SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED MARCH 31, 1994 COMMISSION FILE NUMBER 1-9909
COMFED BANCORP, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 04-2985738
- - ------------------------------- -------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
124 Mt. Auburn St., Suite 200, Cambridge, Massachusetts 02138
- - ------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 617-576-5704
Securities registered pursuant to Section 12(b) of the Act: Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.01 Par Value
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
---
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding twelve months (or for such a period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The aggregate market value of the voting stock held by the non-affiliates of
the Registrant as of May 31, 1994 was $0.
At March 31, 1994, there were 8,358,024 shares of common stock $.01 par value
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None
PART I
Item 1. Business
General
COMFED BANCORP, INC. ("COMFED" or the "Company") is a general business
corporation which was incorporated under the laws of the State of Delaware in
October 1987. The Company was formerly registered with the Office of Thrift
Supervision ("OTS") as a non-diversified, unitary savings and loan holding
company. Through December 14, 1990, the Company conducted its business
principally through its only direct operating subsidiary, COMFED Savings Bank
(the "Bank"). Since December 1990 the Company has had no operating
subsidiaries.
The Company was organized for the purpose of becoming the savings and loan
holding company of the Bank. Following receipt of stockholder and regulatory
approvals, the Company's formation was completed on April 1, 1988, when the
Company acquired all of the outstanding common stock of the Bank in exchange
for shares of common stock of the Company.
The Bank was a federally chartered stock savings bank which operated
retail offices in northeastern, central and western Massachusetts and in
central and southern Connecticut. The Bank's corporate headquarters were
located in Lowell, Massachusetts and its primary market area was New England.
On July 13, 1993, the Company's request to be de-registered as a savings
and loan holding company was approved by the OTS.
Substantial losses incurred by the Company's principal subsidiary, the
Bank, had a significant negative impact on the financial condition of the
Company. For the eight month period ended November 30, 1990 (unaudited) and
for the previous fiscal year ended March 31, 1990, the Bank recorded net losses
of $72,170,000 and $48,019,000, respectively. As a result, COMFED and the Bank
failed to meet certain regulatory capital requirements. Because of its
insufficient capital position, on December 14, 1990 the Bank was placed into
conservatorship by the OTS, with the Resolution Trust Corporation ("RTC")
appointed as conservator. On February 1, 1991, the OTS appointed the RTC as
receiver of the Bank. On September 13, 1991, the Bank ceased functioning as a
financial institution. Most major components of the Bank were sold by the RTC
to third parties. The Company did not realize any value from these
dispositions.
Since December 14, 1990, the Company has not had control or authority over
the disposition of the Bank's remaining assets or the resolution of claims
against the Bank.
At March 31, 1994, the Company's assets consisted primarily of $199,000 in
cash and U.S. Treasury securities. It is expected that these remaining
assets will be utilized to satisfy creditor claims, defend litigation, and
dissolve the Company. Accordingly, the likelihood of these remaining assets or
the proceeds thereof being available for distribution to stockholders is
- 2 -
remote. The expected outcome is a complete loss of stockholders' equity in the
Company.
The Company does not have sufficient capital to engage in significant
income producing activities nor does the Board of Directors believe that
additional capital could be raised to support such activities. An investment
in the Company at this time would be inhibited by the possibility that the RTC,
as receiver of the Bank, or some other person, might make a claim against the
Company. The receivers of other insolvent institutions have made claims
against the holding companies of such institutions on a variety of grounds.
While the Company is not aware of any material pending or threatened claim,
other than as described in Item 3, "Legal Proceedings", no assurance can be
given that such a claim will not be made against the Company.
The Company does not expect to be profitable in the future due to its
limited financial resources, and does not plan to engage in any new business
activities. In light of the Company's circumstances, Management has presented
a plan to the Board of Directors for the orderly winding up of the Company. At
this time the Board intends to continue to fund both (i) the legal defenses
described in Part I, Item 3, "Legal Proceedings", and (ii) the Company's
remaining regulatory reporting, tax and other obligations, until such time as
the legal proceedings are resolved or the Company's assets are depleted. The
Board of Directors believes that the likelihood is remote that the Company will
continue as a going concern or that any assets of the Company will be available
for distribution to shareholders. If, as the Board anticipates, there are no
assets remaining for distribution to shareholders, the Board does not
anticipate seeking shareholder approval for formal dissolution of the Company.
Employees
As of March 31, 1994, the Company had no employees. The Company has
entered into a consulting contract with Jack C. Zoeller, Chairman of the Board,
President and Chief Executive Officer of the Company, for the purposes of
managing the business affairs of the Company. This contract is subject to
termination by Mr. Zoeller upon ten days written notice and by the Company upon
five business days written notice.
Effective January 1, 1992, John C. Hartnett was elected Treasurer and
Secretary of the Company. Mr. Hartnett serves as Chairman of the
Indemnification Committee of the Board of Directors and provides consulting
services to the Company on an hourly basis from time to time.
Since the Company has no significant operating activities and is
positioning itself for dissolution, continuity of management is uncertain.
Item 2. Properties
As of March 31, 1994, the Company's leased corporate offices were located
at 124 Mount Auburn Street, Suite 200, Cambridge, Massachusetts 02138. There
are no other offices owned or leased by the Company.
- 3 -
Item 3. Legal Proceedings
As discussed in note 1 to the financial statements, on December 14, 1990,
the Company's wholly-owned subsidiary, ComFed Savings Bank, was placed into
conservatorship by the OTS, with the RTC appointed as conservator. On February
1, 1991, the OTS appointed the RTC as receiver for the Bank. On September 13,
1991, Bank ceased functioning as a financial institution. Accordingly, there
are uncertainties associated with matters involving the Company and the RTC.
The Company is unable to predict the ultimate outcome of these matters.
The Company and certain current or former officers and directors of the
Company and its subsidiaries are defendants in an action captioned "S.D.
Wechsler, et al v. COMFED Bancorp, Inc., et al" that was commenced on October
4, 1989, in the United States District Court for the District of Massachusetts.
The plaintiffs' complaint alleges that the Company made certain false and
misleading statements and omitted to disclose certain material information that
allegedly had the effect of artificially inflating the market price of the
Company's common stock. The action, as amended, purports to be brought on
behalf of a class of purchasers of common stock during the period July 30, 1986
through June 29, 1989. Damages in an unspecified amount are sought for the
class of purchasers of common stock during the class period.
After commencement of the Wechsler action, the parties engaged in
preliminary motion practice, none of which was ruled on prior to the
conservatorship of the Bank. Subsequently, after a conference held on April
25, 1991, the Court ordered that the parties submit a joint statement of the
insurance coverage issues material to a resolution of the suit and that there
be a further conference at which the directors and officers liability insurance
policy carrier and the RTC would be invited to participate. The Court further
ordered that the plaintiffs could proceed with discovery by way of certain
document production from the Company's independent accountants, but that no
discovery shall be noticed or taken from the defendants prior to further order
of the Court or agreement of the parties. The RTC thereafter indicated in a
submission that it intended to make a claim against the directors and officers
liability insurance policy for the period December 20, 1989 through December
20, 1990. The directors and officers liability insurance carrier has taken the
position in its written submissions that the RTC has no claim to any insurance
proceeds under the policy due to various exclusions stated in the policy.
At a conference held on September 26, 1991, the Court requested that the
parties in the Wechsler action, the RTC and the insurance carrier engage in
discussions to explore a global settlement of the Wechsler claims and
prospective RTC claims. The insurance carrier elected not to participate in
such discussions based on various coverage issues it raised. As a result, the
requested settlement discussions did not occur and the plaintiffs moved to
terminate the existing stay of discovery. By order dated April 21, 1993, the
Court granted the Wechsler plaintiffs' motion to terminate the stay.
On June 4, 1993, plaintiffs filed their newly amended complaint. Among
other things, the new complaint adds certain plaintiffs and defendants, drops
certain other defendants and adds certain claims relating to alleged false and
- 4 -
misleading statements concerning the Bank's construction lending practices and
the alleged failure of the Company to disclose alleged misconduct on the part
of certain officers and loan originators of ComFed Mortgage Co., Inc. The
Company and the individual defendants filed motions to dismiss the amended
complaint on July 16, 1993. The Magistrate to whom the motions were delegated
by the Court issued a recommended decision on February 28, 1994, concluding
that the Amended Complaint should be dismissed in its entirety with prejudice.
The Magistrate held that the Amended Complaint failed to plead fraud with
particularity as to any defendant. On March 11, 1994, the plaintiffs filed
objections to the recommended decision, and the Company and the individual
defendants filed a response to those objections.
In November 1993, the plaintiffs filed a motion to certify the action as a
class action. Defendants have filed a partial opposition to the motion. The
Company does not anticipate a ruling on that motion or further significant
activity in the case until the Court has ruled on plaintiff's objections to the
recommended decision. However, since the issuance of the recommended decision,
plaintiffs have given notice as to certain proposed depositions and have
indicated their intention to seek leave to file a further amended complaint,
notwithstanding the Magistrate's recommendation that plaintiffs be denied leave
to amend their complaint again. Defendants have opposed plaintiffs' efforts to
take any discovery or to take any steps toward amending their complaint until
the Court rules on plaintiffs' objections to the recommended decision.
On or about March 5, 1992, the insurance carrier commenced a declaratory
judgment action in the United States District Court for the District of
Massachusetts entitled "American Casualty Company of Reading, PA. v. Resolution
Trust Corporation, et al" (the "Insurance Coverage Litigation"). The complaint
names as defendants the RTC and all of those individuals who had been named in
November 1990 as defendants in a proposed amended complaint in the Wechsler
action. The carrier alleges that various policy exclusions and conditions bar
policy coverage (i) for any claim that may be asserted by the RTC against
ComFed's officers or directors and (ii) for the claims asserted in the Wechsler
action. The complaint seeks a declaratory judgment to that effect.
On June 16, 1992, the Company, with the assent of the carrier, moved to
intervene as a defendant in the Insurance Coverage Litigation. The Court
allowed the Company's Motion to Intervene. The Company filed an answer denying
the material allegations of the complaint and requesting a judicial declaration
that the Company is entitled to reimbursement under the pertinent insurance
policy for losses incurred in connection with the claims that have been or may
be asserted by the RTC or the Wechsler plaintiffs. The individual defendants
have filed similar answers. The Wechsler plaintiffs also filed a motion to
intervene as defendants, which motion has been allowed. The RTC has also filed
an answer and counterclaims seeking to establish coverage for any claims that
it may assert against ComFed officers or directors of the Company.
On January 22, 1993, the Wechsler plaintiffs moved for judgment on the
pleadings determining that the claims asserted in the Wechsler action are
covered by the pertinent policy. The Company filed a memorandum in support of
the Wechsler plaintiffs' motion. On February 19, 1993, the RTC filed a motion
- 5 -
for partial summary judgment seeking similar relief. The Company joined in
that motion. Both motions have been opposed by the carrier. In addition, on
March 19, 1993, the carrier filed a cross-motion seeking summary judgment
declaring that there is no coverage with respect to either the Wechsler claims
or any claims that may be brought by the RTC. The Company and the RTC have
opposed the carrier's cross-motion.
On October 19, 1993, the Magistrate to whom the motions were delegated by
the Court issued a recommended decision (i) granting the carrier's cross-motion
only to the extent that it seeks a declaration that there is no coverage with
respect to claims that may be brought by the RTC; (ii) granting the RTC's
motion for partial summary judgment and the motion for judgment on the
pleadings, joined in by the Company, to the extent that he held that none of
the arguments advanced by the carrier to date forms a basis for denying
coverage with respect to the Wechsler claims; and (iii) denying the carrier's
motion for summary judgment to the extent that it sought a declaration that the
carrier has no obligations to provide coverage with respect to the Wechsler
claims. On November 3, 1993, the carrier filed objections to the recommended
decision, and the Company filed a response to those objections.
The Company and the insurance carrier executed an agreement in April 1993
whereby, pending resolution of the Insurance Coverage Litigation, the carrier
began to advance a substantial percentage of the defense costs of the
individual defendants in the Wechsler action that were previously being
advanced by the Company. Subsequently, in June 1994, the carrier indicated
that it would begin to advance 100% of the allowable defense costs in the
Wechsler action, effective immediately.
Unless a settlement of the Wechsler action is successfully negotiated, the
Company intends to vigorously defend the case.
The RTC, receiver of the Bank, provided written notification in 1991 to
certain current and former directors and officers of the Company, the Bank and
the Bank's subsidiaries that it may initiate a claim against them for financial
losses incurred by the Bank as a result of their alleged actions. In 1992 the
RTC issued administrative subpoenas seeking personal financial information from
certain of these directors and officers. During March 1993 the RTC made a
formal, written demand on certain of these directors and officers. In December
1993, the RTC and these certain former directors and officers entered into a
tolling agreement extending the period during which the RTC may file any
claims. The Company is not aware of any claims asserted against it by the RTC.
In 1988, in order for the Company to obtain approval from the Federal
Savings and Loan Insurance Corporation ("FSLIC") to function as the holding
company of the Bank, the Company was required to enter into a Regulatory
Capital Maintenance/Dividend Agreement (the "Agreement") with the FSLIC dated
April 1, 1988. The Agreement provided, among other things, that the Company
would be required to advance sufficient additional capital into the Bank to
effect compliance with regulatory capital requirements, if necessary. When the
Bank was placed into conservatorship by the OTS in December, 1990, the Bank did
not meet regulatory capital requirements and the Company did not have
sufficient financial resources to advance additional capital into the Bank and
- 6 -
thereby meet those capital requirements. As a result, either federal
regulators or the Bank's receiver could seek to initiate administrative or
judicial proceedings against the Company for non-compliance with the Agreement.
If taken, such action could possibly include specific performance. To date,
the Company is not aware that any such action is contemplated. In December
1992, the Company requested that it be de-registered as a thrift holding
company subject to regulation by the OTS. The OTS approved the Company's
de-registration request, effective July 13, 1993.
In February 1992, the Company received preliminary notice from the
regional staff of the Securities and Exchange Commission (the "SEC") that a
formal investigation is being undertaken. Subsequently, the Company learned
that the SEC has entered a formal order of investigation of potential
securities law violations relating to the Company. Pursuant to that order, the
SEC initiated depositions of the former chief executive and chief financial
officers of the Company. The Company does not yet know whether this
investigation may result in any claims against the Company or any of its
current or former officers or directors.
The Company's Board of Directors has established an Indemnification
Committee of disinterested directors, chaired by Mr. Hartnett and also
consisting of Messrs. Maher and Schwarz, to consider requests for
indemnification and advancement of legal expenses on behalf of current and
former directors and officers of the Company arising from various legal
proceedings which they or the Company may be subject to. The Company is
presently advancing certain legal expenses on behalf of certain current and
former directors and officers arising from the legal proceedings discussed in
this Item.
Item 4. Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of the Company's security holders
since its 1990 Annual Meeting of Stockholders.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholders
Matters
The Company's common stock was formerly traded on the American Stock
Exchange ("Amex") under the symbol "CFK". The Company was notified by Amex on
December 21, 1990, that Amex had filed an application with the Securities and
Exchange Commission to remove COMFED's common stock from listing and
registration on Amex. Effective at the opening of trading on January 16, 1991,
the Company's stock was delisted. Based on the previously described status of
the Company, no active market has since existed for the stock.
A table setting forth the quarterly high and low sales prices for the
Company's common stock for the two-year period ended March 31, 1994 has been
omitted since no active market for the stock has existed during such period.
As of June 17, 1994, the Company had approximately 1,199 stockholders of
record.
- 7 -
The Company did not pay a dividend in fiscal 1994 or 1993. As discussed
in the notes to the financial statements, there are significant uncertainties
and substantial doubts associated with the Company's ability to continue as a
going concern. Accordingly, the Company does not anticipate paying dividends
in the future.
- 8 -
Item 6. Selected Financial Data
Years ended March 31,
-----------------------------------------------------
1994 1993 1992 1991 1990
(In Thousands, Except Per Share Data)
Operating data:
Total Income $ 18 60 171 77 223
Operating expenses 321 240 319 426 56
--------- --------- --------- --------- ---------
Income (loss) before
income taxes and loss
on discontinued
operations (303) (180) (148) (349) 167
Income tax expense - - - - -
--------- --------- --------- --------- ---------
Income (loss) before
loss from discontinued
operations (303) (180) (148) (349) 167
Loss from discontinued
operations, net of
income tax expense - - - (35,879) (48,019)
--------- --------- --------- --------- ---------
Net loss $ (303) (180) (148) (36,228) (47,852)
========= ========= ========= ========= =========
Income (loss)
per share:
Income (loss)
from continuing
operations $ (.04) (.02) (.02) (.04) .02
Loss from discontinued
operations - - - (4.29) (5.75)
--------- --------- --------- --------- ---------
Net loss
per share $ (.04) (.02) (.02) (4.33) (5.73)
========= ========= ========= ========= =========
Weighted average
shares outstanding 8,358,024 8,358,024 8,358,024 8,358,024 8,358,024
========= ========= ========= ========= =========
- 9 -
Selected Financial Data (Continued)
At March 31,
-----------------------------------------------------
1994 1993 1992 1991 1990
(In Thousands)
Balance Sheet Data:
Investment in
bank subsidiary $ - - - - 35,879
Total assets $ 199 452 642 935 37,080
Total stockholders'
equity $ 144 447 627 775 37,003
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
On December 14, 1990, the OTS placed the Company's only direct operating
subsidiary, ComFed Savings Bank, into conservatorship and appointed the RTC as
conservator. The effect of this action was to remove management control of the
Bank and the Bank's operating activities from the Company. Subsequently, on
February 1, 1991, the OTS appointed the RTC as receiver of the Bank. On
September 13, 1991, the Bank ceased functioning as a financial institution.
Most major components of the Bank were sold by the RTC to third parties. The
Company did not realize any value from these dispositions.
The financial statements of COMFED have reflected the Bank as a
discontinued operation since December 1990. COMFED stopped recording its share
of losses incurred by its bank subsidiary effective November 30, 1990, the last
fiscal month the Company exercised control over the Bank's operations.
The Company does not have sufficient capital to engage in significant
income producing activities nor does the Board of Directors believe that
additional capital could be raised to support such activities. An investment
in the Company at this time would be inhibited by the possibility that the RTC,
as receiver of the Bank, or some other person, might make a claim against the
Company. The receivers of other insolvent institutions have made claims
against the holding companies of such institutions on a variety of grounds.
While the Company is not aware of any material pending or threatened claims,
other than as described in Part I, Item 3, "Legal Proceedings", no assurance
can be given that such a claim will not be made.
In view of the foregoing, and the general risks associated with generating
or acquiring an income-producing business, the Company's Board of Directors
does not believe that it would be possible to attract additional investment
capital for that purpose.
The remaining assets of the Company at March 31, 1994, consist primarily
of cash and U.S. Treasury securities aggregating approximately $199,000. It is
expected that these remaining assets will be utilized to satisfy creditor
claims, defend litigation and dissolve the Company. Accordingly, the
likelihood of any remaining assets or the proceeds thereof being available for
distribution to stockholders is remote. The expected outcome is a complete
loss of stockholders' equity in the Company.
COMFED does not have any recoverable income taxes paid in prior years, to
which current losses may be carried back. As a result, COMFED will not
receive any tax benefit from its currently incurred losses unless it generates
taxable income in future periods. If COMFED has taxable income in future
periods, it would have to provide for taxes at the applicable Federal and State
tax rates, subject to any loss carryforward which may be available.
It is not expected that COMFED will have taxable income in future periods,
since it does not have any significant income producing activities.
- 11 -
The operating losses of ComFed Savings Bank are not available to COMFED
for tax purposes due to restrictions outlined in the Internal Revenue Code
regarding a change in ownership control such as the receivership proceedings of
the Bank.
The Company does not expect to be profitable in the future due to its
limited financial resources, and does not plan to engage in any new business
activities. In light of the Company's circumstances, Management has presented
a plan to the Board of Directors for the orderly winding up of the Company. At
this time the Board intends to continue to fund both (i) the legal defenses
described in Part I, Item 3, "Legal Proceedings", and (ii) the Company's
remaining regulatory reporting, tax and other obligations, until such time as
the legal proceedings are resolved or the Company's assets are depleted. The
Board of Directors believes that the likelihood is remote that the Company will
continue as a going concern or that any assets of the Company will be available
for distribution to shareholders. If, as the Board anticipates, there are no
assets remaining for distribution to shareholders, the Board does not
anticipate seeking shareholder approval for formal dissolution of the Company.
RESULTS OF OPERATIONS
Because the Bank was the Company's only direct operating entity, the
financial activity of the Company has been minimal since the date of the Bank's
conservatorship in December 1990.
The Company receives interest income from interest-bearing cash accounts
and investment in short-term U.S. Treasury securities. Interest income is
expected to decline as invested assets are reduced to fund Company expenses and
other obligations.
Other income for the fiscal year ended March 31, 1994 represented the
return of a credit balance totalling approximately $9,000 from its former
health plan provider. Other income for the fiscal year ended March 31, 1993
represented a nonrecurring refund of liability insurance premiums paid in
fiscal 1991. Management does not anticipate any material additional insurance
premium or similar refunds in the future. However, the Company may obtain
partial reimbursement from the directors and officers liability insurance
carrier for a portion of its legal expenses incurred in connection with the
Wechsler action referred to in Part I, Item 3, "Legal Proceedings".
Operating expenses for the fiscal year ended March 31, 1994 consisted
primarily of legal fees incurred in conjunction with litigation (including the
advancement of certain legal fees on behalf of certain current and former
directors and officers of the Company arising from the legal proceedings
discussed in Part I, Item 3) and other regulatory and corporate matters, and
consulting and other fees paid for the management of the Company's affairs.
The Company and its directors and officer liability insurance carrier
executed an agreement in April 1993 whereby a substantial portion of the
defense costs previously being advanced by the Company in connection with the
Wechsler claim against the Company and certain of its former directors and
officers has been subject to advancement by the insurance carrier. (See
Part I, Item 3, "Legal Proceedings"). In June 1994, the insurance carrier
- 12 -
indicated that it would begin to advance 100% of the allowable defense costs in
the Wechsler action, effective immediately.
Historically, COMFED did not conduct substantial operations of its own and
relied on interest income to fund its limited operations. Additionally, prior
to December 14, 1990, the Bank funded most of the Company's operating expenses.
In light of the substantial uncertainties associated with the RTC taking
possession of the Bank, the Company cannot predict the amount of liabilities,
if any, which may have to be discharged by COMFED.
The Company does not expect to be profitable in the future due to its
limited financial resources, and does not plan to engage in any new business
activities. Accordingly, the ability of the Company to continue as a going
concern is subject to significant uncertainty and substantial doubt.
COMMITMENTS AND CONTINGENCIES
As described in Part I, Item 3, "Legal Proceedings", and notes 1 and 7 to
the Company's financial statements, there are substantial uncertainties
associated with matters involving the Company and the RTC. The Company is
unable to predict what the ultimate outcome of such matters will be.
As more fully described in Part I, Item 3, "Legal Proceedings", and note 7
to the Company's financial statements, the Company is a defendant in certain
litigation initiated in 1989, which it intends to vigorously defend if a
negotiated settlement cannot be achieved, and has intervened in certain other
litigation for the purpose of obtaining reimbursement of losses which may be
incurred in connection with other claims against ComFed officers or directors.
Item 8. Financial Statements and Supplementary Data.
The information required in response to this item is contained on pages
F-1 to F-13 of this Form 10-K, and is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures
There were no changes in accountants or disagreements with accountants on
accounting and disclosure matters. Although there was no change in account-
ants, the Company has determined that it will not incur the expense of having
an audit performed on its financial statements for its fiscal year ended March
31, 1994, based on the advice of counsel and after receipt of written confirma-
tion from the Securities and Exchange Commission that it would not take any ac-
tion in the event that the Company determined not to include audited financial
statements as part of its Form 10-K under the circumstances outlined in the
Company's written request. In light of such circumstances, including the Com-
pany's lack of operations since December 14, 1990, minimal financial activity,
the cessation of trading of the Company's stock, the expectation that the
Company's remaining assets will be utilized to satisfy creditor claims, defend
litigation, and dissolve the Company, and that the Company's shareholders have
been advised to expect a total loss of their equity, the Board has determined
that the benefits that might be derived by investors from having audited
financial statements are significantly outweighed by the cost of an audit.
- 13 -
PART III.
Item 10. Directors and Executive Officers of the Registrant at March 31, 1994
No. of
Shares
Owned Percent
Principal Occupa- Age at Direc- Term of as of of
tion for Past May 31, tor Office March 31, Common
Name Five Years 1994 Since Expires 1994 Stock
- - ------------------- ----------------- -------- ------ -------- -------- ------
Byrl N. Boyce Self-employed real 58 1987 1993 (d) - -
estate appraiser
from 1991 to 1994.
Previously served as
the director of the
Center for Real
Estate and Urban
Economic Studies at
the University of
Connecticut.
Raymond J. Fontana Attorney in private 71 1987 1991 (c) 21,992 (a)
practice.
John C. Hartnett President and Chief 50 1990 1993 (c) 30,000 (a)
Executive Officer of
Quinoil Industries,
Inc., a retail oil
supplier, since 1992.
Director of Barlow
MacArthur, Inc., an
equipment leasing firm,
from 1989 to 1992.
Served as a consultant
to a bank in formation
from 1988 to 1989.
Peter T. Maher President and Chief 53 1990 1993 (c) 1,000 (a)
Executive Officer of
The Partnership Group,
a human resource con-
sulting firm, since
1992. Served as
Managing Partner of
Deven Associates
International, Inc.,
a human resource
consulting firm,
from 1981 to 1992.
- 14 -
No. of
Shares
Owned Percent
Principal Occupa- Age at Direc- Term of as of of
tion for Past May 31, tor Office March 31, Common
Name Five Years 1994 Since Expires 1994 Stock
- - ------------------- ----------------- -------- ------ -------- -------- ------
Frederic G. Schwarz Retired since 1990. 68 1989 1992 (c) 500 (a)
Served as Treasurer
of Seminole Fertilizer
Corp. from 1989 to
1990. From 1988 to
1989 he was Chief
Financial Officer of
Ecoban Associates,
Limited, a merchant
banking firm.
David J. Tierney, Has served as Presi- 60 1987 1991 (c) 78,200(b) (a)
Jr. dent and Treasurer of
David J. Tierney, Jr.,
Inc., a construction
company, since 1959.
Jack C. Zoeller Chairman of the 45 1988 1992 (c) 22,998 (a)
Board, Chief Execu-
tive Officer of the
Company since 1990.
Served as President
and Chief Operating
Officer of the Bank
from January 1990
until June 1990 and
as President and Chief
Executive Officer of
the Bank from July
1990 to February 1991.
From September 1987
until January 1990,
held various executive
positions with the
Bank and/or its
subsidiaries.
All Directors and Executive Officers as a group (7 persons) 154,690 1.9
- - --------------------
(a) Less than 1.00%
(b) Includes 50,000 shares of the Company's common stock owned by a
corporation of which Mr. Tierney is the principal stockholder.
(c) Messrs. Fontana, Hartnett, Maher, Schwarz, Tierney and Zoeller remain
in office as there has been no election of successors.
(d) Mr. Boyce resigned as a director effective May 24, 1994.
- 15 -
There are no arrangements pursuant to which any director or executive officer
was selected and no director or executive officer has any relationship to any
other director or executive officer by blood, marriage, or adoption, not more
remote than first cousin.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
The following table sets forth the cash compensation paid for services
rendered in all capacities by the Company for the fiscal year ended March 31,
1994 to the Company's chief executive officer.
Annual Long-Term
Name and Principal (Cash) Compensation
Positions Compensation Awards
Jack C. Zoeller $73,500 -
Consultant,
Chairman of
the Board,
President and
Chief Executive
Officer
Figures for fiscal 1993, 1992 and 1991 omitted as permitted by SEC
transition rules.
Effective February 9, 1991, the Company entered into a consulting
contract with Mr. Zoeller for the purpose of managing the business affairs of
the Company. The initial contract provided for a consulting fee payable to Mr.
Zoeller at a rate of $12,500 per month through May 1991 and, as extended, at a
rate of $6,000 per month thereafter.
Effective January 1, 1992, John C. Hartnett was elected Secretary and
Treasurer of the Company. The Board has agreed to compensate Mr. Hartnett at a
rate of $125 per hour for work performed on behalf of the Company.
Non-employee directors are paid a fee of $750 for each meeting
attended. Committee meeting fees for non-employee directors are $750 per day,
but are not paid if the committee meets on the day of a Board meeting.
- 16 -
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of March 31, 1994 with
respect to the ownership of shares of the Company's common stock by each person
believed by management to be the beneficial owner of more than five percent of
the outstanding common stock. The information is based on the most recent
Schedule 13D or Schedule 13G filed on behalf of such persons and made available
to the Company.
Amount And Percent of
Nature of Common
Name and Address of Beneficial Stock
Beneficial Owner Ownership Outstanding
Lexington Precision Corp. 788,600(a) 9.43
Blasius Limited Partnership
L&D Precision Limited Partnership
Warren Delano, Jr.
Michael A. Lubin
630 Third Avenue
New York, New York 10017
Spear, Leads & Kellogg 430,400(b) 5.15
Troster Singer Division
10 Exchange Place
Jersey City, NJ 07302
(a) A Schedule 13D filed by Lexington Precision Corporation, L&D
Precision Limited Partnership, Blasius Limited Partnership, Warren Delano, Jr.
and Michael A. Lubin dated January 13, 1989 states that 788,600 shares are held
by Lexington (formerly Blasius Industries, Inc.) and that L&D Precision Limited
Partnership, Blasius Limited Partnership, Warren Delano, Jr. and Michael A.
Lubin may be deemed to beneficially own such shares by virtue of their
affiliation with Blasius.
(b) A Schedule 13G was filed by the Troster Singer Division of Spear,
Leads & Kellogg, a registered Broker/Dealer under Section 15 of the Securities
Exchange Act of 1934, dated February 9, 1993.
The common stock beneficially owned by the Company's directors and
executive officers is set forth in Part III, Item 10 and is incorporated herein
by reference.
Item. 13. Certain Relationships and Related Transactions
The information called for by this Item appears in Part III, Items 10
and 11 of this Form 10-K, and is incorporated herein by reference.
- 17 -
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The following information can be found on the pages of this Form 10-K
indicated:
Page(s)
Statements of Financial Condition -
March 31, 1994 and 1993 F - 2
Statements of Operations - Years
Ended March 31, 1994, 1993 & 1992 F - 3
Statements of Stockholder's Equity -
Years Ended March 31, 1994, 1993
and 1992 F - 4
Statements of Cash Flow - Years
Ended March 31, 1994, 1993 and 1992 F - 5
Notes to Financial Statements F - 6
- 18 -
(a)(2) Financial Statement Schedules
Not Applicable
(a)(3) Exhibits
The following exhibits are either filed as a part of this Report or are
incorporated by reference.
No. Name
---- ----
3.1 Restated Certificate of Incorporation of COMFED
BANCORP, Inc. (1)
3.2 Bylaws of COMFED BANCORP, Inc., as amended (2)
10.1 Regulatory Capital Maintenance/Dividend Agreement between
COMFED BANCORP, Inc. and the Federal Savings and Loan
Insurance Corporation dated April 1, 1988 (2)
11.1 Statement re computation of per share earnings
22.1 Subsidiaries of the Registrant
(b) The Registrant has not filed any reports on Form 8-K during the last
quarter of the fiscal year covered by this report.
(c) Exhibits to this Form 10-K are attached or incorporated by reference
as stated in the Index to Exhibits.
(d) Not applicable.
- - ---------------
(1) Incorporated herein by reference to the Registrant's Registration
Statement on Form 8-B filed April 14, 1988.
(2) Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the year ended March 31, 1989.
- 19 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COMFED BANCORP, INC.
Registrant
/s/Jack C. Zoeller
Jack C. Zoeller
Chairman of the Board, President and Chief
Executive Officer
June 24, 1994
Date
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacity and on the date indicated.
/s/Jack C. Zoeller June 24, 1994
Jack C. Zoeller Date
Chairman of the Board,
President, Chief
Executive Officer and
Director (Principal
Executive, Financial
and Accounting Officer)
/s/Raymond J. Fontana
Raymond J. Fontana (Director)
Dated: June 24, 1994
/s/John C. Hartnett
John C. Hartnett (Director)
Dated: June 24, 1994
- 20 -
/s/Peter T. Maher
Peter T. Maher (Director)
Dated: June 24, 1994
/s/Frederic G. Schwarz
Frederic G. Schwarz (Director)
Dated: June 23, 1994
/s/David J. Tierney, Jr.
David J. Tierney, Jr. (Director)
Dated: June 24, 1994
- 21 -
Exhibit 11.1
Computation of Primary and Fully Diluted Earnings Per Share (1)
(Dollars in Thousands,
Except Per Share Amounts)
Year Ended March 31,
1994 1993 1992
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Net Loss $ (303) $ (180) $ (148)
========== ========== ==========
Primary:
Shares:
Weighted-average number of
common shares outstanding 8,358,024 8,358,024 8,358,024
Dilutive effect of outstanding
stock options - - -
---------- ---------- ----------
Weighted-average number of common
and common equivalent shares
outstanding 8,358,024 8,358,024 8,358,024
========== ========== ==========
Net loss per share $ (.04) $ (.02) $ (.02)
========== ========== ==========
Assuming full dilution:
Shares:
Weighted-average number of common
shares outstanding 8,358,024 8,358,024 8,358,024
Dilutive effect of outstanding
stock options - - -
---------- ---------- ----------
Weighted-average number of common
shares as adjusted 8,358,024 8,358,024 8,358,024
========== ========== ==========
Net loss per share $ (.04) $ (.02) $ (.02)
========== ========== ==========
(1) This calculation is submitted in accordance with Item 601(b)(11)
of Regulation S-K.
- 22 -
Exhibit 24.1
Subsidiaries of the Company
COMFED SAVINGS BANK - See Item I regarding the current status of this
former subsidiary.
- 23 -
COMFED BANCORP, INC.
Index to Financial Statements
March 31, 1994 (Unaudited), 1993 (Unaudited) and 1992 (Unaudited)
Page
Financial Statements:
Statements of Financial Condition
at March 31, 1994 (unaudited) and 1993 (unaudited) F - 2
Statements of Operations for the years
ended March 31, 1994 (unaudited), 1993 (unaudited)
and 1992 (unaudited) F - 3
Statements of Changes in Stockholders'
Equity for the years ended March 31, 1994 (unaudited),
1993 (unaudited) and 1992 (unaudited) F - 4
Statements of Cash Flows for the years
ended March 31, 1994 (unaudited), 1993 (unaudited)
and 1992 (unaudited) F - 5
Notes to Financial Statements F - 6
As described in Item 9, the Company has determined not to incur the additional
expense of providing audited Financial Statements for its fiscal year ended
March 31, 1994.
F-1
COMFED BANCORP, INC.
Statements of Financial Condition
March 31, 1994 (Unaudited) and 1993 (Unaudited)
(In Thousands)
1994 1993
--------- ---------
(Unaudited) (Unaudited)
ASSETS
Cash $ 99 $ 53
Investments (market value of $100 and $399)
(note 3) 100 399
--------- ---------
$ 199 $ 452
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 55 $ 5
--------- ---------
Commitments and contingent liabilities
(notes 1, 5 and 7)
Stockholders' equity (notes 1, 5, 6 and 7):
Serial preferred stock; 1,500,000 shares
authorized, none issued - -
Common stock, $.01 par value; 20,000,000
shares authorized: 8,397,258 shares
issued 84 84
Additional paid-in capital 16,691 16,691
Accumulated deficit (16,415) (16,112)
Treasury stock, at cost; 39,234 shares
in 1994 and 1993 (216) (216)
--------- ---------
Total stockholders' equity 144 447
--------- ---------
$ 199 $ 452
========= =========
See accompanying notes to financial statements.
F-2
COMFED BANCORP, INC.
Statements of Operations
Years ended March 3l, 1994 (Unaudited), 1993 (Unaudited)
and 1992 (Unaudited)
(In Thousands, Except Per Share Data)
1994 1993 1992
------- ------- -------
(Unaudited) (Unaudited) (Unaudited)
Income:
Interest income $ 9 $ 17 $ 33
Other income (Note 4) 9 43 138
------- ------- -------
Total income 18 60 171
------- ------- -------
Expenses:
Legal 222 142 194
Other Professional Services 73 73 103
Other 26 25 22
------- ------- -------
Total expenses: 321 240 319
------- ------- -------
Loss before income taxes (303) (180) (148)
Income tax expense (note 5) - - -
------- ------- -------
Net loss $ (303) $ (180) $ (148)
======= ======= =======
Net loss per share $ (.04) $ (.02) $ (.02)
======= ======= =======
See accompanying notes to financial statements.
F-3
COMFED BANCORP, INC.
Statements of Changes in Stockholders' Equity
Years ended March 31, 1994 (Unaudited), 1993 (Unaudited)
and 1992 (Unaudited)
(Dollars in Thousands)
Outstanding Retained Total
Common Stock Additional Earnings Stock-
---------------- Paid-in (Accumulated Treasury holders
Shares Amount Capital Deficit) Stock Equity
--------- ------ ---------- ------------ -------- -------
Balance at
March 31, 1991 8,358,024 $84 $16,691 $(15,784) $(216) $ 775
Net loss - - - (148) - (148)
--------- --- ------- --------- ------ ------
Balance at
March 31, 1992 8,358,024 84 16,691 (15,932) (216) 627
Net Loss - - - (180) - (180)
--------- --- ------- --------- ------ ------
Balance at
March 31, 1993 8,358,024 84 16,691 (16,112) (216) 447
Net Loss - - - (303) - (303)
--------- --- ------- --------- ------ ------
Balance at
March 31, 1994 8,358,024 $84 $16,691 $(16,415) $(216) $ 144
========= === ======= ========= ====== ======
See accompanying notes to financial statements.
F-4
COMFED BANCORP, INC.
Statements of Cash Flows
Years Ended March 31, 1994 (Unaudited), 1993 (Unaudited)
and 1992 (Unaudited)
(In Thousands)
1994 1993 1992
------- ------- -------
(Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (303) $ (180) $ (148)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Amortization of discounts
on investment securities (9) (14) (25)
Decrease in prepaid expenses - 51 98
Increase (decrease) in liabilities 50 (10) (145)
------- ------- -------
Net cash used in operating
activities (262) (153) (220)
------- ------- -------
Cash flows from investing activities:
Purchase of investment securities (992) (1,687) (1,876)
Maturities of investment securities 1,300 1,800 2,000
------- ------- -------
Net cash provided by
investment activities 308 113 124
------- ------- -------
Net increase (decrease) in cash 46 (40) (96)
Cash at beginning of year 53 93 189
------- ------- -------
Cash at end of year $ 99 $ 53 $ 93
======= ======= =======
See accompanying notes to financial statements
F-5
COMFED BANCORP, INC.
Notes to Financial Statements
March 31, 1994 (Unaudited) and 1993 (Unaudited)
(1) Corporate Status
(a) Continuing Operations
COMFED BANCORP Inc. ("COMFED" or the "Company") is a former savings and
loan holding company which conducts no material operations of its own. Through
December 14, 1990, it was the parent company of COMFED Savings Bank and its
subsidiaries. Since December 1990 COMFED has had no operating subsidiaries.
(b) Discontinued Operations
ComFed Savings Bank (the "Bank") was a federally chartered stock savings
bank operating retail offices in Massachusetts and Connecticut. The Bank was
subject to regulation by the Office of Thrift Supervision ("OTS") as its
chartering authority and also by the Federal Deposit Insurance Corporation.
The Bank was a member of the Federal Home Loan Bank System and was subject to
certain provisions of the Federal Reserve Act and certain regulations of the
Board of Governors pursuant to provisions of the Federal Deposit Insurance Act.
As a result of substantial losses recorded by the bank for the eight month
period ended November 30, 1990 (unaudited) and for the previous fiscal year
ended March 31, 1990, the Bank failed to meet its regulatory capital
requirements. On December 14, 1990, the Bank was placed into conservatorship
by the OTS, with the Resolution Trust Corporation ("RTC") appointed as
conservator and subsequently as receiver of the Bank. On September 13, 1991,
the Bank ceased functioning as a financial institution. Most major components
of the Bank were sold by the RTC to third parties. The Company did not realize
any value from these dispositions.
(c) Significant Uncertainty about Ability of the Company
to Continue As a Going Concern
The accompanying financial statements of the Company have been prepared on
the basis of accounting principles applicable to a going concern, which
contemplate continuity of operations and realization of assets and liquidation
of liabilities in the ordinary course of business. Accordingly, they do not
give effect to adjustments that would be necessary should the Company
be unable to continue as a going concern and thereby be required to realize its
assets and discharge its liabilities and commitments at amounts different from
those in the financial statements.
Historically, COMFED has not conducted substantial operations of its own.
Its primary purpose was to act as a holding company for the Bank. As a result
of the takeover of the Bank, the Company has been left with a nominal net worth
and no ongoing business activity. The Company does not intend to pursue
F-6
COMFED BANCORP, INC.
Notes to Financial Statements
raising additional capital under current circumstances. Additionally, the
outcome of any uncertainties associated with shareholder litigation and the RTC
taking possession of the Bank, including the amount of liabilities, if any,
which may ultimately result and may become obligations of COMFED in the normal
course of business as a going concern, are unknown.
The Board of Directors has requested that management position the Company
for dissolution. Management anticipates that in conjunction with the Company's
dissolution, the expected costs of satisfying creditor claims and defending
litigation would likely deplete the Company's limited remaining assets.
Accordingly, the ability of the Company to continue as a going concern is
subject to significant uncertainty and substantial doubt.
(2) Summary of Significant Accounting and Reporting Policies
(a) Basis of Presentation
The accompanying financial statements include the accounts of COMFED
BANCORP, INC. The financial statements are not presented on a consolidated
basis because of the discontinued operations of its former subsidiaries.
COMFED BANCORP, INC. was formed as a savings and loan holding company to
acquire 100% of the common stock of ComFed Savings Bank. Effective April 1,
1988, the acquisition was completed with all stockholders of ComFed Savings
Bank receiving one share of common stock of COMFED BANCORP, INC. in exchange
for each share of outstanding ComFed Savings Bank stock. For accounting
purposes the acquisition was treated as a pooling of interests.
(b) Investments
Investment securities are carried at cost adjusted for amortization of
premium and accretion of discount over the term of the securities, using a
method which approximates the effective interest method.
(c) Loss Per Share
The calculation of loss per share is based on the weighted average number of
shares and common stock equivalents outstanding during the period. The
weighted average number of shares outstanding was 8,358,024 for each of the
years ended March 31, 1994, 1993 and 1992, respectively.
(3) Investments
At March 31, 1994, the Company held a treasury bill which matured on May
12, 1994. The carrying value and market value of this treasury bill at
F-7
COMFED BANCORP, INC.
Notes to Financial Statements
March 31, 1994 was $100,000. At March 31, 1993, the Company held a treasury
bill maturing on May 13, 1993. The carrying value and market value of this
treasury bill at March 31, 1993 was $399,000.
(4) Other Income
During the year ended March 31, 1994, the Company received a return of a
credit balance totalling approximately $9,000 from its former health plan
provider. During the year ended March 31, 1993, the Company received
nonrecurring refunds of $43,000 for liability insurance premiums which had been
paid in fiscal 1991.
(5) Income Taxes
Due to the uncertainties resulting from the receivership status of the
Bank, several issues remain unanswered regarding income tax matters.
Generally, the Company and its former subsidiaries are obligated to file a
consolidated federal income tax return for the tax year ended December 31,
1991. The Company has continued to incur net operating losses on a separate
basis through March 31, 1994.
Due to the uncertainties caused by the regulatory takeover of the Bank and
the unavailability of the information necessary to prepare the required tax
returns, it is not possible to determine if a federal or state tax liability
exists for which COMFED might have joint or several liability at March 31,
1994.
As of December 31, 1990 (the last year for which a consolidated return was
filed), consolidated net operating loss carryforwards of approximately $34.7
million for federal income tax purposes were available. These carryforwards of
$8.4 million, $0.8 million, $11.3 million, $4.7 million, and $9.5 million
expire in 2000, 2001, 2002, 2003, and 2005, respectively.
Generally, the operating losses of ComFed Savings Bank arenot available to
COMFED for tax purposes due to restrictions outlined in the Internal Revenue
Code regarding a change in ownership control such as the receivership
proceedings of the Bank.
(6) Employee Stock Options
COMFED has three stock option plans approved by stockholders. The plans
are designated by their year of approval as the "1989 Plan", the "1986 Plan",
and the "1983 Plan". Under the Plans, options were granted at not less than
the fair market value of the shares at the date of the grant, had a maximum
term of no more than 10 years and were exercisable by payment of cash or
F-8
COMFED BANCORP, INC.
Notes to Financial Statements
delivery of common stock of the Company of an equivalent market value at the
date of exercise.
Under the Plans, the number of shares of authorized but unissued common
stock reserved is subject to adjustment for increases, if any, in the number of
common shares outstanding. The shares reserved under the Plans, as adjusted
for stock splits, totalled 1,484,698 at March 31, 1994.
A summary of activity under the Plans, as adjusted retroactively for stock
splits, is as follows:
Exercise
Price Number of Average
Range Shares Option Price
-------- --------- ------------
Options outstanding at
March 31, 1991 2.13 - 4.58 332,390 2.14
Retired 2.13 - 4.58 332,390 2.14
----------- ------- ----
Options outstanding at
March 31, 1992 0 -
------- ----
Options outstanding at
March 31, 1993 0 -
------- ----
Options outstanding at
March 31, 1994 0 -
======= ====
During the years ended March 31, 1994 and 1993, there was no
grant or exercise of stock options. All previously granted
options have been cancelled as a result of the termination of
employment of all employees. Based on the prospects for the
Company and the lack of an active market for the Company's stock,
no option grants are expected in the future.
(7) Commitments and Contingencies
As discussed in note 1 to the financial statements, on December 14,
1990, the Company's wholly-owned subsidiary, ComFed Savings Bank, was placed
into conservatorship by the OTS, with the RTC appointed as conservator. On
F-9
COMFED BANCORP, INC.
Notes to Financial Statements
February 1, 1991, the OTS appointed the RTC as receiver for the Bank. On
September 13, 1991, Bank ceased functioning as a financial institution.
Accordingly, there are uncertainties associated with matters involving the
Company and the RTC. The Company is unable to predict the ultimate outcome of
these matters.
The Company and certain current or former officers and directors of the
Company and its subsidiaries are defendants in an action captioned "S.D.
Wechsler, et al v. COMFED Bancorp, Inc., et al" that was commenced on October
4, 1989, in the United States District Court for the District of Massachusetts.
The plaintiffs' complaint alleges that the Company made certain false and
misleading statements and omitted to disclose certain material information that
allegedly had the effect of artificially inflating the market price of the
Company's common stock. The action, as amended, purports to be brought on
behalf of a class of purchasers of common stock during the period July 30, 1986
through June 29, 1989. Damages in an unspecified amount are sought for the
class of purchasers of common stock during the class period.
After commencement of the Wechsler action, the parties engaged in
preliminary motion practice, none of which was ruled on prior to the
conservatorship of the Bank. Subsequently, after a conference held on April
25, 1991, the Court ordered that the parties submit a joint statement of the
insurance coverage issues material to a resolution of the suit and that there
be a further conference at which the directors and officers liability insurance
policy carrier and the RTC would be invited to participate. The Court further
ordered that the plaintiffs could proceed with discovery by way of certain
document production from the Company's independent accountants, but that no
discovery shall be noticed or taken from the defendants prior to further order
of the Court or agreement of the parties. The RTC thereafter indicated in a
submission that it intended to make a claim against the directors and officers
liability insurance policy for the period December 20, 1989 through December
20, 1990. The directors and officers liability insurance carrier has taken the
position in its written submissions that the RTC has no claim to any insurance
proceeds under the policy due to various exclusions stated in the policy.
At a conference held on September 26, 1991, the Court requested that
the parties in the Wechsler action, the RTC and the insurance carrier engage in
discussions to explore a global settlement of the Wechsler claims and
prospective RTC claims. The insurance carrier elected not to participate in
such discussions based on various coverage issues it raised. As a result, the
requested settlement discussions did not occur and the plaintiffs moved to
terminate the existing stay of discovery. By order dated April 21, 1993, the
Court granted the Wechsler plaintiffs' motion to terminate the stay.
On June 4, 1993, plaintiffs filed their newly amended complaint. Among
other things, the new complaint added certain plaintiffs and defendants,
F-10
COMFED BANCORP, INC.
Notes to Financial Statements
dropped certain other defendants and added certain claims relating to alleged
false and misleading statements concerning the Bank's construction lending
practices and the alleged failure of the Company to disclose alleged misconduct
on the part of certain officers and loan originators of ComFed Mortgage Co.,
Inc. The Company and the individual defendants filed motions to dismiss the
amended complaint on July 16, 1993. The Magistrate to whom the motions were
delegated by the Court issued a recommended decision on February 28, 1994,
concluding that the Amended Complaint should be dismissed in its entirety with
prejudice. The Magistrate held that the Amended Complaint failed to plead
fraud with particularity as to any defendant. On March 11, 1994, the
plaintiffs filed objections to the recommended decision, and the Company and
the individual defendants filed a response to those objections.
In November 1993, the plaintiffs filed a motion to certify the action
as a class action. Defendants have filed a partial opposition to the motion.
The Company does not anticipate a ruling on that motion or further significant
activity in the case until the Court has ruled on plaintiff's objections to the
recommended decision. However, since the issuance of the recommended decision,
plaintiffs have given notice as to certain proposed depositions and have
indicated their intention to seek leave to file a further amended complaint,
notwithstanding the Magistrate's recommendation that plaintiffs be denied leave
to amend their complaint again. Defendants have opposed plaintiffs' efforts to
take any discovery or to take any steps toward amending their complaint until
the Court rules on plaintiffs' objections to the recommended decision.
On or about March 5, 1992, the insurance carrier commenced a
declaratory judgment action in the United States District Court for the
District of Massachusetts entitled "American Casualty Company of Reading, PA.
v. Resolution Trust Corporation, et al" (the "Insurance Coverage Litigation").
The complaint names as defendants the RTC and all of those individuals who had
been named in November 1990 as defendants in a proposed amended complaint in
the Wechsler action. The carrier alleges that various policy exclusions and
conditions bar policy coverage (i) for any claim that may be asserted by the
RTC against ComFed's officers or directors and (ii) for the claims asserted in
the Wechsler action. The complaint seeks a declaratory judgment to that
effect.
On June 16, 1992, the Company, with the assent of the carrier, moved to
intervene as a defendant in the Insurance Coverage Litigation. The Court
allowed the Company's Motion to Intervene. The Company filed an answer denying
the material allegations of the complaint and requesting a judicial declaration
that the Company is entitled to reimbursement under the pertinent insurance
policy for losses incurred in connection with the claims that have been or may
be asserted by the RTC or the Wechsler plaintiffs. The individual defendants
have filed similar answers. The Wechsler plaintiffs also filed a motion to
intervene as defendants, which motion has been allowed. The RTC has also filed
F-11
COMFED BANCORP, INC.
Notes to Financial Statements
an answer and counterclaims seeking to establish coverage for any claims that
it may assert against ComFed officers or directors of the Company.
On January 22, 1993, the Wechsler plaintiffs moved for judgment on the
pleadings determining that the claims asserted in the Wechsler action are
covered by the pertinent policy. The Company filed a memorandum in support of
the Wechsler plaintiffs' motion. On February 19, 1993, the RTC filed a motion
for partial summary judgment seeking similar relief. The Company joined in
that motion. Both motions have been opposed by the carrier. In addition, on
March 19, 1993, the carrier filed a cross-motion seeking summary judgment
declaring that there is no coverage with respect to either the Wechsler claims
or any claims that may be brought by the RTC. The Company and the RTC have
opposed the carrier's cross-motion.
On October 19, 1993, the Magistrate to whom the motions were delegated
by the Court issued a recommended decision (i) granting the carrier's
cross-motion only to the extent that it seeks a declaration that there is no
coverage with respect to claims that may be brought by the RTC; (ii) granting
the RTC's motion for partial summary judgment and the motion for judgment on
the pleadings, joined in by the Company, to the extent that he held that none
of the arguments advanced by the carrier to date forms a basis for denying
coverage with respect to the Wechsler claims; and (iii) denying the carrier's
motion for summary judgment to the extent that it sought a declaration that the
carrier has no obligations to provide coverage with respect to the Wechsler
claims. On November 3, 1993, the carrier filed objections to the recommended
decision, and the Company filed a response to those objections.
The Company and the insurance carrier executed an agreement in April
1993 whereby, pending resolution of the Insurance Coverage Litigation, the
carrier began to advance a substantial percentage of the defense costs of the
individual defendants in the Wechsler action that were previously being
advanced by the Company. Subsequently, in June 1994, the carrier indicated
that it would begin to advance 100% of the allowable defense costs in the
Wechsler action, effective immediately.
Unless a settlement of the Wechsler action is successfully negotiated,
the Company intends to vigorously defend the case.
The RTC, receiver of the Bank, provided written notification in 1991 to
certain current and former directors and officers of the Company, the Bank and
the Bank's subsidiaries that it may initiate a claim against them for financial
losses incurred by the Bank as a result of their alleged actions. In 1992 the
RTC issued administrative subpoenas seeking personal financial information from
certain of these directors and officers. During March 1993 the RTC made a
formal, written demand on certain of these directors and officers. In December
F-12
COMFED BANCORP, INC.
Notes to Financial Statements
1993, the RTC and these certain former directors and officers entered into a
tolling agreement extending the period during which the RTC may file any
claims. The Company is not aware of any claims asserted against it by the RTC.
In 1988, in order for the Company to obtain approval from the Federal
Savings and Loan Insurance Corporation ("FSLIC") to function as the holding
company of the Bank, the Company was required to enter into a Regulatory
Capital Maintenance/Dividend Agreement (the "Agreement") with the FSLIC dated
April 1, 1988. The Agreement provided, among other things, that the Company
would be required to advance sufficient additional capital into the Bank to
effect compliance with regulatory capital requirements, if necessary. When the
Bank was placed into conservatorship by the OTS in December, 1990, the Bank did
not meet regulatory capital requirements and the Company did not have
sufficient financial resources to advance additional capital into the Bank and
thereby meet those capital requirements. As a result, either federal
regulators or the Bank's receiver could seek to initiate administrative or
judicial proceedings against the Company for non-compliance with the Agreement.
If taken, such action could possibly include specific performance. To date,
the Company is not aware that any such action is contemplated. In December
1992, the Company requested that it be de-registered as a thrift holding
company subject to regulation by the OTS. The OTS approved the Company's
de-registration request, effective July 13, 1993.
In February 1992, the Company received preliminary notice from the
regional staff of the Securities and Exchange Commission (the "SEC") that a
formal investigation is being undertaken. Subsequently, the Company learned
that the SEC has entered a formal order of investigation of potential
securities law violations relating to the Company. Pursuant to that order, the
SEC initiated depositions of the former chief executive and chief financial
officers of the Company. The Company does not yet know whether this
investigation may result in any claims against the Company or any of its
current or former officers or directors.
The Company's Board of Directors has established an Indemnification
Committee of disinterested directors, chaired by Mr. Hartnett and also
consisting of Messrs. Maher and Schwarz, to consider requests for
indemnification and advancement of legal expenses on behalf of current and
former directors and officers of the Company arising from various legal
proceedings which they or the Company may be subject to. The Company is
presently advancing certain legal expenses on behalf of certain current and
former directors and officers arising from the legal proceedings discussed in
this Note.
F-13