,184,000
Other investors 4,509,000 5,763,000 8,778,000
$125,094,000 $194,787,000 $249,758,000
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $1,182,000, $1,706,000 and $2,197,000 at September
30, 1993, 1992 and 1991, respectively.
The weighted average interest rate on loans receivable was approximately
8.74% and 9.63% at September 30, 1993 and 1992, respectively.
VI-17
<PAGE>
Notes to Consolidated Financial Statements (continued)
2. Loans Receivable (continued)
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
REAL ESTATE OTHER
LOANS LOANS TOTAL
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1990 $ 1,633,533 $1,025,180 $ 2,658,713
Provision charged to expense 4,648,663 175,793 4,824,456
Recoveries of amounts previously charged off 119,556 532,991 652,547
Losses charged to the allowance (3,109,509) (880,238) (3,989,747)
BALANCE AT SEPTEMBER 30, 1991 3,292,243 853,726 4,145,969
Provision charged to expense 1,590,060 (385,536) 1,204,524
Recoveries of amounts previously charged off 148,019 436,285 584,304
Losses charged to the allowance (896,711) (394,301) (1,291,012)
BALANCE AT SEPTEMBER 30, 1992 4,133,611 510,174 4,643,785
Provision charged to expense 680,025 (145,719) 534,306
Recoveries of amounts previously charged off 138,494 347,880 486,374
Losses charged to the allowance (856,725) (326,388) (1,183,113)
BALANCE AT SEPTEMBER 30, 1993 $ 4,095,405 $ 385,947 $ 4,481,352
</TABLE>
Of the total allowance for loan losses of $4,481,352 at September 30,
1993, $3,617,536 is not specifically allocated to identified problem loans.
Nonaccrual and renegotiated loans for which interest has been reduced
totaled approximately $7,671,000, $3,914,000, $8,163,000, $10,663,000 and
$2,142,000 at September 30, 1993, 1992, 1991, 1990, and 1989, respectively.
Interest income that would have been recorded under the original terms of such
loans and the interest income actually recognized for the years ended September
30 are summarized below:
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Interest income that would
have been recorded $682,511 $377,226 $533,231 $97,889 $48,390
Interest income recognized 252,232 225,162 197,588 - -
Interest income foregone $430,279 $152,064 $335,643 $97,889 $48,390
</TABLE>
The Corporation is not committed to lend additional funds to debtors whose
loans have been modified.
3. Real Estate
A summary of real estate, net of allowance for losses, is as follows:
SEPTEMBER 30, 1993 1992
Acquired in settlement of loans $ 505,448 $ 4,948,528
In-substance foreclosure 3,276,769 6,421,498
Held for development or resale 14,319,139 8,630,963
$ 18,101,356 $20,000,989
During 1993, the Corporation determined that seven loans with outstanding
principal balances of $3,767,331 had been in-substance foreclosed, and,
although formal foreclosure proceedings had not been initiated, the
investment in the loans has been reported in the financial statements
in the same manner as collateral that has been formally repossessed,
regardless of whether the related loan in formally restructured.
VI-18
<PAGE>
3. Real Estate (continued)
Activity in the allowance for real estate losses is summarized as follows:
<TABLE>
<CAPTION>
ACQUIRED IN
SETTLEMENT IN-SUBSTANCE HELD-FOR
OF LOANS FORECLOSURE DEVELOPMENT TOTAL
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1990 $ 206,012 $ - $ 360,686 $ 566,698
Provision charged to expense 192,932 - 103,297 296,229
Recoveries previously charged-off - - - -
Losses charged to the allowance (226,204) - (78,915) (305,119)
BALANCE AT SEPTEMBER 30, 1991 172,740 - 385,068 557,808
Provision charged to expense 808,021 - (57,232) 750,789
Recoveries previously charged-off - - - -
Losses charged to the allowance (139,275) - (173,725) (313,000)
BALANCE AT SEPTEMBER 30, 1992 841,486 - 154,111 995,597
Provision charged to expense 502,640 - 634,562 1,137,202
Recoveries previously charged-off - - - -
Losses charged to the allowance (912,669) - - (912,669)
BALANCE AT SEPTEMBER 30, 1993 $ 431,457 $ - $ 788,673 $1,220,130
</TABLE>
Loss from real estate operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
Sales of real estate $ 4,606,128 $ 2,178,374 $ 2,803,418
Cost of sales 4,739,928 2,280,175 2,843,018
Net loss on sales of real estate (133,800) (101,801) (39,600)
OTHER INCOME
Golf course revenues 626,082 - -
Rental income 824,569 - -
Gain from retirement of debt - 684,042 -
Loss from real estate partnership - - (72,709)
Other income 47,991 48,0153 4,781
1,498,642 732,057 (37,928)
OTHER EXPENSE
Provision for real estate losses 1,137,202 750,789 296,229
Compensation and employee benefits 401,784 - -
Occupancy 653,810 189,484 -
Advertising 279,164 - -
Legal 138,973 125,723 -
Other 407,787 134,616 218,061
3,018,720 1,200,61 514,290
NET LOSS FROM REAL ESTATE OPERATIONS $ (1,653,878) $ (570,356) $ (591,818)
</TABLE>
VI-19
<PAGE>
4. Properties and Equipment
Properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993 1992
<S> <C> <C>
Land and improvements $1,249,877 $ 1,249,877
Buildings 2,599,348 2,804,499
Furniture and equipment 5,379,248 5,177,426
Automobiles 28,117 28,117
9,256,590 9,259,919
Less allowances for depreciation
and amortization 4,929,159 4,407,475
$4,327,431 $ 4,852,444
</TABLE>
5. Deposit
A summary of deposits is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993 1992
AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C>
PASSBOOK, STATEMENT AND
INTEREST CHECKING ACCOUNTS:
Non-interest bearing $ 7,777,045 2.5% $ 6,847,794 2.3%
2.75 to 3.00% 68,939,459 21.9 11,688,128 3.8
3.01 to 4.00% 59,781,265 19.1 111,870,626 37.0
4.01 to 5.00% - - - -
5.01 to 6.00% - - - -
6.01 to 7.00% - - 17,278 -
136,497,769 43.5 130,423,826 43.1
CERTIFICATES:
2.75 - 4.00% 43,863,504 14.0 16,204,039 5.3
4.01 - 5.00% 60,658,889 19.3 54,916,829 18.2
5.01 - 6.00% 28,204,405 9.0 39,183,238 13.0
6.01 - 7.00% 19,341,327 6.2 24,962,619 8.3
7.01 - 8.00% 11,700,510 3.7 15,098,738 5.0
8.01 - 9.00% 7,191,736 2.3 15,201,591 5.0
9.01 - 10.00% 6,216,097 2.0 6,340,079 2.1
177,176,468 56.5 171,907,133 56.9
$313,674,237 100.0% $302,330,959 100.0%
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was approximately $12,365,000 and $8,565,000 at September 30, 1993
and 1992, respectively.
At September 30, 1993, scheduled maturities of
certificates of deposit are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, 1994 1995 1996 THEREAFTER
<S> <C> <C> <C> <C>
2.75 - 4.00% $ 42,005,482 $ 1,858,021 $ - $ -
4.01 - 5.00% 42,928,214 16,085,705 1,603,971 40,999
5.01 - 6.00% 3,937,336 9,280,792 2,317,198 12,669,081
6.01 - 7.00% 3,147,053 986,017 1,280,022 13,928,235
7.01 - 8.00% 4,450,194 2,352,103 4,802,209 96,004
8.01 - 9.00% 4,842,822 1,593,941 754,972 -
9.01 - 10.00 6,216,097 - - -
$107,527,198 $32,156,579 $10,758,372 $26,734,319
</TABLE>
VI-20
<PAGE>
5. Deposits (continued)
Interest expense on deposits is summarized as follows:
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
Certificates, net $ 9,432,726 $13,309,714 $17,452,298
Interest checking 2,149,362 3,174,017 6,124,653
Savings 1,983,030 2,260,264 1,361,721
$13,565,118 $18,743,995 $24,938,672
The weighted average interest rate on deposits was approximately 4.14%,
4.77% and 6.68% at September 30, 1993, 1992 and 1991, respectively.
6. Advances from Federal Home Loan Bank
The advances to the Corporation are summarized below by maturity date:
DUE IN YEAR ENDING SEPTEMBER 30, 1993 1992
1993 $ - $ 67,500,000
1994 30,000,000 10,000,000
1995 - 20,500,000
1996 - 15,000,000
$ 30,000,000 $113,000,000
The weighted average interest rate on advances was approximately 3.6% and
6.0% at September 30, 1993 and 1992, respectively. Interest expense on
advances from Federal Home Loan Bank was $4,857,239, $7,182,687 and $4,235,528
for the years ended September 30, 1993, 1992 and 1991, respectively.
Qualifying residential loans of $45,251,385 and mortgage- backed
securities with a book value of $37,913,000 (market value of
$38,886,000) are pledged as collateral under a specific collateral agreement.
During May 1993 and January 1991, the Corporation incurred prepayment
penalties of $2,216,140, net of income taxes of $1,358,000, and $271,788, net of
income taxes of $139,000, respectively, from the early extinguishment of Federal
Home Loan Bank advances. The prepayment penalties have been treated as
extraordinary items in the statements of operations.
Information related to borrowing activity from the Federal Home Loan Bank
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992
<S> <C> <C>
MAXIMUM AMOUNT OUTSTANDING DURING THE YEAR $113,050,000 $ 113,000,000
AVERAGE AMOUNT OUTSTANDING DURING THE YEAR $ 87,356,000 $ 112,351,000
AVERAGE INTEREST RATE DURING THE YEAR 5.56% 6.39%
</TABLE>
7. Securities Sold Under Agreements to Repurchase and
Other Borrowings
Securities sold under agreements to repurchase are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993 1992
<S> <C> <C>
Securities sold under agreements
to repurchase $ 10,300,000 $ -
$ 10,300,000 $ -
</TABLE>
Information related to borrowing activity from securities sold under
agreements to repurchase is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992
<S> <C> <C>
MAXIMUM AMOUNT OUTSTANDING DURING THE YEAR $108,308,000 $ 51,250,000
AVERAGE AMOUNT OUTSTANDING DURING THE YEAR $ 7,034,000 $ 1,736,319
AVERAGE INTEREST RATE DURING THE YEAR 2.84% 4.50%
</TABLE>
VI-21
<PAGE>
7. Securities Sold Under Agreements to Repurchase and Other
Borrowings(continued)
The repurchase agreement was due within one month and had an interest rate
of 1.6% at September 30, 1993. The repurchase agreement was collateralized by a
United States Treasury Note with a book value of $10,243,000 (market value of
$10,284,000) at September 30, 1993. The United States Treasury Note was
delivered to the dealer who arranged the transaction. The agreement was to
repurchase the identical security sold.
Interest expense on securities sold under agreements to repurchase and other
borrowings is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
Securities sold under
agreements to repurchase $ 199,844 $ 78,099 $1,416,044
Other borrowings 8,481 190,448 2,741,660
$ 208,325 $ 268,547 $4,157,704
</TABLE>
8. Income Taxes
The provision for income taxes (benefit) consists of the following:
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
Current $3,535,000 $ 960,000 $3,107,000
Deferred (benefit) (788,000) 301,000 (121,000)
$2,747,000 $1,261,000 $2,986,000
A reconciliation of income taxes computed at the statutory income tax rate
to the effective rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
Income taxes at the statutory rate $2,946,766 $1,788,856 $1,927,325
Increase (decrease) in taxes:
Provision for losses for
financial reporting
purposes 181,664 620,770 1,723,093
Bad debt deduction for tax
return purposes (155,600) (884,000) (267,286)
Tax exempt interest and dividends (442,736) (459,793) (464,881)
State income tax (net of
federal income tax benefit) 214,424 117,101 145,362
Other 2,482 78,066 (77,613)
$2,747,000 $1,261,000 $2,986,000
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
Accrual to cash basis
adjustment (reversal) $ - $ - $ (450,000)
Securities sales (131,000) 253,000 169,000
FHLB dividends 148,000 158,000 99,000
Deferred gain on loan sales (214,000) (119,000) (69,000)
Gains on real estate
sales not recognized
for financial statement purposes (215,000) - -
Provision for real estate losses (432,000) - -
Deferred loan fees (21,000) 10,000 215,000
Other 77,000 (1,000) (85,000)
$ (788,000) $ 301,000 $ (121,000)
</TABLE>
VI-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. Sale of Branch Office
Effective September 25, 1992, the Corporation sold its branch office in
Virginia Beach at a gain of $265,073. The sale included the deposits, property
and equipment, and working funds of the branch, and a $50,000 payment for the
assumption by the purchaser of the Corporation's liabilities and obligations as
lessee of the branch under a lease dated March 6, 1985. The Corporation's cash
payment was reduced by an amount equal to 1.15% of the outstanding balance on
deposits at the date of the sale. A financial summary of the transaction is as
follows:
Deposits assumed by purchaser $27,397,628
Less assets transferred to purchaser
Working funds 46,083
Property and equipment, net 10,985
27,340,560
Cash payment to purchaser 27,075,487
GAIN ON SALE $ 265,073
10. Employee Benefit Plans
RETIREMENT AND PROFIT SHARING PLAN. On December 17, 1990, the Board of
Directors voted to terminate the Pioneer Federal Savings Bank Retirement Plan,
which was a defined contribution non-contributory retirement plan covering
substantially all of its employees. Beneficiaries of the Retirement Plan were
fully vested upon termination. Total contributions amounted to $37,351 for the
year ended September 30, 1991. It was the Corporation's policy to fund pension
costs as incurred. During August, 1991, the Board of Directors approved a profit
sharing plan with a 401(k) feature to replace the Retirement Plan, which became
effective October 1, 1991. Total contributions to the 401(k) profit sharing
plan amounted to $152,562 and $204,576 for the years ended September 30, 1993
and 1992, respectively. The plan calls for a discretionary profit sharing
contribution to be made after the Board of Directors has reviewed the final
audited financial statements. Included in the 1993 contribution is accrued
profit sharing expense which will be paid subsequent to September 30, 1993.
STOCK OPTION AND INCENTIVE PLAN. In November 1985, the Board of Directors
adopted a Stock Option and Incentive Plan (the "Plan") which was approved by the
Corporation's stockholders on January 28, 1986. Pursuant to the Plan, 300,000
shares of the Corporation's common stock may be used as options and awards to
officers and other key employees. Under the terms of the Plan, the term of any
stock option may not exceed 10 years from the date of grant. Options granted
under the Plan may be incentive or non-incentive stock options and must be paid
for in full in cash or shares of common stock, or a combination of both. The
exercise price for the purchase of shares subject to an incentive stock option
at the date of grant must be at least equal to the market value of the shares
covered by the incentive stock option on the date of grant.
The exercise price per share subject to a non-incentive stock option shall
be at a price as determined by a committee appointed by the Board of Directors
to administer the Plan. There were no non-incentive stock options outstanding at
September 30, 1993. Prior to September 30, 1993 the Plan also allowed the
optionee, subject to approval by the Stock Option Committee, to surrender his
option for cancellation and receive cash equal to the difference between the
exercise price of the option and the then fair market value of the shares of
common stock subject to the option. The following table presents options
outstanding under the Plan:
YEAR ENDED SEPTEMBER 30, 1993 1992
OPTION PRICE
Outstanding at beginning of year $ 5.38 - $10.63 192,329 235,616
Options granted 9.75 -13.75 7,928 22,720
Options exercised/cancelled 5.38 -10.63 (13,402) (28,772)
Options forfeited 5.38 - 9.75 (7,600) (37,235)
OUTSTANDING AT END OF YEAR $ 5.38 - $13.75 179,255 192,329
In the case of all options granted, one-third of the total may be exercised
each year for the following three years. All options granted expire after ten
years from date of grant.
VI-23
<PAGE>
10. Employee Benefit Plans (continued)
EMPLOYEE STOCK OWNERSHIP PLAN. In fiscal year 1987, the Corporation's
Board of Directors approved the Pioneer Federal Savings and Loan Association
Employee Stock Ownership Plan (ESOP) which is a noncontributory plan established
to acquire shares of the Corporation's common stock for the benefit of all
eligible employees. During 1988, the ESOP arranged financing with a bank to
finance the purchase of 77,264 shares of the Corporation's common stock at a
cost of $499,686. During December 1990, the Board of Directors voted to prepay
the outstanding ESOP loan balance. The prepayment of this loan resulted in the
allocation of all shares to plan beneficiaries. The loan was scheduled to be
repaid over a seven year period at an interest rate of 95.3% of NationsBank
prime. Contributions to the ESOP during the year ended September 30, 1991
amounted to $301,992. There were no contributions made to the plan during the
years ended September 30, 1993 and 1992.
During July 1993, the Board of Directors voted to terminate the fully
allocated ESOP. Beneficiaries were given the option to receive cash for the fair
value of the stock, transfer the cash value of the stock to their existing
profit sharing plan, or transfer shares of stock to a self-directed plan. The
distribution and transfers of cash, as well as the transfer of shares occurred
subsequent to September 30, 1993.
11.Commitments and Contingencies
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, options
written, standby letters of credit, financial guarantees and forward and futures
contracts. Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the statement of
condition. The contract or notional amounts of those instruments outstanding
reflect the extent of involvement the Corporation has in particular classes of
financial instruments.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by the
contractual notional amount of those instruments. The Corporation uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments. For forward and futures contracts and options
written, the contract or notional amounts do not represent exposure to credit
loss. The Corporation controls the credit risk of its forward and futures
contracts through credit approvals, limits, and monitoring procedures.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993 1992
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit at fixed rates $3,737,000 $ 3,542,000
Commitments to extend credit at variable
rates $12,950,000 $ 5,896,000
Standby letters of credit and financial
guarantees
written $17,334,000 $17,015,000
Financial instruments whose notional or contract
amounts exceed the amount of credit risk:
Forward and futures contracts $ - $ -
Options written and interest rate
caps and floors
written $ - $ -
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include single family residences, other residential property, commercial
property and land. The Corporation is also exposed to market rate risk related
to commitments to extend credit at fixed rates.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Corporation to guarantee the performance of a customer
to a third party. The financial guarantee written consists of an industrial
revenue bond financing where the Corporation holds a first lien on certain real
estate as collateral. The bond financing is collateralized by mortgage-backed
securities (as disclosed in Note 1) at September 30, 1993. The guarantee is for
a term of two years. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
VI-24
<PAGE>
11. Commitments and Contingencies (continued)
Forward and futures contracts are contracts for delayed delivery of
securities or money market instruments in which the seller agrees to make
delivery at a specified future date of a specified instrument, at a specified
price or yield. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in securities values and
interest rates.
The Corporation enters into interest rate options in its trading activities
and in managing its interest rate exposure. Interest rate options are contracts
that allow the holder of the option to purchase or sell a financial instrument
at a specified period of time from the seller or "writer" of the option. As a
writer of options, the Corporation receives a premium at the outset and then
bears the risk of an unfavorable change in the price of the financial instrument
underlying the option.
The Corporation is a defendant in certain claims and legal actions arising
in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material adverse effect on the consolidated financial
position of the Corporation.
The Corporation leases certain facilities under operating leases expiring at
various dates through 2002 Future minimum lease payments required under leases
which have initial or remaining non-cancelable terms in excess of one year
as of September 30, 1993, are approximately as follows:
YEAR ENDING SEPTEMBER 30,
1994 $ 662,000
1995 628,000
1996 629,000
1997 632,000
1998 635,000
1999 and thereafter 401,000
Total $3,587,000
Total rent expense amounted to approximately $695,000, $726,000 and
$836,000 for the years ended September 30, 1993, 1992 and 1991, respectively.
12. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures about Fair Value of Financial Instruments," requires corporations
to disclose the fair value of its financial instruments, whether or not
recognized in the statement of condition,, where it is practical to estimate
that value.
Fair value instruments made as of September 30, 1993, are based on relevant
market information about the financial instrument. These estimates do not
reflect any premium or discount that could result from offering for sale at one
time the corporations entire holding of a particular financial instrument. In
cases where quoted market prices are not available, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and , therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS - The carrying amounts reported in the statement
of condition for cash and short-term instruments approximate those assets' fair
values.
SECURITIES HELD TO MATURITY AND AVAILABLE FOR SALE - Fair values were based
on quoted market prices, where available. If quoted market prices were not
available, fair values were based on quoted market prices of comparable
instruments.
LOANS - The fair value of certain 1-4 family residential loans was based on
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics and credit losses
inherent in the portfolio. For other loans, the fair market values were
calculated by discounting scheduled future cash flows using current
interest rates offered on loans with similar terms adjusted to reflect
the estimated credit losses inherent in the portfolio.
DEPOSIT LIABILITIES - The fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits,
VI-25
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Fair Value of Financial Instruments (continued)
NOW, savings and money market deposits, was, by definitions, equal to the
amount payable on demand as of September 30, 1993. The fair value of
certificates of deposit was based on the discounted value of contractual cash
flows, calculated using the discount rates that equaled the interest rates
offered at the valuation date for deposits of similar remaining maturities.
SHORT-TERM BORROWINGS - The carrying amounts of borrowings under repurchase
agreements and advances from the Federal Home Loan Bank of Atlanta approximated
their fair values.
SEPTEMBER 30, 1993
CARRYING ESTIMATED
AMOUNT FAIR VALUE
FINANCIAL ASSETS
Cash and due from banks- $ 2,309,111 $ 2,309,111
noninterest-bearing 22,639,758 22,639,758
Interest bearing cash
Federal funds sold 197,000 197,000
Securities
Available for sale 136,402,760 136,402,760
Held to maturity 487,887 487,887
Loans, net of reserves for losses 210,399,352 223,435,000
FINANCIAL LIABILITIES
Deposits $ 313,674,237 $ 316,938,000
Securities sold under agreements to
repurchase 10,300,000 10,300,000
Advances from Federal Home Loan Bank 30,000,000 30,000,000
At September 30, 1993, the Corporation had outstanding standby letters of
credit and commitments to extend credit. These off-balance sheet financial
instruments were exercisable at the market rate prevailing at the date the
underlying transaction will be completed, and, therefore, they were deemed
to have no current market value.
13. Stockholders' Equity
During October, 1990, the remaining 31,400 outstanding shares approved for
repurchase during the year ended September 30, 1990, had been purchased at a
total cost of $204,100. During October, 1990 and January, 1991, the Board of
Directors approved the repurchase of an additional 5% (or 145,000 shares) and
5.4% (or 150,000 shares) of the Corporation's outstanding shares of common
stock, respectively. As of September 30, 1991, 291,701 of these shares were
repurchased at a cost to the Corporation of $1,766,133, and through the issuance
of debt of $553,125, which was repaid in December ,1991.
During December, 1991, the remaining 3,299 outstanding shares approved for
repurchase during the year ended September 30, 1991, had been purchased at a
total cost of $28,042. During December, 1991 and January, 1992, the Board of
Directors approved the repurchase of an additional 5% (or 130,000 shares) and 5%
(or 124,000 shares) of the Corporation's outstanding shares of common stock,
respectively. As of September 30, 1992, 151,942 of these shares were
repurchased at a total cost to the Corporation of $1,433,425.
In June 1993, the Board of Directors approved the repurchase of an
additional 5% (or 117,786 shares) of the Corporation's outstanding shares of
common stock. Throughout the year ended September 30, 1993, the remaining
102,058 shares approved for repurchase during the year ended September 30, 1992,
as well as 13,442 of the 117,786 approved during the current year were
repurchased at a total cost of $1,598,704. Of the total shares approved to be
repurchased, 104,344 shares remain outstanding at September 30, 1993.
Savings institutions must maintain specific capital standards that are no
less stringent than the capital standard applicable to national banks. The OTS
regulations currently have three capital standards including (i) a tangible
capital requirement, (ii) a leverage or core capital requirement, and (iii) a
risk-based capital requirement. The tangible capital standard requires savings
institutions to maintain tangible capital of not less than 1.5% of adjusted
total assets. The core capital standard requires a savings institution to
maintain core capital of not less than 3.0% of adjusted total assets. The
risk-based capital standard requires risk-based capital of not less than 8%
of risk weighted assets.
VI-26
<PAGE>
Notes to Consolidated Financial Statements (continued)
13.Stockholders' Equity (continued)
The following table presents the Savings Bank's capital levels at September
30, 1993, relative to the requirements applicable under FIRREA at that date:
<TABLE>
<CAPTION>
AMOUNT PERCENT ACTUAL ACTUAL EXCESS
REQUIRED REQUIRED AMOUNT PERCENT AMOUNT
<S> <C> <C> <C> <C> <C>
Tangible Capital $ 6,089,000 1.50% $35,505,000 8.75% $29,416,000
Core Capital 12,178,000 3.00% 35,505,000 8.75% 23,327,000
Risk-based Capital 19,257,000 8.00% 37,866,000 15.73% 18,609,000
</TABLE>
The OTS announced that it would be revising its capital requirements
to conform with standards being imposed by the Office of the Comptroller of
the Currency ("OCC"). That action is compelled by FIRREA which mandates that
the OTS's capital requirements be no less stringent than the capital standards
applicable to national banks. Under the OCC's standards, the highest rated
national banks would be required to maintain Tier 1 (or core) capital in an
amount equal to 3.0% of adjusted total assets. All other national banks,
however, would be required to have core capital in an amount equal to at least
4.0% to 5.0% of adjusted total assets. If the OTS were to impose a new core
capital standard of 5%, the Savings Bank's core capital ratio at September 30,
1993, would meet that requirement.
The OTS issued for comment a proposed regulation concerning interest rate
risk which, if enacted, could increase the risk-based capital requirement
discussed above.
The Corporation may not declare or pay a cash dividend on any stock if the
effect thereof would cause the Corporation's net worth to be reduced below net
worth requirements imposed by the FDIC.
14. Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data for the years ended September
30, 1993 and 1992 are presented below:
<TABLE>
<CAPTION>
QUARTER ENDED
1993 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
<S> <C> <C> <C> <C>
Interest income $ 7,826,039 $ 8,290,333 $ 8,225,735 $ 7,607,892
Interest expense 5,241,991 5,137,415 4,467,805 3,783,471
Net interest income 2,584,048 3,152,918 3,757,930 3,824,421
Provision for loan losses 134,608 65,590 155,617 178,491
Net interest income after
provision
for loan losses 2,449,440 3,087,328 3,602,313 3,645,930
Gain on sale of securities 113,032 1,112,125 628,488 3,853,472
Income (loss) from real
estate operations 110,294 (1,210,066) (351,287) (202,819)
Other income 780,624 483,049 891,897 252,554
Other expenses 2,801,308 2,489,562 2,376,781 2,911,766
Income before income
taxes and
extraordinary item 652,082 982,874 2,394,630 4,637,371
Income taxes 173,362 228,212 755,556 1,589,870
Income before extraordinary
item 478,720 754,662 1,639,074 3,047,501
Extraordinary item (net of
income taxes of
$1,358,000) - - (2,216,140) -
NET INCOME (LOSS) $ 478,720 $ 754,662 $ (577,066) $ 3,047,501
Earnings (loss) per share
Income before
extraordinary item $ 0.19 $ 0.31 $ 0.68 $ 1.25
Extraordinary item - - (0.92) -
EARNINGS (LOSS) PER
SHARE $ 0.19 $ 0.31 $ (0.24) $ 1.25
</TABLE>
VI-27
<PAGE>
Notes to Consolidated Financial Statements (continued)
14. Selected Quarterly Financial Data (Unaudited) (continued)
<TABLE>
<CAPTION>
QUARTER ENDED
1993 (CONTINUED) DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
<S> <C> <C> <C> <C>
CASH DIVIDENDS DECLARED
PER SHARE $ 0.10 $ - $ - $ 0.05
Market range per share
High Bid $ 14 3/4 $ 15 1/4 $ 14 3/4 $15 3/4
Low bid $ 11 1/2 $ 12 1/2 $ 12 1/4 $13 1/4
AVERAGE NUMBER OF COMMON
SHARES 2,457,768 2,454,879 2,408,828 2,444,935
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
1992 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
<S> <C> <C> <C> <C>
Interest income $ 9,544,767 $8,620,453 $8,264,998 $7,381,627
Interest expense 7,367,463 6,640,771 6,222,281 5,964,714
Net interest income 2,177,304 1,979,682 2,042,717 1,416,913
Provision for loan
losses 6,380 273,946 607,238 316,960
Net interest income after
provision for
loan losses 2,170,924 1,705,736 1,435,479 1,099,953
Gain on sale of
securities 1,959,471 2,669,535 592,997 650,677
Income (loss) from
real estate
operations (228,684) (175,731) (844,080) 678,139
Other income 839,844 755,355 941,385 1,082,743
Other expenses 2,324,362 2,538,000 2,472,960 2,737,081
Income (loss) before
income taxes 2,417,193 2,416,895 (347,179) 774,431
Income taxes
(benefit) 489,447 777,348 199,410 (205,205)
NET INCOME (LOSS) $1,927,746 $1,639,547 $(546,589) $979,636
EARNINGS (LOSS)
PER SHARE $ 0.74 $ 0.66 $ (0.22) $ 0.41
CASH DIVIDENDS
DECLARED PER
SHARE $ - $ 0.10 $ - $ -
Market range per share
High bid $ 9 1/4 $ 11 $ 10 3/4 $ 13 1/4
Low bid $ 7 3/4 $ 8 1/2 $ 9 3/4 $ 10 1/4
AVERAGE NUMBER OF
COMMON SHARES 2,607,574 2,502,299 2,473,527 2,459,255
</TABLE>
The common stock of the Corporation is listed for trade on the National
Association of Securities Dealers, Inc. Automated Quotation System (NASDAQ:
Trading Symbol: PION). The approximate number of stockholders of record as of
September 30, 1993 was 694. On September 30, 1993, 2,342,266 shares of Pioneer
Financial's common stock were outstanding.
VI-28
<PAGE>
Notes to Consolidated Financial Statements (continued)
15. Condensed Financial Information of the Corporation (Parent Company
Only)
In May 1988, Pioneer Financial Corporation was incorporated as a unitary
savings and loan holding company with its wholly-owned subsidiary, Pioneer
Federal Savings Bank. PTC Corporation was formed as a subsidiary of the
Corporation on September 1, 1989 and was dissolved in June, 1991, with all of
its assets being transferred to Pioneer Financial Corporation. Condensed
financial information is shown for the parent company only as follows:
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CONDITION
SEPTEMBER 30, 1993 1992
<S> <C> <C>
ASSETS
Investment in the Savings
Bank, at equity $43,382,181 $39,422,682
Cash 2,499,282 4,859,321
Securities
Held-to-maturity 487,887 -
Available for sale 3,780,662 3,453,688
Real estate, net - 353,188
Other assets 546,292 107,519
$50,696,304 $48,196,398
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deferred income taxes $ 347,367 $ 263,724
Other liabilities 213,227 96,922
Total liabilities 560,594 360,646
STOCKHOLDERS' EQUITY
Common stock 2,342,266 2,457,768
Additional capital 27,960,864 28,029,850
Retained earnings 19,272,845 17,348,134
Net unrealized gain on
securities available for sale 559,735 -
Total stockholders' equity 50,135,710 47,835,752
$50,696,304 $48,196,398
</TABLE>
VI-29
<PAGE>
Notes to Consolidated Financial Statements (continued)
15. Condensed Financial Information of the Corporation (Parent Company
Only) (continued)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
Interest income $ 331,430 $ 340,680 $ 77,570
Interest expense - 8,518 25,973
Net interest income 331,430 332,162 51,597
Gain on sale of available for
sale securities 195,778 28,372 -
Gain on sale of trading securities - 330,368
Other income - 3,960 -
Other expense (256,569) (300,269) (177,446)
Income before equity in income
of the Savings Bank and
PTC Corporation 270,639 64,225 204,519
Equity in income of the Savings Bank 4,822,178 5,197,115 5,028,951
Equity in income of PTC Corporation - - 24,344
Income before income taxes 5,092,817 5,261,340 5,257,814
Income taxes 1,389,000 1,261,000 2,847,000
NET INCOME $ 3,703,817 $ 4,000,340 $ 2,410,814
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1993 1992 1991
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,703,817 $ 4,000,340 $ 2,410,814
Adjustments
Equity in income of the Savings Bank (3,536,235) (3,954,115) (2,105,418)
Equity in income of PTC Corporation - - (64,027)
Dividends received from the Savings Bank - 7,346,526 600,000
Purchase of trading account securities - - (134,003)
Proceeds from sale of trading account
securities - - 587,371
Gain on sale of trading securities - - (330,368)
Gain on sale of available for sale
securities (195,778) (28,372) -
Cash received from PTC Corporation - - 209,338
Other 151,030 (37,231) 493,400
Net cash provided by operating activities 122,834 7,327,148 1,667,107
</TABLE>
VI-30
<PAGE>
Notes to Consolidated Financial Statements (continued);
15. Condensed Financial Information of the Corporation (Parent Company
Only) (continued)
Condensed Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended September 30, 1993 1992 1991
<S> <C> <C> <C>
Investing activities
Purchase of securities
Available for sale $ (7,162,448) $ (2,209,980) $
-
Proceeds from sale of securities
Held to maturity - 500,000 -
Available for sale 6,152,534 1,305,291 -
Proceeds from principal payments
and maturities
Held to maturity 610,947 - 287,445
Available for sale - 375,085 -
Proceeds from sale of real estate 442,052 - -
Loan principal repayments 60,000 - -
Purchase of loans (1,042,052) - -
Other 419,688 (353,188) -
Net cash provided (absorbed)
by investing activities (519,279) (382,792) 287,445
Financing activities
Cash dividends paid on common
stock (364,890) (248,757) (276,676)
Repurchase of common stock (1,598,704) (1,461,467) (1,970,233)
Repayment of other borrowings - (553,125) -
Cash received from exercise of
stock options - - 13,114
Net cash absorbed by
financing activities (1,963,594) (2,263,349) (2,233,795)
Increase (decrease) in cash
and cash equivalents (2,360,039) 4,681,007 (279,243)
Cash and cash
equivalents - beginning
of year 4,859,321 178,314 457,557
Cash and cash
equivalents - end of year $ 2,499,282 $ 4,859,321 $ 178,314
</TABLE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated statements of condition
of Pioneer Financial Corporation and subsidiaries as of September 30, 1993
and 1992, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1993. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pioneer
Financial Corporation and subsidiaries at September 30, 1993 and 1992, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1993, in conformity with generally accepted
accounting principles.
As discussed in the summary of accounting policies, at September 30, 1993
the Corporation changed its method of accounting for certain investments in debt
and equity securities.
Richmond, Virginia
November 12, 1993
(signature of BDO Seidman)
BDO Seidman
VI-31
<PAGE>
SAVINGS
PASSBOOK ACCOUNT - A savings account which includes a passbook to reflect
all transactions of the account. Deposits and withdrawals may be made at any
time. A minimum deposit is required to open the account, and a minimum balance
is required for payment of interest, which is compounded daily, based upon 365
days. Should the account balance fall below the minimum, a quarterly fee is
assessed.
STATEMENT SAVINGS ACCOUNT - A savings account that includes activity
statements sent to your home. Deposits and withdrawals may be made at any time
in any amount. A minimum opening deposit is required, and a minimum balance is
required for payment of interest. A statement is mailed monthly if activity
occurs on the account. If no activity occurs, a quarterly statement is mailed.
Should the account balance fall below the minimum, a quarterly fee is assessed.
SAVINGS CERTIFICATES - Pioneer Federal offers a variety of savings
certificate plans with maturity dates ranging from 91 days to five years.
Minimum opening deposits and interest rates vary with the term of the
certificate. These certificates have a substantial interest penalty for
withdrawal of the deposit prior to the maturity date of the certificate.
INDIVIDUAL RETIREMENT ACCOUNT - This account offers a tax-sheltered savings
plan for individuals having earned income (does not include rents, dividends or
interest). Maximum deposit is 100% of earned income or $2000.00 - whichever is
less. Contributions up to $2,250.00 may also be made to a spousal account for
the benefit of a non-working spouse. Pioneer Federal offers a variety of fixed
rate certificates to individuals investing in IRA's. Contributions to these
accounts are deductible on individual federal income tax returns, according to
adjusted gross income. Contributions are fully deductible if you are not covered
by an employer retirement plan. The tax liability for interest earned does not
occur until withdrawal from the account.
KEOGH ACCOUNTS - Pioneer Federal offers two tax sheltered savings account
for those who are self-employed. In the years a profit is made, individuals may
contribute as much as 25% of earned income to a Profit Sharing Account, with a
maximum of 15% deductible on individual federal income tax returns. An
alternative plan not tied to profits, the Money Purchase Account, enables
individuals to contribute tax deductible, borrowed funds equal to 25% of earned
income, or up to $22,500.00. Funds may be invested in a fixed rate certificate,
and tax liability for interest earned does not occur until funds are withdrawn.
CHECKING
FLEX CHECKING - Maintaining a checking account is easy with Pioneer
Federal's Flex Checking Account. This account offers a low minimum balance
requirement. Flex Checking customers receive the first order of checks at no
charge.
PIONEER 1 CHECKING ACCOUNT - This unlimited checking account earns interest
compounded daily and credited monthly. The account gives you the choice of
having your checks returned to you each month or having a duplicate checkbook
(truncated) which makes record keeping uncomplicated. A minimum balance is
required to avoid the monthly fee.
SUPER CHECKING PLUS ACCOUNT - This unlimited checking account offers a high
money market interest rate. The interest rate is subject to change daily. A
minimum balance is required to earn the market interest rate. A balance below
the minimum earns no interest and the account is assessed a monthly fee.
PIONEER ULTRA PREFERRED CHECKING ACCOUNT - The investment checking plan
offers a tiered interest rate based on the balance in the account. The interest
is calculated daily. If the balance in the account is below the minimum, no
interest is earned and the account is assessed a monthly fee. Limited checking
is included without cost.
LOANS
HOME EQUITY CREDIT LINE - Pioneer Federal offers Virginia property owners a
line of credit secured by residential, owner-occupied real estate. These lines
afford property owners the opportunity to use the equity in their home for a
variety of purposes including home improvements and education.
CONSUMER LOANS - Pioneer Federal offers a variety of consumer loans at
competitive market interest rates and terms. These include new and used car
loans along with loans for the purchase of a residential lot.
FIRST MORTGAGE LOANS - We offer a variety of mortgage plans that may be
tailored to your individual needs. They are available for the purchase of real
estate, refinancing of existing debt and construction of new homes. These
include conventional mortgage loans as well as FHA and VA loans. Information
concerning first mortgages may be obtained from any of our branch offices.
DEPOSIT ACCOUNT LOANS - Pioneer Federal offers CD holders the ability to
borrow against their account.
VI-32
<PAGE>
OTHER SERVICES
TAX DEFERRED ANNUITIES - Flexible Premium Deferred Annuity Accounts,
underwritten by A-rated (excellent) insurance companies, are available through
Pioneer Federal. These accounts provide a tax deferred savings option with
maximum flexibility. An annuity representative is available to assist you with
this option.
TRAVELERS CHECKS - We offer American Express travelers checks which are
widely used and accepted throughout the world.
DIRECT DEPOSIT ACCOUNT - Pioneer Federal accepts direct deposit of social
security, federal government retirement checks and corporate payroll checks.
PIONEER FEDERAL AUTOMATIC TRANSFER - This service offers the transfer of
funds from all types of financial institutions to your accounts through
electronic funds transfer - providing maximum interest earning capability.
WALK-UP WINDOW - Walk-up teller facilities are available after lobby hours
at our Main Office in Hopewell.
DRIVE-THROUGH TELLERS - We offer drive-through banking at our Colonial
Heights, Chester, Arch Village, 15th Avenue (Hopewell), Gayton, Stony Point,
Parham & Woodman, Chase City, and Petersburg branches.
SAFE DEPOSIT BOXES - This service is offered at the Main Office in Hopewell,
and at our Colonial Heights, Parham & Woodman, and Chase City branches. Safe
deposit boxes offer you a secure and accessible place to store your valuables.
Annual fees are based on the size of the box.
AUTOMATED TELLER MACHINES - Pioneer has ATM's located at the Stony Point,
Gayton, 15th Avenue, Woodman, Colonial Heights, Meadowbrook, Chester and
Petersburg branches.
VI-33
<PAGE>
BOARD OF DIRECTORS SAVINGS BANK
DORSEY B. FORD Chairman of the Board Retired, President Pioneer Federal
Hopewell, Virginia
G. R. WHITTEMORE President, Managing Officer Pioneer Federal Hopewell,
Virginia
E. W. BURROW Retired, President E. W. Burrow Logging Company Disputanta,
Virginia
J. W. ENOCHS, JR. President J. W. Enochs, Inc. Hopewell, Virginia
CHARLES M. KEEN, JR.
Retired, Sales Representative Owens & Minor, Inc. Chester, Virginia
ROBERT L. T. LARUS, JR. Partner with Stony Point Development Richmond,
Virginia
J. W. NUSSEY, JR. Director Emeritus Retired, President Greenleaf Dairy
Colonial Heights, Virginia
STEPHEN H. PITLER Attorney Joseph Smith, LTD. Norfolk, Virginia
CHALMER L. PRITCHARD Director Emeritus Retired, Partner Clark & Pritchard
Men's Clothiers Hopewell, Virginia
SAMUEL H. WEST President West, Crawley, & Winn, PC Chester, Virginia
DR. RICHARD M. WRAY Retired, Dentist Colonial Heights, Virginia
DR. JOSEPH D. WARNER Retired, Director of Clinical Psychology Tidewater
Psychiatric Institute Virginia Beach, Virginia
OFFICERS
DORSEY B. FORD Chairman of the Board
CHARLES M. KEEN, JR. Vice Chairman of the Board
G. R. WHITTEMORE President
GEORGE E. MOORE, III Senior Vice President
H. LEE RETTIG Senior Vice President
JACQUELINE T. THORNTON Senior Vice President
JAMES H. ANGE Vice President
KEVIN E. BRYANT Vice President
GARY L. CRUTCHFIELD Vice President
BRENDA J. HOBBS Vice President
FRANK C. KIRTLEY Vice President
ALBERT E. MCCANTS, III Vice President
MARY G. SWANN Vice President/Internal Auditor
RICHARD F. WARD, JR. Vice President
FRANCES M. LESLIE Corporate Secretary
FAYE E. ALDERSON Assistant Vice President
JAMES K. CLANTON Assistant Vice President
SANDRA A. CORRIGAN Assistant Vice President
KIMBERLY N. GERNER Assistant Vice President
CORNELIA M. HENDERSON Assistant Vice President
B. BRENT JONES Assistant Vice President
BRIAN W. MCCAHILL Assistant Vice President
BETH B. MINGLOSKI Assistant Vice President
MARY A. MYERS Assistant Vice President
KRISTIN K. NELLIGAN Assistant Vice President
THOMAS W. NICELY Assistant Vice President
SHERRY A. SAMES Assistant Vice President
LISAG. SOWERS Assistant Vice President
JANICE L. BURTON Assistant Secretary
MICHELLE P. COLEMAN Assistant Secretary
VETA S. CREGGAR Assistant Secretary
NORMA D. NICHOLSON Assistant Secretary
RETAIL BANKING OFFICES
MAIN OFFICE BRANCH 112 Main Street Hopewell, Virginia 23860 (804) 458-9893
GAYTON CROSSING BRANCH 9605 Gayton Road Richmond, Virginia 23233 (804) 741-
9292
STONY POINT BRANCH 9027 Forest Hill Avenue Richmond, Virginia 23235 (804)
272-2264
ARCH VILLAGE BRANCH 321 North Arch Road Richmond, Virginia 23236 (804) 320-
5005
MEADOWBROOK PLAZA BRANCH 5734 Hopkins Road Richmond, Virginia 23234 (804)
271-1293
CHESTER BRANCH 4820 West Hundred Road Chester, Virginia 23831 (804) 748-
2258
15TH AVENUE BRANCH 425 South 15th Avenue Hopewell, Virginia 23860 (804)
458-0300
COLONIAL HEIGHTS BRANCH 651 Boulevard Colonial Heights, Virginia 23834
(804) 526-0631
PETERSBURG 3360 S. Crater Road Petersburg, Virginia 23805 (804) 861-1007
CHASE CITY 845 E. 2nd Street Chase City, Virginia 23924 (804) 372-2108
WOODMAN & PARHAM 2250 E. Parham Road Richmond, Virginia 23228 (804) 266-
2006
REALESTATE LENDING OFFICES
5601 Ironbridge Parkway P. O. Box C-9000 Chester, Virginia 23831-9000 (804)
748-9733
7202 Glen Forest Drive Suite 206 Richmond, Virginia 23226 (804) 288-0990
CORPORATE INFORMATION
EXECUTIVE AND ADMINISTRATIVE OFFICE 5601 Ironbridge Parkway P. O. Box C-
9000 Chester, Virginia 23831-9000 (804) 748-9733
SUBSIDIARIES Pioneer Federal Savings Bank Pioneer Properties, Inc.
SUBSIDIARIES OF THE SAVINGS BANK Pioneer Mortgage Corporation Pioneer
Development Corporation PFR Corporation Pioneer Properties, I, II, III Pioneer
Capital I, Inc.
NASDAQ SYMBOL Common Stock: PION
STOCK TRANSFER AGENT American Stock Transfer & Trust Company 40 Wall Street
New York, New York 10005 1-800-937-5449
INDEPENDENT ACCOUNTANTS BDO Seidman Richmond, Virginia
LEGAL COUNSEL McGuire, Woods, Battle, & Boothe Richmond, Virginia
MARKET MAKERS Anderson & Strudwick, Inc J. C. Bradford & Co. Wheat First
Securities, Inc. Merrill Lynch, Pierce, Fenner Scott & Stringfellow, Inc.
Herzog, Heine, Geduld, Inc.
FORM 10-K A copy of Form 10-K, including financial statement schedules, as
filed with the Securities and Exchange Commission will be furnished without
charge to stockholders as of the record date upon written request to the
Secretary.
PIONEER FINANCIAL CORPORATION 5601 Ironbridge Parkway P. O. Box C-9000
Chester, Virginia 23831-9000
VI-34
<PAGE>
ANNEX VII
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDENT NO. 1)
(X) AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
( ) TRANSITION REPORT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-17103
PIONEER FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
VIRGINIA 54-1439439
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
5601 IRONBRIDGE PARKWAY, CHESTER, VA 23831
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) ZIP CODE
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (804) 748-9733
</TABLE>
COMMON STOCK ($1.00 PAR VALUE PER SHARE)
(TITLE AND CLASS)
Indicate by using an X 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 ( )
As of May 13, 1994 there were issued and outstanding 2,348,799 shares of
the common stock of Pioneer Financial Corporation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Management's Discussion and Analysis should be read in conjunction
with the Management's Discussion and Analysis contained in the company's Annual
Report to Stockholders, which focuses upon relevant matters occurring during the
year commencing October 1, 1992 and ending September 30, 1993. Accordingly, the
ensuing discussion focuses upon material matters at and for the six months ended
March 31, 1994.
GENERAL
Pioneer Financial was incorporated in Virginia in November 1987 and became
the sole shareholder of Pioneer Federal Savings Bank ("Pioneer Federal").
Presently, the primary business of Pioneer Financial is the business of Pioneer
Federal. Pioneer Financial also owns Pioneer Properties Inc. which is a real
estate brokerage company. At March 31, 1994, the Corporation had assets of
$392.2 million, total deposits of $310.4 million and stockholders' equity of
$50.8 million.
Management estimates that Pioneer Federal has approximately 45.2%
(approximately $115.1 million) of the total financial institution deposits in
the city of Hopewell, Virginia, where it operates its main office and a branch
office. The Savings Bank was chartered as a mutual association in 1933, and
became a member of the Federal Home Loan Bank System in 1934. In July 1984
Pioneer Federal converted to a federal capital stock savings and loan
association and in June 1988 changed its name to Pioneer Federal Savings Bank
upon conversion to a federal capital stock savings bank.
MERGER
On February 16, 1994, Pioneer Financial entered into a Reorganization and
Merger Agreement (the "Agreement") providing for the acquisition of Pioneer
Financial by Signet Banking Corporation ("Signet"). The Agreement provides for
the exchange of .6232 shares of Signet common stock, subject to adjustment under
certain conditions, for each share of Pioneer Financial's common stock,
resulting in a price per share of $23.68 based upon the closing Signet stock
price on February 16, 1994. Also as of February 16, 1994, Pioneer Financial and
Signet executed an Option Agreement whereby Pioneer Financial granted Signet an
option to acquire 467,013 shares of Pioneer Financial's common stock at a price
of $21.75 per share, exercisable under certain specified conditions. The
acquisition pursuant to the Agreement is subject to the ratification of various
conditions, including the approval of various regulatory authorities and the
shareholders of Pioneer Financial. Further, the acquisition must be consummated
not later than December 31, 1994.
CHANGES IN FINANCIAL CONDITION
Although assets have decreased over $16.5 million or 4.0% at March 31,
1994, there have been few significant increases or decreases in any one category
from September 30, 1993. Cash, interest bearing deposits and federal funds sold
(down in total $11.8 million for the six month period) combined with proceeds
from the sale of and principal repayments on securities were used to fund new
loans (net increase of $2.2 million) and to repay $11.1 million of Federal Home
Loan Bank ("FHLB") advances and other borrowings. Also during the quarter ended
March 31, 1994, the Corporation reclassified approximately $71.0 million of
securities from the available for sale to the held to maturity category of
securities. The net unrealized loss on these securities ($22,000) was recorded
as a decrease to shareholders' equity, and will be amortized into expense over
the remaining life of the securities.
Stockholders' Equity increased ($627,000 or 1.3%) as net income for the six
month period of $1,884,000 was partially offset by two regular quarterly $0.05
per share common stock dividends totalling $235,000, as well as an adjustment
for the net unrealized loss on securities available for sale.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1994
The Corporation's results of operations are dependent to a large extent on
its net interest income, which is the difference between the interest income it
receives on its interest-earning assets (principally loans and securities) and
the interest expense, or cost of funds, of its interest-bearing liabilities
(principally deposits and, to a lesser extent, FHLB advances and other
borrowings). Banking fees, service charges, and other income; gains or
VII-2
<PAGE>
losses on the sale of loans and other assets, and the level of general and
operating expenses (non-interest expense) also have significant effects on the
Corporation's results of operations.
NET INCOME. The Corporation recorded net income of $802,000 or $.33 per
share for the quarter ended March 31, 1994 as compared to $755,000 or $.31 per
share for the prior year's second quarter. This increase was mainly attributable
to an increase in noninterest income combined with a decrease in noninterest
expenses. For the six months ended March 31, 1994 the Corporation recorded net
income of $1,884,000 or $.77 per share compared to a net income for the same
period a year earlier of $1,233,000 or $.50 per share. This increase was the
result of an increase in net interest margin and a significant decrease in
operating expenses, which was only slightly offset by a decrease in other
non-interest income items.
INTEREST INCOME. Interest income on all interest earning assets was $6.4
million for the quarter ended March 31, 1994 as compared to $8.3 million for the
comparable period in 1993, a decrease of $1.9 million or 23.0%. A $17.7 million
increase in the average outstanding balance of loans for the current quarter was
not enough to offset an 11.0% decrease in the average yield thereon. The
majority of this decrease in interest income, however, was the result of a
$103.3 million decrease in the average outstanding balance and a 14.1% decrease
in the average yield of securities. Total interest income from securities
amounted to $1.6 million for the three months ended March 31, 1994 as compared
to $3.3 million for the three months ended March 31, 1993.
Interest income on all interest earning assets for the six months ended
March 31, 1994 was $13.2 million, a decrease of approximately $2.9 million or
18.3% over the same period in 1993. Although there was a slight (13 basis point)
increase in the average yield on interest earning assets, a 17.6% decrease in
the average outstanding balance of these assets resulted in the decrease in
total interest income. For the six months ended March 31, 1994 the average
balance of all interest earning assets was $375.3 million yielding 7.0%,
compared to $455.2 million yielding 6.9% in the previous year. This $80.0
million decrease in the average balance of all interest earning assets related
to funds used to prepay debt during the year ended September 30, 1993.
For the six month period ended March 31, 1994 interest income on loans
increased by approximately $190,000 or 2.0% for the current year. While average
loans outstanding increased 12.3% for the six month period, the average yield on
these loans decreased 7.5%. For the same two periods, interest on securities
decreased $2.6 million, the direct result of a 38.5% decrease in the average
outstanding balance as well as a 9.6% decrease in average yield. Interest income
on other interest earning assets (FHLB stock, federal funds sold, and cash)
decreased approximately $547,000 or 54.9% due mainly to a 45.0% decrease in the
average outstanding balance of these assets.
INTEREST EXPENSE. Total interest expense decreased from $5.1 million for
the quarter ended March 31, 1993 to $3.4 million for the current quarter, a
decrease of over 34%. The majority of this decrease was directly attributable to
a 85.2% decrease in interest expense paid on borrowings. Total interest on
borrowings decreased by $1.5 million during the current quarter, the direct
result of prepaying $45.5 million of FHLB advances in June, 1993 at an after tax
penalty of $2.2 million as well as repaying, upon maturity, $47.5 million in
additional debt with the FHLB. $10.0 million of such debt was paid in October,
1993, and the remainder had been repaid during the year ended September 30,
1993. Interest expense on deposits decreased $286,000 or 8.4% for the current
three month period due mainly to an 8.8% decrease in the average cost of
deposits.
Interest expense for the six months ended March 31, 1994 decreased
approximately $3.5 million or 33.9% over the similar period in 1993. A 9.3%
decrease in average cost of deposits, partially offset by a $1.8 million
increase in average outstanding balance resulted in total interest expense on
deposits decreasing by approximately $575,000 or 8.3%. For the six months ended
March 31, 1994, deposits averaged $313.9 million at an average cost of 4.1%,
compared to an average balance of $312.1 million and an average cost of 4.5% for
the comparable period in 1993. Total interest on borrowings decreased by over
$2.9 million or 84.9%, the direct result of prepaying FHLB advances as discussed
in the preceding paragraph.
NET INTEREST INCOME. Although net interest income decreased slightly
($130,000 or 4.1%) for the quarter ended March 31, 1994, net interest spread
increased from 2.4% for the three months ended March 31, 1993 to just over 2.9%
for the three months ended March 31, 1994. (See table below)
Although decreases were experienced for the six months ended March 31, 1994
in both interest income and interest expense, net interest income increased by
almost $570,000 or 9.9%. Net interest spread has increased
VII-3
<PAGE>
from 2.0% for the six months ended March 31, 1993 to 3.0% for the current six
month period, reflecting a more rapid decline in cost of liabilities than the
decline in yield on assets.
The following table sets forth information concerning the yields earned on
interest earning assets, the rates paid on interest bearing liabilities and the
resultant net interest rate spread for the three and six month periods ended
March 31, 1994 and 1993. The yields earned and rates paid are based on average
balances.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
MARCH 31 MARCH 31
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest-earning assets:
Real estate loans.......................... 8.34% 9.40% 8.59% 9.28%
Other loans................................ 8.87% 9.73% 8.93% 9.74%
Mortgage-backed securities................. 6.60% 6.45% 6.37% 6.58%
Securities held to maturity................ 4.10% 8.69% 4.10% 9.12%
Securities available for sale.............. 4.69% 4.44% 4.73% 4.44%
Other investments.......................... 4.04% 3.67% 3.56% 3.41%
Total interest-earning assets.............. 6.92% 7.18% 6.99% 6.86%
Interest-bearing liabilities
Deposits................................... 4.04% 4.43% 4.06% 4.48%
Borrowings................................. 3.45% 5.85% 3.09% 5.94%
Total interest-bearing liabilities......... 3.99% 4.82% 3.98% 4.88%
Net interest rate spread..................... 2.93% 2.36% 3.01% 1.98%
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES AND OTHER ASSET VALUATION ALLOWANCES.
Due to an overall improvement in the status of the Savings Bank's classified
assets, additional provisions for possible loan losses were minimal at $84,000
for the three months ended March 31, 1994 as compared to $65,000 for the three
months ended March 31, 1993, and $107,000 for the six months ended March 31,
1994 as compared to $200,000 for the same period last year. Through the
Corporation's Asset Classification Policy, management will continue to monitor
the loan portfolio as well as other assets on a quarterly basis and evaluate the
adequacy of total valuation allowances. (See Provision for Possible Loan
Losses).
OTHER INCOME. Other income of $556,000 for the three months ended March 31,
1994 was a $171,000 increase over the same period in 1993. An $890,000 decrease
in gains from the sale of securities was more than offset by a $965,000 decrease
in expenses incurred in the day to day operations of Real Estate Held, both for
development and acquired in settlement of loans. Also included in noninterest
income in the loss from real estate operations category were additions to
valuation allowances on real estate projects in the amount of $254,000 during
the current year's quarter as compared to $923,000 for the prior year's quarter.
Other increases included gain on sale of loans and loan servicing fees, up
$65,000 and $62,000, respectively, for the current years second quarter.
Other income was $1,056,000 for the six months ended March 31, 1994, a
decrease of approximately $333,000 from the six months ended March 31, 1993.
Included in this decrease are gains from the sale of securities totalling only
$309,000 for the six months ended March 31, 1994, versus $1,225,000 for the same
period in 1993. This decrease was partially offset by a decrease in expenses
incurred in the day to day operations of Real Estate Held, both for development
and acquired in settlement of loans (income (loss) from real estate operations
has increased over $624,000 for the six month period). Other increases/decreases
for the six month period were minimal.
OTHER EXPENSES. Other expenses decreased $165,000 or $6.6% for the three
months ended March 31, 1994. Slight increases in insurance and miscellaneous
expenses ($9,000 and $37,000, respectively) were more than offset by decreases
in all other categories of noninterest expenses.
Other expenses decreased approximately $636,000 for the six months ended
March 31, 1994. The majority of this decrease is due to one time charges paid
during the quarter ended December 31, 1992 related to the
VII-4
<PAGE>
acquisition in November, 1992 of River's Bend on the James, a residential and
mixed use development in southern Chesterfield County. With the exception of
insurance (up only $7,000), all other categories of noninterest expense have
decreased.
On March 31, 1994, Pioneer Federal discovered that a commercial checking
account customer may have engaged in check kiting (i.e., the depositing and
drawing of checks between accounts at two or more banks, neither account of
which has sufficient funds to pay the checks, in a manner that improperly relies
upon the time that it takes a bank of deposit to collect from the paying bank)
by depositing checks from another institution into its deposit account at
Pioneer Federal and immediately writing checks on its Pioneer Federal account.
Those deposited checks were subsequently dishonored when presented by Pioneer
Federal for payment. Based upon Pioneer Financial's initial estimates, it did
not appear that the check kiting activity would have any significant adverse
impact to either Pioneer Financial or the Bank. As a result of its continued
investigation, Pioneer Federal can no longer so conclude and has since
determined that the kiting activity may give rise to a loss, the full amount of
which is still not determinable but could be up to $1.9 million. The amount of
any loss will be subject to, among other things, the extent of the recovery from
the checking account customer and/or the financial institution which processed
the checks, although it is unclear whether any action for either of such
recovery will be successful. PFC has been advised by its accountants that no
allowances for losses are required at this time. It is unclear what effect, if
any a loss to PFC from the check-kiting activity may have on the Holding Company
Merger and Bank merger with Signet.
SECURITIES
Securities as of March 31, 1994 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
AS OF MARCH 31, 1994
GROSS
UNREALIZED ESTIMATED
AMORTIZED GAINS MARKET
COST (LOSSES) VALUE
<S> <C> <C> <C>
Held to maturity
Mortgage-backed securities................. $ 20,951 $ (984) $ 19,967
United States Treasury..................... 49,759 (2,486) 47,273
Other securities........................... 485 -- 485
Total held to maturity.................. 71,195 (3,470) 67,725
Available for sale
Mortgage-backed securities................. 1,059 38 1,097
Corporate notes............................ 2,001 17 2,018
United States Treasury..................... 24,940 (1,334) 23,606
Asset management fund...................... 25,050 (175) 24,875
Other securities............................. 5,704 650 6,354
Total -- available for sale................ 58,754 (804) 57,950
Total securities............................. $129,949 $ (4,274) $125,675
</TABLE>
ASSET AND LIABILITY MANAGEMENT. Management of the Savings Bank strives to
manage the maturity or repricing match between assets and liabilities. The
degree to which Pioneer Federal is "mismatched" in its maturities is the primary
measure of interest rate risk. In periods when long-term interest rates are
higher than short-term interest rates, net interest income can be increased
through the financing of long-term assets with short-term deposits and
borrowings. Although such a strategy may increase profits in the short run, it
increases the risk of exposure to rising interest rates and can result in funds
costs rising faster than asset yields.
The Savings Bank's efforts to match the repricing maturities of assets and
liabilities are hampered by the lack of demand for mortgages or assets which
would re-price often enough to offer protection against rate changes and
certificates of deposit with lengthy maturities. The percentage of asset tests
imposed by the Internal Revenue code and FIRREA require significant investments
in residential loans, thus slowing the Savings Bank's effort to enlarge its
portfolios of assets which re-price quickly and offer a reasonable return.
The most common measure of interest rate risk is the gap ratio, i.e., the
difference between interest-earning assets and interest-bearing liabilities that
reprice or mature within one year expressed as a percent of total assets.
VII-5
<PAGE>
Typically the closer the gap ratio is to zero, the less sensitive is a company's
earnings to moderate changes in interest rates. Pioneer Federal's one year
cumulative gap ratio at March 31, 1994 was -17.09%.
The following table provides information as of March 31, 1994 on the
maturity and repricing interval of the Savings Bank's assets and liabilities,
based on their contractual term to maturity and the interest sensitivity gap of
the Savings Bank's assets and liabilities.
<TABLE>
<CAPTION>
MATURITY/REPRICING INTERVAL
6 MONTHS GREATER
LESS THAN TO 1 1 TO 3 3 TO 5 5 TO 10 THAN
6 MONTHS YEAR YEARS YEARS YEARS 10 YEARS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Interest-Earning Assets
Mortgage Loans............................. $ 71.0 $ 11.1 $ 23.1 $ 11.3 $ 6.0 $ 70.7 $193.2
Mortgage-Backed Securities................. -- -- 0.9 -- 19.6 1.5 22.0
Other Loans................................ 12.8 -- 1.1 1.5 0.9 3.1 19.4
Investment Securities/FHLB Stock........... 16.3 4.1 6.9 80.4 0.5 5.9 114.1
Federal Funds Sold......................... 1.2 -- -- -- -- -- 1.2
Other Earning Assets....................... 11.2 -- -- -- -- -- 11.2
Total Interest-Earning Assets........... $ 112.5 $ 15.2 $ 32.0 $ 93.2 $ 27.0 $ 81.2 $361.1
Interest-Bearing Liabilities Deposits
Deposits
Demand Deposits......................... 5.4 3.8 7.9 2.1 4.8 -- $ 23.4(1)
Savings Accounts........................ 5.5 5.0 15.9 10.4 24.8 -- 61.5(1)
Money Market Demand Accounts............ 27.5 12.6 5.6 2.6 2.4 -- 50.7(1)
Certificates of Deposit................. 57.7 43.3 40.2 33.6 -- -- 174.8
Notes Payable................................ 9.3 -- -- -- -- -- 9.3
FHLB Advances................................ 20.0 -- -- -- -- -- 20.0
Total Interest-Bearing Liabilities...... $ 124.7 $ 64.7 $ 69.6 $ 48.7 $ 32.0 $ -- $339.7
Interest Sensitivity Gap..................... $ (12.2) $(49.5) $(37.6) $ 44.5 $ (5.0) $ 81.2 $ 21.4
Cumulative Gap............................... $ (12.2) $(61.7) $(99.3) $(54.8) $ (59.8) $ 21.4
Ratio of Interest-Earning Assets to Interest-
Bearing Liabilities........................ 0.90 0.23 0.46 1.91 0.84 0.00 1.06
Cumulative Ratio of Interest-Earning Assets
to Interest-Bearing Liabilities............ 0.90 0.67 0.62 0.82 0.82 1.06
Cumulative GAP as a Percent of Total Earning
Assets..................................... -3.38% -17.09% -27.50% -15.18% -16.56% 5.93%
</TABLE>
(1) Repricing of these three types of deposits (demand, savings and money market
demand) are based on repricing assumptions as of December 31, 1993 furnished
by the FHLB of Atlanta through their interest rate risk service.
REAL ESTATE INVESTMENT. The Savings Bank's investment in real estate
ventures increased slightly at March 31, 1994 to $14.8 million as compared to
$14.3 million at September 30, 1993.
FEDERAL HOME LOAN BANK SYSTEM. Pioneer Federal is a member of the FHLB
System and, as a member, is required to own capital stock in the FHLB of Atlanta
in an amount at least equal to the greater of 1% of the aggregate outstanding
balance of its loans secured by residential real property at the close of each
year, or 5% of its outstanding advances from the FHLB of Atlanta. As a member of
the FHLB System, Pioneer Federal is authorized to borrow funds from the FHLB of
Atlanta to meet withdrawals of savings accounts, seasonal requirements, and to
expand its loan portfolio. At March 31, 1994, Pioneer Federal owned $6,935,000
of stock and had advances from the FHLB of $20,000,000, which mature in August
of 1994.
VII-6
<PAGE>
ASSET CLASSIFICATION. Pursuant to applicable regulations, the Savings Bank
has adopted a policy concerning the classification of problem assets. Under the
policy, problem loans and other assets are classified in three categories: (i)
Substandard, (ii) Doubtful, and (iii) Loss.
An asset is classified Substandard if it is determined to involve a
distinct possibility that the Savings bank could sustain some loss if
deficiencies associated with the loan are not corrected. An asset is classified
as Doubtful if full collection is highly questionable or improbable. An asset is
classified as Loss if it is considered uncollectible, even if a partial recovery
could be expected in the future. All assets classified as loss are 100%
reserved. The Savings Bank also evaluates assets deserving "special mention"
which, while not necessarily exposing the Savings Bank to loss, do possess
credit deficiencies or potential weaknesses deserving management's close
attention. If an asset is classified pursuant to the Savings Bank's policies (or
by regulatory examiners) general valuation allowances ("GVA's") are then
established. (See Valuation Allowances).
Total classified assets have decreased $4.3 million or 16.1% for the six
month period ended March 31, 1994, comprised of a $4.9 million decrease in
substandard assets and a $668,000 increase in loss assets. The following table
details information concerning the Savings Bank's classified assets at March 31,
1994, and the ratio of classified assets to total assets:
<TABLE>
<CAPTION>
SUBSTANDARD DOUBTFUL LOSS TOTAL
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Commercial real estate....................... $ 8,700 -- $ 721 $ 9,421
Mortgage Loans............................... 356 -- -- 356
Construction Loans........................... -- -- -- --
Other loans.................................. 244 -- 40 284
Real estate held for development............. 7,105 -- 1,065 8,170
Real estate owned............................ 3,881 -- 222 4,103
Total Classified Assets...................... $20,286 -- $2,048 $22,334
Ratio of Classified Assets to Total Assets... 5.17% -- 0.52% 5.69%
</TABLE>
NON-PERFORMING ASSETS. Loans are reviewed on a regular basis and are placed
on a non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Residential mortgage loans are placed on
non-accrual status when either principal or interest is 90 days or more past due
unless collectability is assured in the near future. Consumer loans generally
are charged off when the loan becomes over 120 days delinquent. Commercial,
business and real estate loans are placed on non-accrual status when the loan is
90 days or more past due, unless circumstances require alternate treatment ( a
loan can be past due more than 90 days and still be accruing interest). Interest
accrued and unpaid at the time a loan is placed on non-accrual status is charged
against interest income.
VII-7
<PAGE>
The following table sets forth information with respect to the Savings
Bank's non-performing loans at the dates indicated.
<TABLE>
<CAPTION>
03/31/94 09/30/93 09/30/92 09/30/91
<S> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Real Estate:
Residential..................................................... $ 202 $ 91 $ 376 $1,893
Commercial...................................................... -- -- 243 1,545
Commercial Business................................................ -- 363 391 1,144
Consumer........................................................... 20 -- 17 21
Total.............................................................. $ 222 $ 454 $1,027 $4,603
Accruing loans which are contractually past due 90 days or more:
Real Estate:
Residential..................................................... 154 143 322 582
Commercial...................................................... 6,753(1) 3,998 -- --
Commercial Business................................................ 250 238 849 --
Consumer -- -- -- --
Total.............................................................. $7,157 $4,379 $1,171 $ 582
Total of nonaccrual and 90 days past due loans $7,379(2) $4,833 $2,198 $5,185
Percentage of Total Loans 3.47% 2.30% 1.33% 2.92%
</TABLE>
(1) Pioneer Federal is currently involved in negotiations with the borrower
regarding the repayment of this loan secured by an office building that has
since been demolished because of its proximity to a sinkhole that developed
in February, 1994. Pioneer Federal intends to continue negotiations with the
borrower, who purchased the office building from a then-existing customer of
Pioneer, and does not expect that resolution of the loan will result in a
significant loss to PFC.
(2) Nonperforming loans which are classified assets as well are as follows:
<TABLE>
<S> <C>
Special Mention.................................... $6,420
Substandard........................................ 590
Doubtful........................................... --
Loss............................................... 356
Total.............................................. $7,366
</TABLE>
VALUATION ALLOWANCES. It is the Savings Bank's policy to establish specific
valuation allowances for loss against specific assets based on current
appraisals, discounted cash flow analysis and other factors when possible losses
are indicated on the loans or other assets. At March 31, 1994 allowances related
to specific assets (loans and real estate) amounted to $2.2 million.
In addition to specific valuation allowances, the Corporation also
calculates general valuation allowances ("GVA's") using two methods. The first
method applies certain percentages to classified asset balances which have first
been reduced for any specific valuation allowances. GVA's of this type totalled
$2.5 million at March 31, 1994. In addition to this type of GVA, the Corporation
also calculates GVA's on pass and unreviewed assets (all assets that are not
classified), based on, among other factors, historical loss experience for each
type of loan, trends in connection with portfolio amounts and composition, and
current economic conditions relating to the collectability of loans in the
portfolio. GVA's of this type totalled $1.4 million at March 31, 1994. Total
valuation allowances, both specific and general, totalled $6.1 million at March
31, 1994.
VII-8
<PAGE>
The following table sets forth the breakdown of the allowance for losses by
category at the dates indicated.
<TABLE>
<CAPTION>
ANALYSIS OF VALUATION ALLOWANCES
SPECIFIC VALUATION ALLOWANCES 3/31/94 12/31/93 9/30/93 9/30/92
<S> <C> <C> <C> <C>
Loans:
Residential Mortgage..................................................... $ 49 $ 49 $ 38 $ 356
Commercial Mortgage...................................................... 721 521 653 739
Construction............................................................. -- -- -- --
Commercial Business...................................................... 31 23 100 146
Consumer................................................................. 35 42 73 183
Total Specific Valuation Allowance -- Loans........................... $ 836 $ 635 $ 864 $1,424
Percent of Total Loans.............................................. 0.4% 0.3% 0.4% 0.8%
Real Estate
In-substance Foreclosure................................................. $ -- $ -- $ -- $ --
Real Estate Held for Development......................................... 1,138 890 807 154
Real Estate Owned........................................................ 222 216 431 841
Total Specific Valuation Allowance -- Real Estate..................... $1,360 $1,106 $1,238 $ 995
Percent of Total Real Estate........................................ 7.3% 6.0% 6.8% 4.3%
Total Specific Valuation Allowance......................................... $2,196 $1,741 $2,102 $2,419
Percent of Total Loans/Real Estate......................................... 1.0% 0.7% 0.9% 1.3%
<CAPTION>
GENERAL VALUATION ALLOWANCES
<S> <C> <C> <C> <C>
Loans:
Residential Mortgage..................................................... $ 129 $ 110 $ 112 $ 107
Commercial Mortgage...................................................... 1,997 2,001 2,012 2,614
Construction 484... 467 441 117
Commercial Business...................................................... 178 196 191 67
Consumer................................................................. 18 22 22 115
Total GVA -- Loans.................................................... $2,806 $2,796 $2,778 $3,020
Percent of Total Loans................................................ 1.3% 1.3% 1.3% 1.8%
Real Estate:
In-substance Foreclosures................................................ $ -- $ 365 $ 364 $ --
Real Estate Held for Development......................................... 748 772 722 --
Real Estate Owned........................................................ 388 41 118 --
Total GVA -- Total Real Estate........................................ $1,136 $1,178 $1,204 $ --
Percent of Total Real Estate.......................................... 6.1% 6.4% 6.7% --
Total GVA's........................................................... $3,942 $3,974 $3,982 $3,020
Percent of Total Loans/Real Estate and Other.......................... 1.7% 1.6% 1.7% 1.6%
Total Valuation Allowances................................................. $6,138 $5,715 $6,084 $5,439
Percent of Total Loans/Real Estate and Other............................... 2.6% 2.3% 2.7% 2.9%
</TABLE>
REAL ESTATE OWNED. Real estate owned includes property acquired in
settlement of loans and loans classified as insubstance foreclosure. Properties
acquired in settlement of loans and loans classified as insubstance foreclosure
are initially valued at the lower of cost or fair value based on available
appraisals at foreclosure or in consideration of estimated sales price and costs
of disposal as well as the estimated cost of holding and maintaining the
property. Carrying values are periodically adjusted to the lower of the adjusted
cost or net realizable value throughout the remaining holding period. Loans
classified as insubstance foreclosures consist of loans accounted for as
foreclosed property even though legal foreclosure has not occurred. Although the
collateral underlying these loans has not been repossessed, the borrower has no
equity in the collateral at its current estimated fair value, proceeds for
repayment are expected to come only from the operation or sale of the
collateral, and either the borrower has abandoned control of the project or it
is doubtful the borrower will rebuild equity in the collateral or repay the loan
by other means in the foreseeable future.
VII-9
<PAGE>
During the year ended September 30, 1993, the Corporation determined that
seven loans with outstanding balances of $3,767,331 had been insubstance
foreclosed, and, although formal foreclosure proceedings had not been initiated,
the investment in the loans had been reported in the same manner as collateral
that has been formally repossessed, regardless of whether the related loan is
formally restructured. Of the seven properties, six were sold during the quarter
ended December 31, 1993. The remaining property, at a carrying value of $3.4
million was formally foreclosed upon during the quarter ended March 31, 1994.
Subsequent to March 31, 1994, this property was sold at no additional loss to
the Corporation. As of March 31, 1994 there were no loans classified as
insubstance foreclosed.
The following table sets forth the balances in repossessed property at
March 31, 1994, and the allowance for loss by type of property.
<TABLE>
<CAPTION>
LESS: NET
ASSET SPECIFIC LESS: CARRYING
BALANCES ALLOWANCE GENERAL VALUE
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Real Estate Owned
Single Family Residential........................... $ 56 $ -- $ 6 $ 50
Multi-Family Residential............................ 3,627 125 350 3,152
Construction........................................ 116 30 8 78
Commercial.......................................... 305 67 24 214
Total Real Estate Owned.......................... $4,104 $ 222 $ 388 $3,494
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES. Under current regulations the Savings Bank
is required to maintain liquid assets at 5% or more of its net withdrawable
deposits plus short-term borrowings. With total liquidity of 24.6% at March 31,
1994, the Savings Bank more than met the 5% requirement. At December 31, 1993,
the Savings Bank had outstanding loan commitments totalling $13.5 million.
On August 9, 1989, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") was enacted into law to restructure the
regulation of the thrift industry. The legislation affects the thrift industry
in several ways, including more stringent capital requirements and new
investment limitations and restrictions. On November 8, 1989, the OTS published
a final rule implementing three new capital standards. The regulation requires
institutions to have a minimum regulatory tangible capital of 1.5% of total
assets, a minimum core capital ratio of 3.0%, and, as of December 31, 1992, a
8.0% risk-based capital ratio.
The following table sets forth the capital position of the Savings Bank as
calculated under FIRREA as of March 31, 1994, (in thousands):
<TABLE>
<CAPTION>
EXCESS
ACTUAL % OF REQUIRED % OF % OF
AMOUNT ASSETS* AMOUNT ASSETS* AMOUNT ASSETS*
<S> <C> <C> <C> <C> <C> <C>
Core................................................. $35,627 9.08% $ 11,686 3.00% $23,941 6.08%
Tangible............................................. 35,627 9.08% 5,843 1.50% 29,784 7.58%
Risk-weighted........................................ 38,822 17.09% 18,177 8.00% 20,645 9.09%
</TABLE>
* Based upon adjusted total assets for the core and tangible capital
requirements, and risk-weighted assets for the risk-based capital requirement.
On September 3, 1992, the OTS issued a proposed rule which would set forth
the methodology for calculating an interest rate component that would be
incorporated in the OTS regulatory capital rule. This recent proposal replaces
an earlier proposal by the OTS to calculate interest rate risk. Under the new
proposal, only savings associations with "above normal" interest rate risk
exposure (i.e., where an institution's market value portfolio equity would
decline in value by more than 2% of assets in the event of a hypothetical
200-basis-point move in interest rates) would be required to maintain additional
capital. The additional capital that such an institution would be required to
maintain would be equal to one half the difference between its measured interest
rate risk and 2%, multiplied by the market value of its assets. That dollar
amount of capital would be in addition to an institution's existing risk-based
capital requirement. If adopted in final form, this proposal could increase the
amount of regulatory capital required to be held by the Corporation.
VII-10
<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.
PIONEER FINANCIAL CORPORATION
(Registrant)
<TABLE>
<S> <C>
Date June 2, 1994 By: /s/ G. R. Whittemore
G. R. Whittemore
President and Chief Executive Officer
Date June 2, 1994 By: /s/ H. Lee Rettig
H. Lee Rettig
Chief Accounting Officer
</TABLE>
VII-11
<PAGE>
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VII-12
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
( ) TRANSITION REPORT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-17103
PIONEER FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
UNITED STATES 54-1439439
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
5601 IRONBRIDGE PARKWAY, CHESTER, VA 23831
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) ZIP CODE
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA (804) 748-9733
CODE:
</TABLE>
COMMON STOCK ($1.00 PAR VALUE PER SHARE)
(TITLE AND CLASS)
Indicate by using an X 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 ( )
As of May 13, 1994 there were issued and outstanding 2,348,799 shares of
the common stock of Pioneer Financial Corporation.
VII-13
<PAGE>
PIONEER FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements........................................................ 3
Statements of Financial Condition, March 31, 1994 (unaudited) and
September 30, 1993..................................................................... 4
Statements of Operations, Three Months and Six Months Ended
March 31, 1994 and 1993 (unaudited).................................................... 5
Statement of Stockholders' Equity (unaudited), March 31, 1994............................ 6
Statements of Cash Flows, Six Months Ended March 31, 1994 and 1993 (unaudited)........... 7
Notes to Consolidated Financial Statements............................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 20
<CAPTION>
PART II. OTHER INFORMATION
<S> <C> <C>
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Materially Important Events
Item 6. Exhibits and Reports on Form 8-K
<CAPTION>
SIGNATURES
</TABLE>
VII-14
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DOLLARS IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
MAR. 31, 1994 SEPT. 30, 1993
<S> <C> <C>
(UNAUDITED)
ASSETS
Cash.............................................................................. $ 1,001 $ 2,309
Interest bearing deposits......................................................... 11,211 22,640
Federal funds sold................................................................ 1,162 197
Securities
Held to maturity (estimated market value of $67,725 and $488).................. 71,195 488
Available for sale (cost of $58,754 and $135,294).............................. 57,950 136,403
Loans receivable, net............................................................. 212,638 210,399
Investment in Federal Home Loan Bank stock........................................ 6,935 6,763
Real estate, net:
Acquired in settlement of loans................................................ 3,882 506
In-substance foreclosure....................................................... -- 3,277
Held for development or resale................................................. 14,800 14,319
Properties and equipment, net..................................................... 4,249 4,327
Accrued interest receivable:
Loans.......................................................................... 1,790 2,249
Securities and other interest-earning assets................................... 872 945
Prepaid expenses and other assets................................................. 4,501 3,826
Total Assets................................................................... $ 392,186 $408,648
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits.......................................................................... $ 310,403 $313,674
Securities sold under agreements to repurchase and other borrowings............... 9,250 10,300
Advances from Federal Home Loan Bank.............................................. 20,000 30,000
Advance payments by borrowers for taxes and insurance............................. 1,246 1,013
Other liabilities................................................................. 524 3,525
Total Liabilities.............................................................. $ 341,423 $358,512
Stockholders' Equity:
Common stock...................................................................... 2,349 2,342
Additional capital................................................................ 5,851 5,811
Retained earnings................................................................. 43,072 41,423
Net unrealized gain (loss) on securities available for sale....................... (509) 560
Total Stockholders' Equity..................................................... 50,763 50,136
Total Liabilities and Stockholders' Equity................................... $ 392,186 $408,648
Book value, per share............................................................. $ 21.61 $ 21.40
</TABLE>
VII-15
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
DOLLARS IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MAR. 31, 1994 MAR. 31, 1993 MAR. 31, 1994 MAR. 31, 1993
<S> <C> <C> <C> <C>
(UNAUDITED)
Interest income
Loans receivable
Real estate loans...................................... $ 4,214 $ 4,544 $ 8,731 $ 8,705
Other loans............................................ 430 252 811 647
Securities
Held to maturity....................................... 1,078 2,251 1,180 3,512
Available for sale..................................... 556 1,093 1,994 2,253
3 2 3 2
Other interest-earning assets............................. 103 148 450 997
Total interest income.................................. 6,384 8,290 13,169 16,116
Interest expense
Deposits.................................................. 3,103 3,388 6,337 6,912
Short term borrowings..................................... 258 865 525 1,682
Long term borrowings...................................... -- 884 -- 1,785
Total interest expense................................. 3,361 5,137 6,862 10,379
Net Interest Income......................................... 3,023 3,153 6,307 5,737
Provision for loan losses................................... 84 65 106 200
Net interest income after provision for loan losses......... 2,939 3,088 6,201 5,537
Noninterest income
Gain (loss) from securities
Held to maturity....................................... -- -- -- 176
Available for sale..................................... 161 1,070 242 1,052
Trading................................................ 61 42 67 (3)
Gain on sale of loans..................................... 164 99 378 332
Loan servicing fees....................................... 274 212 554 595
Income (loss) from real estate operations................. (245) (1,210) (476) (1,100)
Deposit servicing fees.................................... 128 122 247 232
Other..................................................... 13 50 44 105
Total noninterest income............................... 556 385 1,056 1,389
Noninterest expense
Compensation and employee benefits........................ 1,107 1,157 2,248 2,296
Occupancy................................................. 455 531 919 1,064
Advertising............................................... 59 129 191 273
Data processing services.................................. 30 42 57 78
Insurance................................................. 259 249 517 510
Other..................................................... 415 381 723 1,070
Total noninterest expense.............................. 2,325 2,489 4,655 5,291
Income before income taxes.................................. 1,170 984 2,602 1,635
Income taxes................................................ 368 229 718 402
Net income.................................................. $ 802 $ 755 $ 1,884 $ 1,233
Earnings per common share................................... $ 0.33 $ 0.31 $ 0.77 $ 0.50
Dividends paid per common share............................. $ 0.05 $ -- $ 0.10 $ 0.10
Average shares outstanding.................................. 2,457,095 2,454,879 2,447,053 2,456,339
</TABLE>
VII-16
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
AS OF MARCH 31, 1994
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON TOTAL
COMMON ADDITIONAL RETAINED SECURITIES STOCKHOLDERS'
STOCK CAPITAL EARNINGS AVAILABLE FOR SALE EQUITY
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Balance at September 30, 1993................... $2,342 $5,811 $ 41,423 $ 560 $50,136
Net income for the six months ended March 31,
1994.......................................... -- -- 1,884 -- 1,884
Cash Dividends -- Common Stock, $0.10 per
share......................................... -- -- (235) -- (235)
Stock options exercised......................... 7 40 -- -- 47
Net unrealized gain (loss) on securities
available for sale............................ -- -- -- (1,069) (1,069)
Balance at March 31, 1994....................... $2,349 $5,851 $ 43,072 $ (509) $50,763
</TABLE>
VII-17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1994 1993
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Operating Activities
Net income (loss).......................................................... $ 1,884 $ 1,233
Adjustments
Purchase of trading account securities................................... (14,751) (90,100)
Proceeds from sale of trading account securities......................... 14,818 90,097
Provision for losses..................................................... 361 1,201
Gain on sale of assets................................................... (680) (1,574)
Amortization and depreciation............................................ 246 347
(Increase) decrease in accrued interest receivable....................... 147 (936)
Other.................................................................... (3,526) 423
Net Cash Provided (Absorbed) By Operating Activities................ $ (1,501) $ 691
Investing Activities
Purchase of securities
Investment............................................................... -- (121,183)
Held for sale............................................................ (120,619) (56,950)
Proceeds from sale of securities
Investment............................................................... -- 176
Held for sale............................................................ 122,565 62,592
Proceeds from principal payments and maturities of securities
Investment............................................................... 296 4,160
Held for sale............................................................ 4,290 22,463
Proceeds from sale of loans................................................ 24,429 20,661
Loan originations and principal payments on loans.......................... (26,224) (42,626)
Proceeds from sale of real estate.......................................... 1,050 911
Proceeds from sale (purchase) of Federal Home Loan Bank stock.............. (172) (182)
Other...................................................................... (1,609) (1,016)
Net Cash Provided (Absorbed) By Investing Activities................ $ 4,006 $ (110,994)
Financing Activities
Net increase (decrease) in deposits...................................... (3,271) 10,248
Repurchase of common and preferred stock................................. -- (357)
Cash dividends paid on common stock...................................... (235) (246)
Repayments of Federal Home Loan Bank advances............................ (10,000) --
Proceeds from securities sold under agreements to repurchase and from
other borrowings...................................................... 144,398 129,331
Payments on securities sold under agreements to repurchase and other
borrowings............................................................ (145,448) (129,331)
Decrease in escrow deposits.............................................. 233 (28)
Other.................................................................... 46 --
Net Cash Provided (Absorbed) By Financing Activities................ $ (14,277) $ 9,617
Increase in Cash and Cash Equivalents...................................... (11,772) (100,686)
Cash and Cash Equivalents -- beginning of year............................. 25,146 122,776
Cash and Cash Equivalents -- end of year................................... $ 13,374 $ 22,090
</TABLE>
VII-18
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
The condensed consolidated financial statements included herein have been
prepared by Pioneer Financial Corporation (the "Corporation" or "Pioneer
Financial"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Pioneer Financial is the Holding
company of Pioneer Federal Savings Bank (the "Bank" or "Pioneer Federal"), and
Pioneer Properties Inc. (a real estate brokerage company). The majority of the
earnings and performance figures herein reflect the results of Pioneer Federal.
Pioneer Federal is a federally chartered savings bank with executive and
administrative offices in Chester, Virginia, which conducts business through a
total of 11 full service retail banking offices located in central Virginia in
the cities of Richmond, Colonial Heights, Petersburg and Hopewell, Virginia; the
counties of Chesterfield and Henrico; and the town of Chase City, Virginia. The
Savings Bank, through a wholly owned subsidiary also has a separate mortgage
loan production office in Henrico county.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the results of operations for
the applicable periods have been made. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and the notes
thereto in the Company's Annual Report to Stockholders for the year ended
September 30, 1993, filed with the SEC on or about December 28, 1993. The
results for the period covered hereby will not necessarily be indicative of the
operating results for the full year ending September 30, 1994.
VII-19
<PAGE>
PIONEER FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management of Pioneer Financial Corp.,
all adjustments necessary for a fair presentation of the financial statements
have been included. The results of operations for the six month period ended
March 31, 1994 are not necessarily indicative of the results which may be
expected for the entire year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended September 30, 1993.
NOTE B -- PER SHARE DATA
Earnings per share is computed by dividing earnings by the weighted average
number of shares outstanding during the period. For the three and six months
ended March 31, 1994 the weighted average number of shares of common stock was
adjusted for the effects of existing stock options, which are considered common
stock equivalents. The calculation of earnings per share for the three and six
months ended March 31, 1993 did not include the existing stock options as their
dilutive effect was less than three percent. The weighted average number of
shares of common stock outstanding were 2,447,053 and 2,456,339 for the six
months ended March 31, 1994 and 1993, respectively.
NOTE C -- Transfers from loans to real estate acquired through foreclosure
amounted to approximately $0 and $182,000 for the six months ended March 31,
1994 and 1993 respectively. Transfers from loans to real estate insubstance
foreclosed amounted to $56,000 and $355,000 for the six months ended March 31,
1994 and 1993, respectively, while real estate insubstance foreclosed
transferred to real estate acquired through foreclosure amounted to
approximately $3,570,000 and $6,385,000 for the six months ended March 31, 1994
and 1993, respectively.
NOTE D -- CASH AND EQUIVALENTS
For the purpose of reporting cash flows, the Corporation considers all
highly liquid debt instruments, such as federal funds and overnight deposits, to
be cash equivalents.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Management's Discussion and Analysis should be read in conjunction
with the Management's Discussion and Analysis contained in the company's Annual
Report to Stockholders, which focuses upon relevant matters occurring during the
year commencing October 1, 1992 and ending September 30, 1993. Accordingly, the
ensuing discussion focuses upon material matters at and for the six months ended
March 31, 1994.
GENERAL.
Pioneer Financial was incorporated in Virginia in November 1987 and became
the sole shareholder of Pioneer Federal Savings Bank ("Pioneer Federal").
Presently, the primary business of Pioneer Financial is the business of Pioneer
Federal. Pioneer Financial also owns Pioneer Properties Inc. which is a real
estate brokerage company. At March 31, 1994, the Corporation had assets of
$392.2 million, total deposits of $310.4 million and stockholders' equity of
$50.8 million.
Management estimates that Pioneer Federal has approximately 45.2%
(approximately $115.1 million) of the total financial institution deposits in
the city of Hopewell, Virginia, where it operates its main office and a branch
office. The Savings Bank was chartered as a mutual association in 1933, and
became a member of the Federal Home Loan Bank System in 1934. In July 1984
Pioneer Federal converted to a federal capital stock savings and loan
association and in June 1988 changed its name to Pioneer Federal Savings Bank
upon conversion to a federal capital stock savings bank.
VII-20
<PAGE>
MERGER
On February 16, 1994, Pioneer Financial entered into a Reorganization and
Merger Agreement (the "Agreement") providing for the acquisition of Pioneer
Financial by Signet Banking Corporation ("Signet"). The Agreement provides for
the exchange of .6232 shares of Signet common stock, subject to adjustment under
certain conditions, for each share of Pioneer Financial's common stock,
resulting in a price per share of $23.68 based upon the closing Signet stock
price on February 16, 1994. Also as of February 16, 1994, Pioneer Financial and
Signet executed an Option Agreement whereby Pioneer Financial granted Signet an
option to acquire 467,013 shares of Pioneer Financial's common stock at a price
of $21.75 per share, exercisable under certain specified conditions. The
acquisition pursuant to the Agreement is subject to the ratification of various
conditions, including the approval of various regulatory authorities and the
shareholders of Pioneer Financial. Further, the acquisition must be consummated
not later than December 31, 1994.
CHANGES IN FINANCIAL CONDITION
Although assets have decreased over $16.5 million or 4.0% at March 31,
1994, there have been few significant increases or decreases in any one category
from September 30, 1993. Cash, interest bearing deposits and federal funds sold
(down in total $11.8 million for the six month period) combined with proceeds
from the sale of and principal repayments on securities were used to fund new
loans (net increase of $2.2 million) and to repay $11.1 million of Federal Home
Loan Bank ("FHLB") advances and other borrowings. Also during the quarter ended
March 31, 1994, the Corporation reclassified approximately $71.0 million of
securities from the available for sale to the held to maturity category of
securities. The net unrealized loss on these securities ($22,000) was recorded
as a decrease to shareholders' equity, and will be amortized into expense over
the remaining life of the securities.
Stockholders' Equity increased ($627,000 or 1.3%) as net income for the six
month period of $1,884,000 was partially offset by two regular quarterly $0.05
per share common stock dividends totalling $235,000, as well as an adjustment
for the net unrealized loss on securities available for sale.
RESULTS OF OPERATION
The Corporation's results of operations are dependent to a large extent on
its net interest income, which is the difference between the interest income it
receives on its interest-earning assets (principally loans and securities) and
the interest expense, or cost of funds, of its interest-bearing liabilities
(principally deposits and, to a lesser extent, FHLB advances and other
borrowings). Banking fees, service charges, and other income; gains or losses on
the sale of loans and other assets, and the level of general and operating
expenses (non-interest expense) also have significant effects on the
Corporation's results of operations.
NET INCOME. The Corporation recorded net income of $802,000 or $.33 per
share for the quarter ended March 31, 1994 as compared to $755,000 or $.31 per
share for the prior year's second quarter. This increase was mainly attributable
to an increase in noninterest income combined with a decrease in noninterest
expenses. For the six months ended March 31, 1994 the Corporation recorded net
income of $1,884,000 or $.77 per share compared to a net income for the same
period a year earlier of $1,233,000 or $.50 per share. This increase was the
result of an increase in net interest margin and a significant decrease in
operating expenses, which was only slightly offset by a decrease in other
non-interest income items.
THREE AND SIX MONTHS ENDED MARCH 31, 1994 COMPARED TO MARCH 31, 1993
INTEREST INCOME. Interest income on all interest earning assets was $6.4
million for the quarter ended March 31, 1994 as compared to $8.3 million for the
comparable period in 1993, a decrease of $1.9 million or 23.0%. A $17.7 million
increase in the average outstanding balance of loans for the current quarter was
not enough to offset an 11.0% decrease in the average yield thereon. The
majority of this decrease in interest income, however, was the result of a
$103.3 million decrease in the average outstanding balance and a 14.1% decrease
in the average yield of securities. Total interest income from securities
amounted to $1.6 million for the three months ended March 31, 1994 as compared
to $3.3 million for the three months ended March 31, 1993.
Interest income on all interest earning assets for the six months ended
March 31, 1994 was $13.2 million, a decrease of approximately $2.9 million or
18.3% over the same period in 1993. Although there was a slight (13 basis point)
increase in the average yield on interest earning assets, a 17.6% decrease in
the average outstanding
VII-21
<PAGE>
balance of these assets resulted in the decrease in total interest income. For
the six months ended March 31, 1994 the average balance of all interest earning
assets was $375.3 millon yielding 7.0%, compared to $455.2 million yielding 6.9%
in the previous year. This $80.0 million decrease in the average balance of all
interest earning assets related to funds used to prepay debt during the year
ended September 30, 1993.
For the six month period ended March 31, 1994 interest income on loans
increased by approximately $190,000 or 2.0% for the current year. While average
loans outstanding increased 12.3% for the six month period, the average yield on
these loans decreased 7.5%. For the same two periods, interest on securities
decreased $2.6 million, the direct result of a 38.5% decrease in the average
outstanding balance as well as a 9.6% decrease in average yield. Interest income
on other interest earning assets (FHLB stock, federal funds sold, and cash)
decreased approximately $547,000 or 54.9% due mainly to a 45.0% decrease in the
average outstanding balance of these assets.
INTEREST EXPENSE. Total interest expense decreased from $5.1 million for
the quarter ended March 31, 1993 to $3.4 million for the current quarter, a
decrease of over 34%. The majority of this decrease was directly attributable to
a 85.2% decrease in interest expense paid on borrowings. Total interest on
borrowings decreased by $1.5 million during the current quarter, the direct
result of prepaying $45.5 million of FHLB advances in June, 1993 at an after tax
penalty of $2.2 million as well as repaying, upon maturity, $47.5 million in
additional debt with the FHLB. $10.0 million of such debt was paid in October,
1993, and the remainder had been repaid during the year ended September 30,
1993. Interest expense on deposits decreased $286,000 or 8.4% for the current
three month period due mainly to an 8.8% decrease in the average cost of
deposits.
Interest expense for the six months ended March 31, 1994 decreased
approximately $3.5 million or 33.9% over the similar period in 1993. A 9.3%
decrease in average cost of deposits, partially offset by a $1.8 million
increase in average outstanding balance resulted in total interest expense on
deposits decreasing by approximately $575,000 or 8.3%. For the six months ended
March 31, 1994, deposits averaged $313.9 million at an average cost of 4.1%,
compared to an average balance of $312.1 million and an average cost of 4.5% for
the comparable period in 1993. Total interest on borrowings decreased by over
$2.9 million or 84.9%, the direct result of prepaying FHLB advances as discussed
in the preceding paragraph.
NET INTEREST MARGIN. Although net interest margin decreased slightly
($130,000 or 4.1%) for the quarter ended March 31, 1994, net interest spread
increased from 2.4% for the three months ended March 31, 1993 to just over 2.9%
for the three months ended March 31, 1994. (See table below)
Although decreases were experienced for the six months ended March 31, 1994
in both interest income and interest expense, net interest margin increased by
almost $570,000 or 9.9%. Net interest spread has increased from 2.0% for the six
months ended March 31, 1993 to 3.0% for the current six month period, reflecting
a more rapid decline in cost of liabilities than the decline in yield on assets.
The following table sets forth information concerning the yields earned on
interest earning assets, the rates paid on interest bearing liabilities and the
resultant net interest rate spread for the three and six month periods ended
March 31, 1994 and 1993. The yields earned and rates paid are based on average
balances.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
MARCH 31 MARCH 31
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest-earning assets:
Real estate loans.......................... 8.34% 9.40% 8.59% 9.28%
Other loans................................ 8.87% 9.73% 8.93% 9.74%
Mortgage-backed securities................. 6.60% 6.45% 6.37% 6.58%
Securities held to maturity................ 4.10% 8.69% 4.10% 9.12%
Securities available for sale.............. 4.69% 4.44% 4.73% 4.44%
Other investments.......................... 4.04% 3.67% 3.56% 3.41%
Total interest-earning assets........... 6.92% 7.18% 6.99% 6.86%
Interest-bearing liabilities
Deposits................................... 4.04% 4.43% 4.06% 4.48%
Borrowings................................. 3.45% 5.85% 3.09% 5.94%
Total interest-bearing liabilities...... 3.99% 4.82% 3.98% 4.88%
Net interest rate spread..................... 2.93% 2.36% 3.01% 1.98%
</TABLE>
VII-22
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES AND OTHER ASSET VALUATION ALLOWANCES.
Due to an overall improvement in the status of the Savings Bank's classified
assets, additional provisions for possible loan losses were minimal at $84,000
for the three months ended March 31, 1994 as compared to $65,000 for the three
months ended March 31, 1993, and $107,000 for the six months ended March 31,
1994 as compared to $200,000 for the same period last year. Through the
Corporation's Asset Classification Policy, management will continue to monitor
the loan portfolio as well as other assets on a quarterly basis and evaluate the
adequacy of total valuation allowances. (See Provision for Possible Loan
Losses).
OTHER INCOME. Other income of $556,000 for the three months ended March 31,
1994 was a $171,000 increase over the same period in 1993. An $890,000 decrease
in gains from the sale of securities was more than offset by a $965,000 decrease
in expenses incurred in the day to day operations of Real Estate Held, both for
development and acquired in settlement of loans. Also included in noninterest
income in the loss from real estate operations category were additions to
valuation allowances on real estate projects in the amount of $254,000 during
the current year's quarter as compared to $923,000 for the prior year's quarter.
Other increases included gain on sale of loans and loan servicing fees, up
$65,000 and $62,000, respectively, for the current years second quarter.
Other income was $1,056,000 for the six months ended March 31, 1994, a
decrease of approximately $333,000 from the six months ended March 31, 1993.
Included in this decrease are gains from the sale of securities totalling only
$309,000 for the six months ended March 31, 1994, versus $1,225,000 for the same
period in 1993. This decrease was partially offset by a decrease in expenses
incurred in the day to day operations of Real Estate Held, both for development
and acquired in settlement of loans (income (loss) from real estate operations
has increased over $624,000 for the six month period). Other increases/decreases
for the six month period were minimal.
OTHER EXPENSES. Other expenses decreased $165,000 or $6.6% for the three
months ended March 31, 1994. Slight increases in insurance and miscellaneous
expenses ($9,000 and $37,000, respectively) were more than offset by decreases
in all other categories of noninterest expenses.
Other expenses decreased approximately $636,000 for the six months ended
March 31, 1994. The majority of this decrease is due to one time charges paid
during the quarter ended December 31, 1992 related to the acquisition in
November, 1992 of River's Bend on the James, a residential and mixed use
development in southern Chesterfield County. With the exception of insurance (up
only $7,000), all other categories of noninterest expense have decreased.
On March 31, 1994, Pioneer Federal discovered that a commercial checking
account customer may have engaged in check kiting (i.e, the depositing and
drawing of checks between accounts at two or more banks, neither account of
which has sufficient funds to pay the checks, in a manner that improperly relies
upon the time that it takes a bank of deposit to collect from the paying bank)
by depositing checks from another institution into its deposit account at
Pioneer Federal and immediately writing checks on its Pioneer Federal account.
Those deposited checks were subsequently dishonored when presented by Pioneer
Federal for payment. Based upon Pioneer Financial's initial estimates, it did
not appear that the check kiting activity would have any significant adverse
impact to either Pioneer Financial or the Bank. As a result of its continued
investigation, Pioneer Federal can no longer so conclude and has since
determined that the kiting activity may give rise to a loss, the full amount of
which is still not determinable but could be up to $1.9 million. The amount of
any loss will be subject to, among other things, the extent of the recovery from
the checking account customer and/or the financial institution which processed
the checks, although it is unclear whether any action for either of such
recovery will be successful. PFC has been advised by its accountants that no
allowances for losses are required at this time. It is unclear what effect, if
any a loss to PFC from the check-kiting activity may have on the Holding Company
Merger and Bank merger with Signet.
VII-23
<PAGE>
SECURITIES
Securities as of March 31, 1994 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
AS OF MARCH 31, 1994
GROSS
UNREALIZED ESTIMATED
AMORTIZED GAINS MARKET
COST (LOSSES) VALUE
<S> <C> <C> <C>
Held to maturity
Mortgage-backed securities................. $ 20,951 $ (984) $ 19,967
United States Treasury..................... 49,759 (2,486) 47,273
Other securities........................... 485 -- 485
Total held to maturity.................. 71,195 (3,470) 67,725
Available for sale
Mortgage-backed securities................. 1,059 38 1,097
Corporate notes............................ 2,001 17 2,018
United States Treasury..................... 24,940 (1,334) 23,606
Asset management fund...................... 25,050 (175) 24,875
Other securities........................... 5,704 650 6,354
Total -- available for sale............. 58,754 (804) 57,950
Total securities...................... $ 129,949 $ (4,274) $ 125,675
</TABLE>
ASSET AND LIABILITY MANAGEMENT. Management of the Savings Bank strives to
manage the maturity or repricing match between assets and liabilities. The
degree to which Pioneer Federal is "mismatched" in its maturities is the primary
measure of interest rate risk. In periods when long-term interest rates are
higher than short-term interest rates, net interest income can be increased
through the financing of long-term assets with short-term deposits and
borrowings. Although such a strategy may increase profits in the short run, it
increases the risk of exposure to rising interest rates and can result in funds
costs rising faster than asset yields.
The Savings Bank's efforts to match the repricing maturities of assets and
liabilities are hampered by the lack of demand for mortgages or assets which
would re-price often enough to offer protection against rate changes and
certificates of deposit with lengthy maturities. The percentage of asset tests
imposed by the Internal Revenue code and FIRREA require significant investments
in residential loans, thus slowing the Savings Bank's effort to enlarge its
portfolios of assets which re-price quickly and offer a reasonable return.
The most common measure of interest rate risk is the gap ratio, i.e., the
difference between interest-earning assets and interest-bearing liabilities that
reprice or mature within one year expressed as a percent of total assets.
Typically the closer the gap ratio is to zero, the less sensitive is a company's
earnings to moderate changes in interest rates. Pioneer Federal's one year
cumulative gap ratio at March 31, 1994 was -17.09%.
VII-24
<PAGE>
The following table provides information as of March 31, 1994 on the
maturity and repricing interval of the Savings Bank's assets and liabilities,
based on their contractual term to maturity and the interest sensitivity gap of
the Savings Bank's assets and liabilities.
<TABLE>
<CAPTION>
MATURITY/REPRICING INTERVAL
LESS THAN 6 MONTHS 1 TO 3 3 TO 5
6 MONTHS TO 1 YEAR YEARS YEARS
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Interest-Earning Assets
Mortgage Loans............................. $ 71.0 $ 11.1 $ 23.1 $ 11.3
Mortgage-Backed Securities................. -- -- 0.9 --
Other Loans................................ 12.8 -- 1.1 1.5
Investment Securities/FHLB Stock........... 16.3 4.1 6.9 80.4
Federal Funds Sold......................... 1.2 -- -- --
Other Earning Assets....................... 11.2 -- -- --
Total Interest-Earning Assets............ $ 112.5 $ 15.2 $ 32.0 $ 93.2
Interest-Bearing Liabilities Deposits
Deposits
Demand Deposits.......................... $ 5.4 $ 3.8 $ 7.9 $ 2.1
Savings Accounts......................... 5.5 5.0 15.9 10.4
Money Market Demand Accounts............. 27.5 12.6 5.6 2.6
Certificates of Deposit.................. 57.7 43.3 40.2 33.6
Notes Payable................................ 9.3 -- -- --
FHLB Advances................................ 20.0 -- -- --
Total Interest-Bearing Liabilities........... $ 124.7 $ 64.7 $ 69.6 $ 48.7
Interest Sensitivity Gap..................... $ (12.2 ) $ (49.5 ) $ (37.6) $ 44.5
Cumulative Gap............................... $ (12.2 ) $ (61.7 ) $ (99.3) $ (54.8)
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities............... 0.90 0.23 0.46 1.91
Cumulative Ratio of Interest-Earning Assets
to Interest-Bearing Liabilities............ 0.90 0.67 0.62 0.82
Cumulative GAP as a Percent of Total Earning
Assets..................................... -3.38% -17.09% -27.50% -15.18%
<CAPTION>
5 TO 10 GREATER THAN
YEARS 10 YEARS TOTAL
<S> <C> <C> <C>
Interest-Earning Assets
Mortgage Loans............................. $ 6.0 $ 70.7 $193.2
Mortgage-Backed Securities................. 19.6 1.5 22.0
Other Loans................................ 0.9 3.1 19.4
Investment Securities/FHLB Stock........... 0.5 5.9 114.1
Federal Funds Sold......................... -- -- 1.2
Other Earning Assets....................... -- -- 11.2
Total Interest-Earning Assets............ $ 27.0 $ 81.2 $361.1
Interest-Bearing Liabilities Deposits
Deposits
Demand Deposits.......................... $ 4.8 $ -- $ 23.4(1)
Savings Accounts......................... 24.8 -- 61.5(1)
Money Market Demand Accounts............. 2.4 -- 50.7(1)
Certificates of Deposit.................. -- -- 174.8
Notes Payable................................ -- -- 9.3
FHLB Advances................................ -- -- 20.0
Total Interest-Bearing Liabilities........... $ 32.0 $ -- $339.7
Interest Sensitivity Gap..................... $ (5.0) $ 81.2 $ 21.4
Cumulative Gap............................... $ (59.8) $ 21.4
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities............... 0.84 0.00 1.06
Cumulative Ratio of Interest-Earning Assets
to Interest-Bearing Liabilities............ 0.82 1.06
Cumulative GAP as a Percent of Total Earning
Assets..................................... -16.56% 5.93%
</TABLE>
(1) Repricing of these three types of deposits (demand, savings and money market
demand) are based on repricing assumptions as of December 31, 1993 furnished
by the FHLB of Atlanta through their interest rate risk service.
REAL ESTATE INVESTMENT. The Savings Bank's investment in real estate
ventures increased slightly at March 31, 1994 to $14.8 million as compared to
$14.3 million at September 30, 1993.
FEDERAL HOME LOAN BANK SYSTEM. Pioneer Federal is a member of the FHLB
System and, as a member, is required to own capital stock in the FHLB of Atlanta
in an amount at least equal to the greater of 1% of the aggregate outstanding
balance of its loans secured by residential real property at the close of each
year, or 5% of its outstanding advances from the FHLB of Atlanta. As a member of
the FHLB System, Pioneer Federal is authorized to borrow funds from the FHLB of
Atlanta to meet withdrawals of savings accounts, seasonal requirements, and to
expand its loan portfolio. At March 31, 1994, Pioneer Federal owned $6,935,000
of stock and had advances from the FHLB of $20,000,000, which mature in August
of 1994.
VII-25
<PAGE>
ASSET CLASSIFICATION. Pursuant to applicable regulations, the Savings Bank
has adopted a policy concerning the classification of problem assets. Under the
policy, problem loans and other assets are classified in three categories: (i)
Substandard, (ii) Doubtful, and (iii) Loss.
An asset is classified Substandard if it is determined to involve a
distinct possibility that the Savings bank could sustain some loss if
deficiencies associated with the loan are not corrected. An asset is classified
as Doubtful if full collection is highly questionable or improbable. An asset is
classified as Loss if it is considered uncollectible, even if a partial recovery
could be expected in the future. All assets classified as loss are 100%
reserved. The Savings Bank also evaluates assets deserving "special mention"
which, while not necessarily exposing the Savings Bank to loss, do possess
credit deficiencies or potential weaknesses deserving management's close
attention. If an asset is classified pursuant to the Savings Bank's policies (or
by regulatory examiners) general valuation allowances ("GVA's") are then
established. (See Valuation Allowances).
Total classified assets have decreased $4.3 million or 16.1% for the six
month period ended March 31, 1994, comprised of a $4.9 million decrease in
substandard assets and a $668,000 increase in loss assets. The following table
details information concerning the Savings Bank's classified assets at March 31,
1994, and the ratio of classified assets to total assets:
<TABLE>
<CAPTION>
SUBSTANDARD DOUBTFUL LOSS TOTAL
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Commercial real estate....................... $ 8,700 -- $ 721 $ 9,421
Mortgage loans............................... 356 -- -- 356
Construction loans........................... -- -- -- --
Other loans.................................. 244 -- 40 284
Real estate held for development............. 7,105 -- 1,065 8,170
Real estate owned............................ 3,881 -- 222 4,103
Total Classified Assets...................... $20,286 -- $2,048 $22,334
Ratio of Classified Assets to Total Assets... 5.17% -- 0.52% 5.69%
</TABLE>
NON-PERFORMING ASSETS. Loans are reviewed on a regular basis and are placed
on a non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Residential mortgage loans are placed on
non-accrual status when either principal or interest is 90 days or more past due
unless collectability is assured in the near future. Consumer loans generally
are charged off when the loan becomes over 120 days delinquent. Commercial,
business and real estate loans are placed on non-accrual status when the loan is
90 days or more past due, unless circumstances require alternate treatment (a
loan can be past due more than 90 days and still be accruing interest). Interest
accrued and unpaid at the time a loan is placed on non-accrual status is charged
against interest income.
VII-26
<PAGE>
The following table sets forth information with respect to the Savings
Bank's non-performing loans at the dates indicated.
<TABLE>
<CAPTION>
03/31/94 09/30/93 09/30/92 09/30/91
<S> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Real Estate:
Residential................................... $ 202 $ 91 $ 376 $1,893
Commercial.................................... -- -- 243 1,545
Commercial Business.............................. -- 363 391 1,144
Consumer......................................... 20 -- 17 21
Total............................................ $ 222 $ 454 $1,027 $4,603
Accruing loans which are contractually past due 90
days or more:
Real Estate:
Residential................................... 154 143 322 582
Commercial.................................... 6,753(1) 3,998 -- --
Commercial Business.............................. 250 238 849 --
Consumer......................................... -- -- -- --
Total............................................ $7,157 $4,379 $1,171 $ 582
Total of nonaccrual and 90 days past due loans..... $7,379(2) $4,833 $2,198 $5,185
Percentage of Total Loans.......................... 3.47% 2.30% 1.33% 2.92%
</TABLE>
(1) Pioneer Federal is currently involved in negotiations with the borrower
regarding the repayment of this loan secured by an office building that has
since been demolished because of its proximity to a sinkhole that developed
in February, 1994. Pioneer Federal intends to continue negotiations with the
borrower, who purchased the office building from a then-existing customer of
Pioneer, and does not expect that resolution of the loan will result in a
significant loss to PFC.
(2) Nonperforming loans which are classified assets as well are as follows:
<TABLE>
<S> <C>
Special Mention......... $6,420
Substandard............. 590
Doubtful................ --
Loss.................... 356
Total.............. $7,366
</TABLE>
VALUATION ALLOWANCES. It is the Savings Bank's policy to establish specific
valuation allowances for loss against specific assets based on current
appraisals, discounted cash flow analysis and other factors when possible losses
are indicated on the loans or other assets. At March 31, 1994 allowances related
to specific assets (loans and real estate) amounted to $2.2 million.
In addition to specific valuation allowances, the Corporation also
calculates general valuation allowances ("GVA's") using two methods. The first
method applies certain percentages to classified asset balances which have first
been reduced for any specific valuation allowances. GVA's of this type totalled
$2.5 million at March 31, 1994. In addition to this type of GVA, the Corporation
also calculates GVA's on pass and unreviewed assets (all assets that are not
classified), based on, among other factors, historical loss experience for each
type of loan, trends in connection with portfolio amounts and composition, and
current economic conditions relating to the collectability of loans in the
portfolio. GVA's of this type totalled $1.4 million at March 31, 1994. Total
valuation allowances, both specific and general, totalled $6.1 million at March
31, 1994.
VII-27
<PAGE>
The following table sets forth the breakdown of the allowance for losses by
category at the dates indicated.
<TABLE>
<CAPTION>
ANALYSIS OF VALUATION ALLOWANCES
SPECIFIC VALUATION ALLOWANCES 3/31/94 12/31/93 9/30/93 9/30/92
<S> <C> <C> <C> <C>
Loans:
Residential Mortgage....................... $ 49 $ 49 $ 38 $ 356
Commercial Mortgage........................ 721 521 653 739
Construction............................... -- -- -- --
Commercial Business........................ 31 23 100 146
Consumer................................... 35 42 73 183
Total Specific Valuation
Allowance -- Loans................. $ 836 $ 635 $ 864 $1,424
Percent of Total Loans............. 0.4% 0.3% 0.4% 0.8%
Real Estate
In-substance Foreclosure................... $ -- $ -- $ -- $ --
Real Estate Held for Development........... 1,138 890 807 154
Real Estate Owned.......................... 222 216 431 841
Total Specific Valuation
Allowance -- Real Estate........... $1,360 $1,106 $1,238 $ 995
Percent of Total Real Estate....... 7.3% 6.0% 6.8% 4.3%
Total Specific Valuation Allowance........... $2,196 $1,741 $2,102 $2,419
Percent of Total Loans/Real Estate........... 1.0% 0.7% 0.9% 1.3%
GENERAL VALUATION ALLOWANCES
Loans:
Residential Mortgage....................... $ 129 $ 110 $ 112 $ 107
Commercial Mortgage........................ 1,997 2,001 2,012 2,614
Construction............................... 484 467 441 117
Commercial Business........................ 178 196 191 67
Consumer................................... 18 22 22 115
Total GVA -- Loans...................... $2,806 $2,796 $2,778 $3,020
Percent of Total Loans.................. 1.3% 1.3% 1.3% 1.8%
Real Estate:
In-substance Foreclosures.................. $ -- $ 365 $ 364 $ --
Real Estate Held for Development........... 748 772 722 --
Real Estate Owned.......................... 388 41 118 --
Total GVA -- Total Real Estate.......... $1,136 $1,178 $1,204 $ --
Percent of Total Real Estate............ 6.1% 6.4% 6.7% --
Total GVA's............................. $3,942 $3,974 $3,982 $3,020
Percent of Total Loans/Real Estate and
Other................................. 1.7% 1.6% 1.7% 1.6%
Total Valuation Allowances................... $6,138 $5,715 $6,084 $5,439
Percent of Total Loans/Real Estate and
Other...................................... 2.6% 2.3% 2.7% 2.9%
</TABLE>
REAL ESTATE OWNED. Real estate owned includes property acquired in
settlement of loans and loans classified as insubstance foreclosure. Properties
acquired in settlement of loans and loans classified as insubstance foreclosure
are initially valued at the lower of cost or fair value based on available
appraisals at foreclosure or in consideration of estimated sales price and costs
of disposal as well as the estimated cost of holding and maintaining the
property. Carrying values are periodically adjusted to the lower of the adjusted
cost or net realizable value throughout the remaining holding period. Loans
classified as insubstance foreclosures consist of loans accounted for as
foreclosed property even though legal foreclosure has not occurred. Although the
collateral underlying these loans has not been repossessed, the borrower has no
equity in the collateral at its current estimated fair value, proceeds for
repayment are expected to come only from the operation or sale of the
collateral, and either the borrower has abandoned control of the project or it
is doubtful the borrower will rebuild equity in the collateral or repay the loan
by other means in the foreseeable future.
VII-28
<PAGE>
During the year ended September 30, 1993, the Corporation determined that
seven loans with outstanding balances of $3,767,331 had been insubstance
foreclosed, and, although formal foreclosure proceedings had not been initiated,
the investment in the loans had been reported in the same manner as collateral
that has been formally repossessed, regardless of whether the related loan is
formally restructured. Of the seven properties, six were sold during the quarter
ended December 31, 1993. The remaining property, at a carrying value of $3.4
million was formally foreclosed upon during the quarter ended March 31, 1994.
Subsequent to March 31, 1994, this property was sold at no additional loss to
the Corporation. As of March 31, 1994 there were no loans classified as
insubstance foreclosed.
The following table sets forth the balances in repossessed property at
March 31, 1994, and the allowance for loss by type of property.
<TABLE>
<CAPTION>
LESS: NET
ASSET SPECIFIC LESS: CARRYING
BALANCES ALLOWANCE GENERAL VALUE
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Real Estate Owned
Single Family Residential............ $ 56 $ -- $ 6 $ 50
Multi-Family Residential............. 3,627 125 350 3,152
Construction......................... 116 30 8 78
Commercial........................... 305 67 24 214
Total Real Estate Owned........... $4,104 $ 222 $ 388 $3,494
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES. Under current regulations the Savings Bank
is required to maintain liquid assets at 5% or more of its net withdrawable
deposits plus short-term borrowings. With total liquidity of 24.6% at March 31,
1994, the Savings Bank more than met the 5% requirement. At December 31, 1993,
the Savings Bank had outstanding loan commitments totalling $13.5 million.
On August 9, 1989, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") was enacted into law to restructure the
regulation of the thrift industry. The legislation affects the thrift industry
in several ways, including more stringent capital requirements and new
investment limitations and restrictions. On November 8, 1989, the OTS published
a final rule implementing three new capital standards. The regulation requires
institutions to have a minimum regulatory tangible capital of 1.5% of total
assets, a minimum core capital ratio of 3.0%, and, as of December 31, 1992, a
8.0% risk-based capital ratio.
The following table sets forth the capital position of the Savings Bank as
calculated under FIRREA as of March 31, 1994, (in thousands):
<TABLE>
<CAPTION>
EXCESS
ACTUAL % OF REQUIRED % OF % OF
AMOUNT ASSETS* AMOUNT ASSETS* AMOUNT ASSETS*
<S> <C> <C> <C> <C> <C> <C>
Core................. $35,627 9.08% $ 11,686 3.00% $23,941 6.08%
Tangible............. 35,627 9.08% 5,843 1.50% 29,784 7.58%
Risk-weighted........ 38,822 17.09% 18,177 8.00% 20,645 9.09%
</TABLE>
* Based upon adjusted total assets for the core and tangible capital
requirements, and risk-weighted assets for the risk-based capital requirement.
On September 3, 1992, the OTS issued a proposed rule which would set forth
the methodology for calculating an interest rate component that would be
incorporated in the OTS regulatory capital rule. This recent proposal replaces
an earlier proposal by the OTS to calculate interest rate risk. Under the new
proposal, only savings associations with "above normal" interest rate risk
exposure (i.e., where an institution's market value portfolio equity would
decline in value by more than 2% of assets in the event of a hypothetical
200-basis-point move in interest rates) would be required to maintain additional
capital. The additional capital that such an institution would be required to
maintain would be equal to one half the difference between its measured interest
rate risk and 2%, multiplied by the market value of its assets. That dollar
amount of capital would be in addition to an institution's existing risk-based
capital requirement. If adopted in final form, this proposal could increase the
amount of regulatory capital required to be held by the Corporation.
VII-29
<PAGE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. LEGAL PROCEEDINGS
The Corporation, the Savings Bank and a subsidiary thereof are defendants in certain
claims and legal actions arising in the ordinary course of business including legal pro-
ceedings wherein the Savings Bank enforces its security interest in mortgage loans. In the
opinion of management, after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the consolidated finan-
cial position of the Corporation.
Item 2. CHANGES IN SECURITIES
Not Applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Item 5. OTHER INFORMATION
Not Applicable.
Item 6. EXHIBITS AND REPORT ON FORM 8-K
A. No exhibits
B. A current report on Form 8-K was filed on February 17, 1994 to report the execution by
the Corporation of an agreement to be acquired by Signet Banking Corporation. No other
reports on Form 8-K were filed during the quarter ended March 31, 1994.
</TABLE>
VII-30
<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.
PIONEER FINANCIAL CORPORATION
(Registrant)
<TABLE>
<S> <C>
Date May 13, 1994 By: /s/ G. R. Whittemore
G. R. Whittemore
President and Chief Executive Officer
Date May 13, 1994 By: /s/ H. Lee Rettig
H. Lee Rettig
Chief Accounting Officer
</TABLE>
VII-31
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 10 of the Virginia Stock Corporation Act allows, in general, for
indemnification, in certain circumstances, by a corporation of any person
threatened with or made a party to any action, suit or proceeding by reason of
the fact that he or she is, or was, a director, officer, employee or agent of
such corporation. Indemnification is also authorized with respect to a criminal
action or proceeding where the person had no reasonable cause to believe that
his or her conduct was unlawful. Article 9 of the Virginia Stock Corporation Act
provides limitations on damages payable by officers and directors, except in
cases of willful misconduct or knowing violation of the criminal law.
The registrant's Restated Articles of Incorporation, as amended, provide
for mandatory indemnification of any director or officer of the registrant who
is or was a party to any proceeding by reason of the fact that he or she is or
was a director or officer of the registrant or is or was serving the registrant
or any other legal entity in any capacity at the request of the registrant while
a director or officer of the registrant against all liabilities and expenses
incurred in the proceeding, except such liabilities and expenses as are incurred
because of such director's or officer's willful misconduct or knowing violation
of the criminal law.
The registrant's Restated Articles of Incorporation, as amended, also
provide that in every instance permitted under Virginia corporate law in effect
from time to time, the liability of a director or officer of the registrant to
the registrant or its shareholders shall not exceed one dollar.
The registrant maintains a standard policy of officers' and directors'
liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
2(a) Reorganization and Merger Agreement between the registrant and Pioneer Financial Corporation dated as of
February 16, 1994 (Incorporated by reference to Annex I to the prospectus filed as part of this
Registration Statement)
2(b) The registrant hereby agrees to furnish to the Commission, upon request, copies of the Schedules to Exhibit
2(a)
2(c) Holding Company Plan of Merger between the registrant and Pioneer Federal Corporation (incorporated by
reference to ANNEX III to the Prospectus filed as part of this Registration Statement)
3(a) Articles of Incorporation of the registrant (Incorporated by reference to Exhibit 3.1 to Annual Report on
Form 10-K for the fiscal year ended December 31, 1992)
3(b) Bylaws of the registrant (Incorporated by reference to Exhibit 3.2 to Annual Report on Form 10-K for the
fiscal year ended December 31, 1993)
3(c) Form of Revocable Proxy for Special Meeting of Shareholders of Pioneer Financial Corporation (previously filed)
4 Rights Agreement dated as of May 23, 1989 between the registrant and Mellon Bank, N.A. (Incorporated herein
by reference to the registrant's Registration Statement on Form 8-A dated June 1, 1989)
5 Opinion of McGuire, Woods, Battle & Boothe (previously filed)
8 Opinion of Wachtell, Lipton, Rosen & Katz (previously filed)
10(a) Stock Option Agreement between the registrant and Pioneer Financial Corporation dated as of February 16,
1993 (Incorporated by reference to Annex II to the Prospectus filed as a part of this Registration
Statement)
10(b) Form of Employment Agreements between the registrant and George R. Whittemore, H. Lee Rettig, Jacqueline T.
Thornton, and George E. Moore, III (previously filed)
10(c) Marketing Agreement between Pioneer Federal Savings Bank and Signet Bank/Virginia dated April 1, 1994
(previously filed)
21 Subsidiaries (previously filed)
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
23(a) Consent of Ernst & Young, Richmond, Virginia (filed herewith)
23(b) Consent of BDO Seidman, Richmond, Virginia (previously filed)
23(c) Consent of McGuire, Woods & Battle (previously filed)
23(d) Consent of Wachtell, Lipton, Rosen & Katz (previously filed)
23(e) Consent of Baxter Fentriss and Company (previously filed)
24 Powers of Attorney (previously filed)
</TABLE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions set forth in response to Item 20
hereof, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controller person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
including the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Richmond,
State of Virginia, on July 20, 1994.
By: /s/ DAVID L. BRANTLEY*
David L. Brantley
Senior Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
ROBERT M. FREEMAN* Chairman of the Board, July 20, 1994
Chief Executive Officer
and a Director (Principal
Executive Officer)
MALCOLM S. MCDONALD* President, Chief July 20, 1994
Operating Officer and a
Director
W. B. MILLNER, III* Senior Executive Vice President July 20, 1994
and Chief Financial Officer
(Principal Financial Officer)
D. S. NORRIS* Executive Vice President and July 20, 1994
Controller (Principal
Accounting Officer)
J. HENRY BUTTA* Director July 20, 1994
NORWOOD H. DAVIS, JR.* Director July 20, 1994
WILLIAM C. DERUSHA* Director July 20, 1994
WILLIAM R. HARVEY* Director July 20, 1994
ELIZABETH G. HELM* Director July 20, 1994
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
ROBERT M. HEYSSEL* Director July 20, 1994
HENRY A. ROSENBERG, JR.* Director July 20, 1994
LOUIS B. THALHIMER* Director July 20, 1994
STANLEY I. WESTREICH* Director July 20, 1994
</TABLE>
*By
/s/ David L. Brantley July 20, 1994
David L. Brantley
Attorney-in-fact
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
23(a) Consent of Ernst & Young, Richmond, Virginia (filed herewith)
<PAGE>
EXHIBIT 23(A)
CONSENT OF ERNST & YOUNG
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Signet Banking
Corporation for the registration of 1,574,861 shares of its common stock and to
the incorporation by reference therein of our report dated January 21, 1994,
with respect to the consolidated financial statements of Signet Banking
Corporation incorporated by reference in its Annual Report (Form 10-K) for the
year ended December 31, 1993, filed with the Securities and Exchange Commission.
ERNST & YOUNG
Richmond, Virginia
July 20, 1994
