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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-28292
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BANK PLUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4571410
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
4565 COLORADO BOULEVARD 90039
LOS ANGELES, CALIFORNIA (Zip Code)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 549-3116
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
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. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, as of March 12, 1999, was $91,933,905.
As of March 12, 1999, Registrant had outstanding 19,408,449 shares of
Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relating to the Registrant's
1999 Annual Meeting of Stockholders are incorporated by reference in Part III
hereof.
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BANK PLUS CORPORATION
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
Glossary of Defined Terms...................................... ii
PART I
Item 1. Business....................................................... 1
General........................................................ 1
Recent Developments............................................ 1
Retail Financial Services...................................... 4
Lending Activities............................................. 5
Loan Servicing................................................. 6
Credit Administration.......................................... 8
Investments.................................................... 9
Borrowings..................................................... 9
Competition.................................................... 10
Employees...................................................... 11
Regulation and Supervision..................................... 11
Item 2. Properties..................................................... 22
Item 3. Legal Proceedings.............................................. 22
Item 4. Submission of Matters to a Vote of Security Holders............ 25
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.......................................... 26
Item 6. Selected Financial Data........................................ 27
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 28
Forward-looking Statements..................................... 29
Results of Operations.......................................... 29
Net Interest Income............................................ 30
Provision for Estimated Loan Losses............................ 32
Noninterest Income (Expense)................................... 32
Operating Expenses............................................. 33
Income Taxes................................................... 34
Financial Condition............................................ 36
Asset Quality.................................................. 42
Regulatory Capital Compliance.................................. 54
Liquidity...................................................... 55
Asset/Liability Management and Market Risk..................... 59
Year 2000...................................................... 64
Recent Accounting Pronouncements............................... 66
Item 8. Financial Statements and Supplementary Data.................... 66
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................... 66
PART III
Item 10. Directors and Executive Officers of the Registrant............. 67
Item 11. Executive Compensation......................................... 67
Item 12. Security Ownership of Certain Beneficial Owners and Management. 67
Item 13. Certain Relationships and Related Transactions................. 67
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.......................................................... 68
Signatures..................................................... 72
i
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BANK PLUS CORPORATION
GLOSSARY OF DEFINED TERMS
The following defined terms are used throughout the Company's Annual Report
on Form 10-K:
<TABLE>
<CAPTION>
DEFINED TERM DESCRIPTION
------------------------------ ---------------------------------------------------------------------
<S> <C>
ACES........................ FNMA's Alternative Credit Enhancement Structure
Acquisition S-4............. Registration Statement on Form S-4
Acquisition Shares.......... Bank Plus Common Stock
ADC......................... American Direct Credit, LLC
AFS......................... available for sale
ALCO........................ Asset Liability Committee
ALLL........................ allowance for loan and lease losses
Americash................... Americash, L.L.C.
ARMs........................ adjustable rate mortgages
ATM......................... automated teller machine
Bank Plus................... Bank Plus Corporation
BIF......................... Bank Insurance Fund
BPCS........................ Bank Plus Credit Services Corporation
CalPERS..................... California Public Employee's Retirement System
CDs......................... certificates of deposits
CERCLA...................... Comprehensive Environmental Response, Compensation and Liability Act
of 1980
Citadel..................... Citadel Holding Corporation
CMO......................... collateralized mortgage obligation
Coast....................... Coast Federal Bank, FSB
COFI........................ Eleventh District Cost of Funds Index
the Company................. Bank Plus, Fidelity, Gateway and BPCS
CRA......................... Community Reinvestment Act
Direct Furniture............ Direct Furniture, Inc.
EGRPRA...................... Economic Growth and Regulatory Paperwork Reduction Act
EPS......................... earnings per share
Exchange Offer.............. Exchange offer of Bank Plus Senior Notes for Fidelity's Series A
Preferred Stock, as consummated on July 18, 1997
FAMCO....................... First Alliance Mortgage Company
FASB........................ Financial Accounting Standards Board
FDIA........................ Federal Deposit Insurance Act
FDIC........................ Federal Deposit Insurance Corporation
FDICIA...................... Federal Deposit Insurance Corporation Improvement Act of 1991
FFIEC....................... Federal Financial Institutions Examinations Council
FHA......................... Federal Housing Administration
FHLB........................ Federal Home Loan Bank
FHLB advances............... ARMs and variable rate borrowings from the FHLB system
FHLMC....................... Federal Home Loan Mortgage Corporation
FICO........................ Fair Isaac Company
FICO Debt................... Financing Corporation debt obligations
Fidelity or the Bank........ collectively, Fidelity Federal Bank, A Federal Savings Bank and its
subsidiaries
FIRREA...................... Financial Institutions Reform, Recovery, and Enforcement Act of 1989
FNMA........................ Federal National Mortgage Association
</TABLE>
(CONTINUED)
ii
<PAGE>
GLOSSARY OF DEFINED TERMS--(CONTINUED)
<TABLE>
<CAPTION>
DEFINED TERM DESCRIPTION
------------------------------ ---------------------------------------------------------------------
<S> <C>
FRB......................... Board of Governors of the Federal Reserve System
FSLIC....................... Federal Savings and Loan Insurance Corporation
FTB......................... California Franchise Tax Board
FTEs........................ full-time equivalent employees
GAAP........................ Generally Accepted Accounting Principles
Gateway..................... Gateway Investment Services, Inc.
GNMA........................ Government National Mortgage Association
Hancock..................... Hancock Savings Bank, FSB
HOLA........................ Home Owners' Loan Act of 1933, as amended
IMCR........................ Individual Minimum Capital Requirement
Instant Reserve............. overdraft protection on customer checking accounts
IRC......................... Internal Revenue Code
LGS......................... loan grading system
LIBOR....................... London Interbank Offered Rate
MBS......................... mortgage-backed securities
MD&A........................ Management's Discussion and Analysis of Financial Condition and
Results of Operations
MMG......................... MMG Direct, Inc.
MOA......................... Mall of America
MTN......................... 8.50% mortgage-backed medium-term note, Series A, due April 15, 1997
NASD........................ National Association of Securities Dealers, Inc.
Nasdaq...................... Nasdaq National Market
NOL......................... net operating loss
NPAs........................ nonperforming assets
NPLs........................ nonaccruing loans
NPV......................... net portfolio value
OACFV....................... option adjusted cash flow valuation
OTS......................... Office of Thrift Supervision
the Plan.................... Accelerated Asset Resolution Plan
PCA......................... Prompt Corrective Action
QTL......................... Qualified Thrift Lender
Renzi....................... Renzi Co. LLC
REO......................... real estate owned
SAIF........................ Savings Association Insurance Fund
SEC......................... Securities and Exchange Commission
Senior Notes................ Bank Plus' 12% Senior Notes due July 18, 2007
Preferred Stock............. Fidelity's 12% Noncumulative Exchangeable Perpetual Preferred Stock,
Series A
the Service................. Internal Revenue Service
SFAS........................ Statement of Financial Accounting Standards
Stock Option Plan........... Stock Option and Equity Incentive Plan
SVAs........................ specific valuation allowances
Systems..................... Computer software programs, systems and devices
TDR......................... troubled debt restructuring
TFR......................... Thrift Financial Report
VA.......................... Veterans Administration
Y2K......................... Year 2000
</TABLE>
iii
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PART I
ITEM 1. BUSINESS
BANK PLUS CORPORATION
GENERAL
Bank Plus Corporation ("Bank Plus"), through its wholly-owned subsidiaries,
Fidelity Federal Bank, A Federal Savings Bank, and its subsidiaries
(collectively "Fidelity" or the "Bank"), Gateway Investment Services, Inc.
("Gateway") and Bank Plus Credit Services Corporation ("BPCS") (collectively,
the "Company"), offers a broad range of consumer financial services, including
demand and term deposits and loans to consumers. In addition, through Gateway, a
National Association of Securities Dealers, Inc. ("NASD") registered
broker/dealer, the Bank provides customers with uninsured investment products,
including mutual funds and annuities. Fidelity operates through 38 full-service
branches, 37 of which are located in southern California, principally in Los
Angeles and Orange counties, and one of which is located at the Mall of America
("MOA") in Bloomington, Minnesota.
The Company derives its income primarily from the interest it receives on
loans and investment securities and, to a lesser extent, from fees received from
the sale of uninsured investment products and in connection with loans and
deposit services, as well as other services. Its major expenses are the interest
it pays on deposits and on borrowings, provisions for estimated credit losses,
and general operating expenses. The Company's operations, like those of other
financial institutions, are significantly influenced by general economic
conditions, by the strength of the real estate market, by the monetary, fiscal
and regulatory policies of the federal government and by the policies of
financial institution regulatory authorities.
Fidelity's deposits are highly concentrated in Los Angeles and Orange
counties. The retail branches held total deposits of approximately $2.9 billion
at December 31, 1998. The Bank's loan portfolio consists of mortgage loans and
consumer loans. At December 31, 1998, the Bank's gross mortgage loan portfolio
aggregated approximately $2.4 billion, 60.7% of which was secured by residential
properties containing 5 or more units, 31.8% of which was secured by single
family and multifamily residential properties containing 2 to 4 units and 7.5%
of which was secured by commercial and other property. At that same date, 94.8%
of the Bank's mortgage loans consisted of adjustable-rate mortgages. At December
31, 1998, the Bank's consumer loan portfolio consisted of $350.1 million of
credit card loans, $17.7 million of automobile loans and $12.2 million of other
consumer loans.
Over the past 18 months, the Company has been actively addressing its Year
2000 ("Y2K") compliance objective. A detailed discussion of the current status
of the Company's compliance objectives is in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations ("MD&A") section of
this report on form 10-K.
The principal executive offices of Bank Plus and Fidelity are located at
4565 Colorado Boulevard, Los Angeles, California 90039, telephone number (818)
549-3116.
RECENT DEVELOPMENTS
1998 FINANCIAL RESULTS
The Company reported a net loss of $56.3 million for the year ended
December 31, 1998, as compared to net earnings of $12.7 million for the year
ended December 31, 1997. During 1998, the Company recorded a provision for
estimated loan losses of $73.0 million and incurred operating expenses of $105.0
million. Increasing delinquencies and charge-offs in the credit card loan
portfolio were the primary causes for the significant increase in the provision
for estimated loan losses. Operating expenses, which increased $41.9 million for
the year as compared to the corresponding 1997 period, were higher primarily due
to costs associated with the Bank's credit card programs and other business
initiatives including the financial education program for members of the
California Public Employees Retirement Systems ("CalPERS"), electronic commerce
activities, a planned name change, the indirect auto loan program and its MOA
branch.
1
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CREDIT CARD OPERATIONS
During 1998, the Bank significantly increased its primarily sub-prime
credit card portfolio. Beginning in the third quarter of 1998, the Bank
experienced increases in delinquencies and charge-offs in excess of prior
expectations. To mitigate the deterioration of credit quality in the credit card
portfolio and to address operational problems encountered in the MMG Direct,
Inc. ("MMG") program the Bank, in October 1998, terminated its agreement with
MMG. American Direct Credit, LLC ("ADC") and the Bank entered into a settlement
agreement in November 1998 in which they agreed to wind down originations under
the ADC program and terminate the related agreement. No new accounts have been
originated under the MMG program since August 1998. During the fourth quarter of
1998, the Bank also ceased originating credit cards under the First Alliance
Mortgage Company ("FAMCO") and Renzi Co., LLC ("Renzi") programs. Currently, the
Bank is only originating credit card accounts under the Direct Furniture, Inc.
("Direct Furniture") program.
Under the Bank's agreement with ADC, the Bank stopped originating new
accounts under the ADC program in the first quarter of 1999, ADC was relieved of
its obligations to pay for further credit losses, the Bank received all of the
revenues from the ADC program beginning November 1, 1998 and the remaining
balances in the cash reserve account were transferred to the Bank. In addition,
ADC continued to provide collection services for the portfolio through March 31,
1999 and ADC or its nominee had the right to purchase all outstanding balances
and accounts at a formula price through March 31, 1999.
During the second quarter of 1998, the Bank's new credit processing center
located in Beaverton, Oregon began providing customer service and collection
services for portions of the Bank's credit card programs, services that would
otherwise be provided by third parties. This new processing center is operated
by BPCS. Through December 31, 1998, Bank Plus had contributed $4.5 million to
BPCS to support start-up costs and the acquisition of fixtures and equipment.
CHANGES IN EXECUTIVE MANAGEMENT
On October 28, 1998, Mark K. Mason was appointed President and Chief
Executive Officer of the Company, replacing Richard M. Greenwood, who had
resigned in September 1998. Additionally, senior lending management was changed
in late 1998, with the resignations of W. C. Taylor III, Chief Lending Officer
of the Bank and President of BPCS and Jeff Hug, Senior Vice President of credit
card operations. In November 1998, John M. Michel was appointed Executive Vice
President and Chief Financial Officer of the Company, Godfrey B. Evans was
promoted to Chief Administrative Officer and Richard Villa was promoted to
Director of Finance-Treasurer. During the first quarter of 1999, Robert Condon
and Steven Austin, Executive Vice Presidents, resigned from the Company.
CHANGES IN THE COMPANY'S STRATEGY
Bank Plus has revised its strategic plan in view of the disappointing
results of its previous business plan, and has significantly curtailed the
origination of new credit card accounts and discontinued its indirect auto loan
program, electronic commerce activities and a planned name change. The Company's
business plan for 1999 provides for, among other things:
o Conforming and non-conforming single family mortgage loan originations
and purchases
o Reduction of the operating expenses of the core bank, to below 1997
levels
o Expansion of its net interest margin
o Becoming well capitalized in 1999
o An improvement in credit quality in the credit card portfolio through
seasoning and increased collection efforts
While the Company believes that it can achieve the business plan adopted,
there can be no assurance that these objectives will be achieved. The reduction
in operating expenses excludes the effect of increases in Federal Deposit
Insurance Corporation ("FDIC") insurance premiums and higher regulatory costs
associated with the Bank's regulatory status and capital category as well as
increased legal costs associated with the wind down of credit card programs. The
Company will continue to provide all necessary resources to the Year 2000
("Y2K") project.
2
<PAGE>
The Company is engaged in negotiations with a third party to sell its MOA
branch and certain intellectual property assets. No assurance can be given that
a sale of the MOA branch will be consummated.
In March 1999, the Company sold $10.5 million or 64% of its auto loan
portfolio. Under the sales agreement, the buyer of the portfolio has a 90 day
option to purchase an additional $3.2 million of the portfolio. The Buyer will
also service the portfolio still owned by the Company. The gain or loss from the
sale of this portfolio is not expected to be material.
In January 1999, the Company transferred its financial education program
for the members of the California Public Employee's Retirement System
("CalPERS") to a new limited liability company which has assumed responsibility
for funding all financial requirements of the CalPERS program. The Company owns
a minority interest in the new limited liability company, and will be entitled
to all profits from future CalPERS program operations until it is reimbursed for
its investment in the program of $2.0 million.
In November 1998, Americash, L.L.C. ("Americash") completed the sale of its
operations to a third party, and in connection with the sale all amounts owed by
Americash to the Bank were paid. The ATM cash services provided by the Bank were
terminated effective March 10, 1999, which will result in a reduction in fee
income for cash services to the Bank. Revenues recorded by the Company related
to the ATM cash services program were $3.4 million and $1.0 million in 1998 and
1997, respectively.
During the third quarter of 1998, the Company engaged a financial advisor
to assist in the pursuit of strategic objectives. At the end of the 1998 fourth
quarter the company, with the help of its financial advisors, initiated a
process to explore a potential sale with parties interested in an acquisition of
(1) the Company and/or (2) the bank's credit card portfolio and operations.
Subject to confidentiality agreements, Bank Plus distributed information on the
company and has received indications of interest from several parties. Due
diligence reviews have been completed by some of the parties. As of March 31,
1999, no definitive offers to acquire the company have been made. There can be
no assurance that any offers will be made in the future or that the terms of any
offers received by the company would be considered adequate.
REGULATORY CAPITAL AND SUPERVISION
As a result of the net loss recorded for 1998, the Bank was categorized as
"adequately capitalized" as of December 31, 1998 for regulatory capital purposes
as compared to "well capitalized" as of December 31, 1997. The Bank's core and
risk-based capital ratios as of December 31, 1998 were 4.36% and 8.95%,
respectively. The core capital to adjusted total assets ratio, which had the
smallest excess of all the capital ratio measurements at December 31, 1998 had
an excess of $13.5 million above the minimum level required to be considered
"adequately capitalized".
The Company plans to reduce total assets in the near future to improve its
regulatory capital ratios. This reduction in assets is expected to be
accomplished through reductions in cash equivalents and mortgage-backed
securities ("MBS"). The cash generated by these asset sales will be used to
reduce liabilities of the Bank, which may include sales of deposits, reductions
of deposits through repricing and the prepayment of Federal Home Loan Bank
("FHLB") advances. Because the Company earns a spread on its interest-earning
assets over its interest-bearing liabilities, a reduction in the level of assets
will reduce the Company's net interest income.
The Office of Thrift Supervision ("OTS") completed its safety and soundness
examination during the third quarter of 1998. As a result of the OTS' findings,
the Bank is subject to certain regulatory restrictions including, but not
limited to: (i) a prohibition, absent OTS prior approval, on increases in total
assets during any quarter in excess of an amount equal to net interest credited
on deposit liabilities during the quarter, (ii) a requirement that the Bank
submit to the OTS for prior review and approval the names of proposed new
directors and senior executive officers and proposed employment contracts with
any director or executive officer, (iii) a requirement that the Bank submit to
the OTS for prior review and approval any third party contracts outside the
normal course of business, and (iv) the ability of the OTS, in its discretion,
to require 30 days prior notice of all transactions between the Bank and its
affiliates. The Bank has responded to criticisms from the OTS, including
providing the OTS with a business plan that demonstrates the Bank's ability to
provide future earnings and return to the status of a well capitalized
institution for regulatory capital purposes.
As a result of the changes in the Bank's regulatory capital levels and
status, the Bank's FDIC insurance premium increased to an annual rate of 0.30%
of deposits beginning in the first quarter of 1999 from its prior level of 0.09%
and its supervisory audit costs will increase by approximately $200,000 in 1999.
3
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RETAIL FINANCIAL SERVICES
Fidelity operates in Southern California through a network of 37
full-service branches which are located throughout three counties, but are
concentrated in Los Angeles and Orange counties. Fidelity also maintains one
full-service branch located in Bloomington, Minnesota in the MOA. Average
deposits at the Bank's Southern California branches are $80 million. Deposits at
22 of the branches exceed $60 million, with seven of these branches having
deposits in excess of $100 million.
DEPOSITS
As is typical for a thrift, the Bank has relied heavily on certificates of
deposit ("CDs") to provide the bulk of its funding. At December 31, 1998, the
composition of deposits are 17% transaction accounts and 83% CDs. All the $2.9
billion of deposits were gathered through the branch system as the Bank has no
brokered CDs.
The Bank's transaction accounts consist of basic checking and savings
accounts, including money market accounts. The basic checking accounts are
primarily non-interest bearing accounts that charge monthly service fees. The
Bank's saving accounts bear interest at rates ranging from 1% to 5%. The Bank
offers CDs with maturities ranging from 1 month to 5 years generally bearing
interest rates at levels consistent with the Bank's primary competitors.
Historically, the Bank has offered CDs with higher interest rates and less
restrictive withdrawal and deposit features to increase its deposits. >From time
to time, the Bank has also matched competitor's rates to retain maturing CDs.
During the fourth quarter of 1998, as part of the Bank's efforts to reduce its
overall funding costs and increase its regulatory capital ratios through the
reduction of its assets and liabilities, the Bank reduced the rates on selected
CDs to levels below that of its competitors. The greatest disparity in interest
rates from that of its competitors was for deposits in excess of $100,000. This
strategy resulted in a reduction in total deposits during the fourth quarter of
1998 of $108 million, 98% of which were in CDs in excess of $100,000. This also
resulted in a reduction of the Bank's cost of deposits from 4.78% at September
30, 1998 to 4.53% at December 31, 1998. During 1999, the Bank intends to
continue to employ its various pricing strategies to meet its deposit level
goals.
OTHER FINANCIAL SERVICES/INTEGRATED PLATFORM
The Company offers credit, investment and insurance products to its
customers through an "integrated platform" retail delivery strategy. This
strategy is designed to integrate the sales of investment products with
traditional banking products through a single sales force. Sales of investment,
credit and certificate of deposit products take place in areas that are
appropriately separated from the deposit-taking areas of the branches. Employees
offering alternative investment products carry all appropriate NASD
registrations and insurance licenses. The Company has extensive disclosure
policies in place to minimize any possible confusion between FDIC-insured and
non-insured products. Additionally, the Company conducts a needs assessment of
each client to determine the appropriate product solution for his or her
particular requirements.
Gateway is responsible for providing the retail bank distribution system
with a variety of investment products, such as mutual funds and fixed and
variable annuities. Insurance products are offered through Fidelity's insurance
agency subsidiary. Through Gateway, the Company has developed strategic
relationships with nationally known providers of investment and insurance
products. The use of these products serves to shift market acceptance risk from
the Company and to enhance product and name recognition through relationships
with nationally known entities, which also provide marketing support. For the
five years ended December 31, 1998, total sales of investment products were
$180.7 million, $159.8 million, $118.1 million, $89.8 million and $112.4
million, respectively.
During the fourth quarter, the Bank replaced the 37 branch automated teller
machines ("ATMs") with the latest release of Diebold 1072ix machines. The Bank
currently processes over 1.2 million ATM transactions per year and approximately
30% of these transactions are for non-deposit customers of Fidelity.
4
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LENDING ACTIVITIES
Historically, the Bank's lending activities consisted primarily of single
family and multifamily mortgage loan originations. In the third quarter of 1994,
the Bank closed its wholesale correspondent single family origination network
and its multifamily origination operations. Because of the efforts required to
resolve credit problems in its multifamily loan portfolio, to recapitalize the
Bank in 1995 and to reduce its operating expenses, no significant lending
activities occurred in 1995 and 1996. Beginning in 1997, and continuing through
1998, the Bank's lending activity was focused on consumer loan products, such as
credit card and auto loans. In the third quarter of 1998, the Bank also began
operations to acquire or originate non-conforming mortgage loans.
All of the Bank's credit card programs were developed with marketers who
were responsible for marketing and processing applications. The Bank served as
issuer and owner of the credit card accounts, and was responsible for the risk
management associated with the extension of credit. The Bank developed and
implemented the underwriting standards as well as the supporting risk management
support systems. Underwriting was primarily based on Fair Isaac Company ("FICO")
credit scoring methodology. At December 31, 1998 and 1997, the Banks portfolio
of credit card loans totaled $350.1 million and $50.8 million, respectively.
The Bank entered into credit enhancement credit card programs with ADC,
FAMCO and Direct Furniture. Under the credit enhancement program, the marketer
provides credit enhancements to guarantee full repayment of the Bank's
outstanding receivables in the event of cardholder defaults, and, in exchange,
has the right to purchase outstanding receivables at par and receives all
revenues, net of expenses and funding costs paid to the Bank, from the program.
The Bank is paid a funding cost based on a contractual spread over the Bank's
cost of funds or the one month London Interbank Offered Rate ("LIBOR"). The
marketer is required to fund a cash reserve account as part of the credit
enhancement.
The Bank entered into shared risk programs with MMG and Renzi. Under the
shared risk programs, the Bank and the marketer shared equally the net earnings
or loss of the program. The net earnings or loss included estimated loan loss
provisions, fees paid to the marketer for originating the accounts and a yield
paid to the Bank for funding the credit card balances.
The Bank's credit card programs offered cards with credit limits ranging
from $100 to $5,000. One of the programs, which was marketed to individuals at
the lower end of the credit spectrum, had credit limits of $350 or $500 and
charged origination fees of $249 and annual fees of $50 at the time of issuance.
Two of the other programs provided credit cards to customers who utilized the
cards to finance purchases from the marketers or from direct sales organizations
with which the marketer had a contractual relationship. Credit limits for these
cards were based on the amount of the purchase and the customers' credit.
In October 1998, the Bank terminated its agreement with MMG and no new
accounts have been originated under the MMG program since August 1998.
Additionally, ADC and the Bank entered into a settlement agreement in which they
agreed to wind down originations under the ADC program and terminate the related
agreement. During the fourth quarter of 1998, the Bank also ceased originating
credit cards under the FAMCO and Renzi programs. Currently, the Bank is only
originating credit card accounts under the Direct Furniture program.
5
<PAGE>
Under the Bank's agreement with ADC, the Bank stopped originating new
accounts under the ADC program in the first quarter of 1999, ADC was relieved of
its obligations to pay for further credit losses, the Bank received all of the
revenues from the ADC program beginning November 1, 1998 and the remaining
balances in the cash reserve account were transferred to the Bank. In addition,
ADC continued to provide collection services for the portfolio through March 31,
1999 and ADC or its nominee had the right to purchase all outstanding balances
and accounts at a formula price through March 31, 1999. Because the Bank will
now receive all of the interest income from the ADC credit card portfolio, the
Bank's yield on the ADC credit card portfolio is expected to increase s
ignificantly in 1999.
During the third quarter of 1998, the Bank established a non-conforming
mortgage loan division to acquire and originate non-conforming mortgage loans.
In the first quarter of 1999, Fidelity began offering its own conforming and
non-conforming mortgage loan products while continuing to offer the products of
third parties. At this time, Fidelity's mortgage loan products consist of fixed
rate fully amortizing 15 and 30 year first mortgages. The Bank anticipates
offering its own adjustable rate first mortgages and fixed and adjustable rate
second mortgages and home equity lines of credit in the future.
At December 31, 1999 the Bank's portfolio of non-conforming mortgage loans
totaled $40 million. These loans are expected to experience higher levels of
delinquencies and credit losses than the Bank's current mortgage loan portfolio;
however, these loans are expected to provide a higher risk adjusted yield.
Beginning in the fourth quarter of 1997, the Bank started a program which
utilized a marketer to generate applications for an auto loan program. Theses
loans were primarily used to finance the purchase of used autos from auto
dealers. During the fourth quarter of 1998, the Bank discontinued the auto loan
program.
The Bank offers overdraft protection for checking account customers through
its "Instant Reserve" personal line of credit. The Instant Reserve account
offers average credit limits of $1,500 and is available to new and existing
checking customers.
LOAN SERVICING
Servicing of the Bank's loan portfolio is performed by the Company or
contract servicers. The Bank services the multifamily mortgage loan portfolio,
which is almost exclusively located in California, the commercial and industrial
mortgage loan portfolio and the nonconforming residential mortgage portfolio.
The Bank's credit card portfolio is serviced by BPCS, the credit card marketers
or unaffiliated credit card servicers. The Bank contracts with outside companies
for servicing of the Bank's conforming single family mortgage loan portfolio,
home equity loans and auto loans. In 1996, the Bank sold the servicing rights to
substantially all of the then existing single family and 2 to 4 unit loans. In
the future, servicing of new originations may be retained by the Bank.
MORTGAGE LOAN PORTFOLIO
The Bank's Loan Servicing Department is responsible for collecting payments
from borrowers, accounting of principal and interest, contacting delinquent
borrowers, and conducting foreclosure proceedings. The Bank tracks and maintains
impound accounts for taxes and insurance and provides annual analysis of each
account. In addition, the Bank monitors active hazard and flood insurance and
will place insurance on the property in the event the borrower's coverage
lapses.
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In addition to servicing its own assets, the Bank provides servicing on
mortgage loans previously sold by the Bank to over 30 investors. Fidelity is an
approved originator and servicer for the Federal National Mortgage Association
(the "FNMA"), the Federal Home Loan Mortgage Corporation (the "FHLMC") and the
Federal Housing Administration (the "FHA").
The Bank has a sophisticated computer-based loan servicing system that
enables it to provide effective and efficient processing of loans. The system,
which is able to service fixed and adjustable rate loans as well as loans with
staggered due dates, provides the Bank with payment processing, cashiering,
collection and reporting capabilities.
Collection activity commences upon the expiration of the grace period. A
series of two notices are mailed to delinquent borrowers over a period of 30
days and telephone calls are made on a weekly basis. Upon commencing foreclosure
action, the borrower is informed of the foreclosure status and the reinstatement
period. Property inspections are obtained to observe the condition of the
property and to determine whether changes in the value have occurred since the
date of origination. The Bank forecloses as quickly as state regulations allow.
The process may be extended in the event the borrower files bankruptcy or the
Bank enters into negotiations with the borrower for a loan restructure or
workout.
Regulation and practices regarding the foreclosure of properties and the
rights of the borrower in default vary greatly from jurisdiction to
jurisdiction. Loans originated by the Bank are secured by mortgages, deeds of
trust, security deeds or deeds to secure debt, based upon the prevailing
practice in the state in which the property securing the loan is located.
Depending upon local law, foreclosure is effected by judicial action and
or/non-judicial sale, and is subject to various notice and filing requirements.
In California, where the majority of the Bank's collateral is located,
foreclosure proceedings usually take the form of a nonjudicial foreclosure,
which is typically a four month process. Upon completion, the Bank obtains title
to the collateral but is left generally without recourse against the borrower
for any deficiency from the difference between the value of the collateral and
the loan amount.
Properties are managed prior to and post foreclosure sale with the
objective of maximizing the return on each individual asset. This strategy
includes loan modifications, short sales, deeds in lieu of foreclosure and
rehabilitation of certain properties when the investment significantly increases
the net yield on the asset. The Bank may agree to restructure the loan if it
determines that the loan, as modified, is likely to result in a greater ultimate
recovery than taking title to the property. Among the factors the Bank considers
in restructuring a loan is the extent to which the borrower pays down the loan,
furnishes additional collateral or makes a further investment in the property by
way of repairs or refurbishment, and demonstrates an awareness and ability to
manage the property according to a reasonable operating plan.
The outside servicers that provide servicing for certain of the Bank's
mortgage loans perform their customer services, collection, foreclosure and
asset disposition services in a manner similar to that performed by the Bank.
These servicers are also responsible for remitting collections and providing
detailed activity reporting on a monthly basis. The Bank's loan servicing
department is responsible for monitoring the performance of these outside
servicers.
CONSUMER LOAN PORTFOLIO
The Bank's credit card portfolios are serviced by BPCS, the related
marketers or unaffiliated third party processors. BPCS, which operates the
Company's credit card servicing center located in Beaverton, Oregon, began
operations during the second quarter of 1998. BPCS currently provides customer
service for the MMG, Direct Furniture and Renzi credit card portfolios, and
provides collection services for the MMG and Renzi credit card portfolios.
Collection services for the ADC and Direct Furniture credit card portfolios are
performed by the related marketer. An unaffiliated third party servicer provides
customer service for the ADC credit card portfolio. FAMCO provides both customer
service and collection services for the FAMCO credit card portfolio. Beginning
April 1, 1999, BPCS will provide customer service and collection services for
the ADC credit card portfolio.
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The Bank's auto loans and home equity loans are serviced by companies with
specialized expertise in servicing these loan products. These servicers are
responsible for customer and collection services, repossession or foreclosure
actions and the disposition of repossessed autos or foreclosed property. These
servicers remit collections to the Bank and provide periodic reporting on the
related portfolios.
CREDIT ADMINISTRATION
The credit administration function is responsible for monitoring and
assessing the credit risk in the Bank's loan portfolio. This includes the
identification, measurement and establishment of credit loss reserves, including
the allowance for loan and lease losses ("ALLL") and specific valuation
allowances ("SVAs").
LOAN MONITORING
The Bank has a loan review system that is designed to meet the following
objectives:
o To identify, in a timely manner, loans with potential credit or
collateral weaknesses and to appropriately classify loans with well
defined weaknesses that jeopardize loan repayment so that timely
action can be taken and credit losses can be mitigated.
o To project relevant trends that affect the collectibility of the
loan portfolio and to isolate potential problem areas that may
exhibit adverse trends.
o To provide essential information to assess the adequacy of the
allowance for loan losses and to identify and recognize in a timely
manner estimated specific loan losses.
o To assess the adequacy of and adherence to the Bank's internal
credit policies and loan administration procedures and to monitor
compliance with the foregoing and with relevant laws and
regulations.
The Bank considers such risk factors as payment history, collateral value,
income property cash flow, property condition, and the borrower's financial
capacity and property management experience in its monitoring and risk grading
process.
LOAN GRADING SYSTEM
The Bank has a loan grading policy which is implemented through a loan
grading system ("LGS"). The evaluation of each loan is based on four key risk
attributes: (1) ability of income from the property to act as the primary source
of repayment, (2) value of the collateral if a sale is required, (3) ability and
willingness of the borrower to pay, and (4) market trends in the area around the
property. Grading loans involves assessing various risk indicators related to
the borrower. For income properties, the primary source of repayment is cash
flow from the operation of the property. The adequacy of the property's cash
flow is the primary determinant of the risk grade. The borrowers historical
payment performance, including loan payments, tax payments, insurance payments
and property maintenance, is also reviewed when determining a loan grade. The
absence of borrower performance indicates a lack of capacity and possible
downgrade of the loan. The value of the collateral is considered a secondary
source of repayment which becomes more important when the primary sources become
weaker. The collateral value can influence the primary repayment source by
motivating the borrower to continue supporting the property or impacting the
borrower's ability to refinance the loan.
Credit risk is graded based on the Bank's internal asset review policies
and procedures, and individual loans are categorized as Pass, Special Mention,
Substandard, Doubtful or Loss depending on the risk characteristics of each
loan. All such grading requires the application of subjective judgment by the
Bank. A brief description of these categories follows:
A PASS asset is considered of sufficient quality to preclude designation as
Special Mention or a Substandard asset. Pass assets generally are protected by
the current net worth and paying capacity of the obligor and by the value of the
underlying collateral.
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An asset designated as SPECIAL MENTION does not currently expose the
institution to a sufficient degree of risk to warrant an adverse classification.
However, it does possess credit deficiencies or potential weaknesses deserving
management's close attention. If uncorrected, such weaknesses or deficiencies
may expose an institution to an increased risk of loss in the future. Special
Mention assets are also referred to as criticized.
An asset classified as SUBSTANDARD is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged.
Assets so classified have a well-defined weakness or weaknesses. They are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected.
Assets classified as DOUBTFUL have all the weaknesses inherent in those
classified as Substandard. In addition, these weaknesses make collection or
liquidation in full, on the basis of currently existing facts, conditions and
values, highly questionable or improbable. The Bank will generally classify
assets as Doubtful when inadequate data is available or when such uncertainty
exists as to preclude a Substandard classification.
Assets classified as LOSS are considered uncollectible and of such little
value that their continuance as assets without establishment of a specific
reserve is not warranted. A Loss classification does not mean that an asset has
absolutely no recovery or salvage value; rather it means that it is not
practical or desirable to defer establishing a specific allowance for a
basically worthless asset even though partial recovery may be effected in the
future. The Bank will generally classify as Loss the portion of assets
identified as exceeding the asset's fair market value and a specific reserve is
established for such excess.
INVESTMENTS
The Company's investment activities have consisted of trading, available
for sale ("AFS") and held to maturity portfolios as well as short term liquidity
investing.
An investment trading portfolio is used to generate gains from the
purchases and sale of securities. Securities held in a trading portfolio consist
primarily of agency mortgage-backed securities ("MBS") which allows the Company
to earn interest during the period which these securities are held. During the
third quarter of 1998, the Company liquidated its investment trading portfolio
and at December 31, 1998, the Company did not have an investment trading
portfolio.
The Company's AFS and held to maturity investment portfolios are used to
generate interest income for funds not invested in loans. The AFS portfolio
provides flexibility to the Company in managing its balance sheet as these
assets are generally more marketable than loans. Investments in the Company's
AFS and held to maturity portfolios primarily consists of agency MBS, treasuries
and collateralized mortgage obligations ("CMO"). At December 31, 1998, the
Company had $494.9 million in its AFS and held to maturity portfolios.
The Company is required to maintain a certain level of liquidity in the
form of cash or cash equivalents. In addition, the Company may have additional
liquidity as a result of its balance sheet management. This liquidity is
invested in agency MBS, treasuries, federal funds sold and whole loan investment
repurchase agreements. At December 31, 1998, the Company had cash and cash
equivalents of $ 380.5 million.
BORROWINGS
In addition to retail deposits, the Company obtains funding from Federal
Home Loan Bank ("FHLB") advances, securities sold under agreements to
repurchase, and other short-term and long-term borrowings. The Company may, from
time to time, utilize brokered deposits as a short-term means of funding. These
deposits are obtained or placed by or through a deposit broker and are subject
to certain regulatory limitations.
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The Company utilizes FHLB advances as a source of funds for operations. The
FHLB System functions as a source of credit to financial institutions which are
members of a Federal Home Loan Bank. Fidelity may apply for advances from the
FHLB secured by the capital stock of the FHLB owned by Fidelity and certain of
Fidelity's mortgages and other assets (principally obligations issued or
guaranteed by the U.S. Government or agencies thereof). Advances can be
requested for any business purpose in which Fidelity is authorized to engage,
except that advances with a term greater than five years can be granted only for
the purpose of providing funds for residential housing finance. In granting
advances, the FHLB considers a member's creditworthiness and other relevant
factors. Fidelity's available FHLB line of credit is based primarily on a
portion of Fidelity's residential loan portfolio pledged for such purpose, up to
a maximum of 20% of total assets. Based on the total collateral pledged as of
December 31, 1998, Fidelity's remaining available FHLB line of credit was $77.0
million.
The Company has previously utilized the capital markets to obtain funds for
its operations. The only such borrowing outstanding during 1997 was an 8.50%
mortgage-backed medium-term note, Series A, due April 15, 1997 (the "MTN"). The
Bank retired its $100 million mortgage-backed bonds on April 15, 1997. The funds
were replaced with FHLB advances.
On July 18, 1997, the Company issued approximately $51.5 million of its 12%
Senior Notes due July 18, 2007 (the "Senior Notes") in exchange for the
outstanding shares of 12% Noncumulative Exchangeable Perpetual Stock, Series A
(the "Preferred Stock") issued by Fidelity in 1995. Holders of approximately
11,000 shares of the Series A Preferred Stock elected not to exchange their
stock for Senior Notes and these shares are reflected as preferred stock issued
by consolidated subsidiary on the Statement of Financial Condition as of
December 31, 1998 and 1997.
From time to time, Fidelity enters into reverse repurchase agreements by
which it sells securities with an agreement to repurchase the same securities at
a specific future date (overnight to one year). The Company deals only with
dealers who are recognized as primary dealers in U.S. Treasury securities by the
Federal Reserve Board or perceived by management to be financially strong. There
were no reverse repurchase agreements outstanding at December 31, 1998 or 1997.
COMPETITION
As a thrift institution, the Company's most significant revenue source is
its loan portfolio and its primary source of funding is from deposits.
During 1997 and 1998, the Company focused it loan origination activities on
consumer loans. Prior to 1994, the Company primarily originated mortgage loans,
including a substantial amount of loans secured by multi-family residences. In
both these areas, the Company faces significant competition from thrifts,
commercial banks, mortgage bankers and others. Competition is based primarily on
pricing, credit access and customer service. Partly because of the competition
in Southern California and in lending to customers with higher credit quality,
the Company has expanded its origination activities beyond its local market and
to customers with lower credit quality. This has put the Company in competition
with local, regional and national companies for lending opportunities. A number
of these competitors have significantly more resources than the Company,
including larger asset bases, more equity, more locations and more employees.
The Company has an established retail branch system in Southern California
upon which it relies for its deposits. Because these deposits are heavily
concentrated in certificates of deposit rather than transaction accounts, the
Company's deposit base is more sensitive to changes in interest rates.
Historically, because of expense constraints, the Company has not spent
significant amounts in advertising its deposit products. Competition for
customers' deposits is based on interest rates paid, perceived credit risk,
account flexibility, costs and customer service. The Company faces significant
competition in attracting funds from other thrifts, commercial banks, mutual
funds, insurance companies, credit unions, investment banks, investment
brokerage firms, pension funds and others. A number of competitors are
significantly larger than the Company, maintain a better credit standing and are
able to pay higher rates of return to customers. In addition, most of the
Company's competitors spend more on advertising.
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EMPLOYEES
At December 31, 1998, the Company had 876 employees (including both
full-time and part-time employees) with 722 average full-time equivalent
employees ("FTEs") for the 1998 year and 820 FTEs for the month of December
1998, none of whom were represented by a collective bargaining group. Eligible
employees are provided with 401(k) and other benefits, including life, medical,
dental, vision insurance and short and long-term disability insurance. The
Company considers employee relations to be satisfactory. However, the Company's
disappointing results of operations and publicly disclosed intentions to
consider the sale of the Company have adversely impacted its relations with
employees. The Company has taken certain measures to retain key employees,
including the granting of stock options and the execution of severance and
change-in-control agreements.
REGULATION AND SUPERVISION
GENERAL
Bank Plus is a savings and loan holding company and, as such, is subject to
the Office of Thrift Supervision (the "OTS") regulation, examination,
supervision and reporting requirements. Fidelity is a federally chartered
savings bank, a member of the FHLB of San Francisco, and its deposits are
insured by the Federal Deposit Insurance Corporation (the "FDIC") through the
Savings Association Insurance Fund ("SAIF") to the maximum extent permitted by
law. Fidelity is subject to extensive regulation by the OTS, as its chartering
agency, and by the FDIC, as its deposit insurer. In addition to the statutes and
regulations discussed below, Fidelity must undergo at least one full scope,
on-site safety and soundness examination every year. The Director of the OTS is
authorized to impose assessments on Fidelity to fund OTS operations, including
the cost of examinations. The FDIC has "back-up" authority to take enforcement
action against Fidelity if the OTS fails to take such action after a
recommendation by the FDIC. The FDIC may also impose assessments on Fidelity to
cover the cost of FDIC examinations. Finally, Fidelity is subject to regulation
by the Board of Governors of the Federal Reserve System ("FRB") with respect to
certain aspects of its business.
Changes in legislation and regulatory policy and the interpretations
thereof have materially affected the business of the Company and other financial
institutions in the past and are likely to do so in the future. There can be no
assurance that future changes in the regulations or their interpretation will
not adversely affect the business of Fidelity. Future legislation and regulatory
policy could also alter the structures and competitive relationships among
financial institutions. Regulatory authorities also have the power, in certain
circumstances, to prohibit or limit the payment of dividends or other
distributions by Fidelity, which may, in turn, adversely affect the ability of
Bank Plus to pay its obligations as they become due. In addition, certain
regulatory actions, including general increases in federal deposit insurance
premiums, additional insurance premium assessments to recapitalize the SAIF or
the application of the risk-based insurance premium system to Fidelity, may
increase Fidelity's operating expenses in future periods and may have a material
adverse impact on Fidelity's capital levels and results of operations.
BANK PLUS REGULATION
Bank Plus is a unitary savings and loan holding company within the meaning
of the Home Owners' Loan Act of 1933, as amended ("HOLA"). As such, Bank Plus is
required to be registered with the OTS and is subject to OTS regulations,
examinations, supervision and reporting requirements. Among other things, the
OTS has enforcement authority which permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
institution.
ACTIVITIES RESTRICTIONS. There are generally no restrictions on the
activities of a unitary savings and loan holding company. However, if the
savings institution subsidiary of such a holding company fails to meet the
qualified thrift lender ("QTL") test, then such unitary holding company also
will become subject to the activities restrictions applicable to multiple
savings and loan holding companies and, unless the savings institution
requalifies as a QTL within one year thereafter, will have to register as, and
become subject to the restrictions applicable to, a bank holding company. See
"--Fidelity Regulation--Activities Regulation Not Related to Capital
Compliance."
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If Bank Plus were to acquire control of another savings institution, other
than through merger or other business combination with Fidelity, Bank Plus would
thereupon become a multiple savings and loan holding company. Except under
limited circumstances, the activities of Bank Plus and any of its subsidiaries
(other than Fidelity or other subsidiary savings institutions) would thereafter
be subject to further extensive limitations. In general, such holding company
would be limited primarily to activities permissible for bank holding companies
under the Bank Holding Company Act and other activities in which multiple
savings and loan companies were authorized by regulation to engage as of March
5, 1987.
RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior approval
of the Director of the OTS, (i) control of any other savings institution or
savings and loan holding company or substantially all the assets thereof or (ii)
more than 5% of the voting shares of a savings institution or holding company
thereof which is not a subsidiary. Except with the prior approval of the
Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may acquire control of any savings institution, other than
a subsidiary savings institution, or of any other savings and loan holding
company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired by the state-chartered institutions or savings and
loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions).
FIDELITY REGULATION--CAPITAL REQUIREMENTS AND CAPITAL CATEGORIES
FIRREA CAPITAL REQUIREMENTS. The OTS capital regulations, as required by
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), include three separate minimum capital requirements for the savings
institution industry--a "tangible capital requirement," a "leverage limit" and a
"risk-based capital requirement." These capital standards must be no less
stringent than the capital standards applicable to national banks. The OTS also
has the authority, after giving the affected institution notice and an
opportunity to respond, to establish an individual minimum capital requirement
("IMCR") for a savings institution which is higher than the industry minimum
requirements, upon a determination that an IMCR is necessary or appropriate in
light of the institution's particular circumstances, such as if the institution
is expected to have losses resulting in capital inadequacy, has a high degree of
exposure to credit risk, has a high amount of nonperforming loans, has a high
degree of exposure to concentration of credit risk or risks arising from
nontraditional activities, or fails to adequately monitor and control the risks
presented by concentration of credit and nontraditional activities.
The industry minimum capital requirements are as follows:
TANGIBLE CAPITAL OF AT LEAST 1.5% OF ADJUSTED TANGIBLE ASSETS. Tangible
capital is composed of (1) common stockholders' equity, noncumulative perpetual
preferred stock and related earnings, nonwithdrawable accounts and pledged
deposits qualifying as core capital and minority interests in the equity
accounts of fully consolidated subsidiaries, after deducting (a) intangible
assets other than certain purchased or originated mortgage servicing rights, (b)
equity and debt investments in subsidiaries engaged in activities not
permissible for a national bank (except as otherwise provided), and (c) the
amount by which investments in subsidiaries engaged as principal in activities
not permissible for national banks exceeds the amount of such investments as of
April 12, 1989 and the lesser of the institution's investments in and extensions
of credit to such subsidiaries, net of any reserves established against such
investments, (i) as of April 12, 1989 and (ii) as of the date on which the
institution's tangible capital is being determined. In general, adjusted
tangible assets equal the institution's consolidated tangible assets, minus any
assets that are deducted in calculating capital.
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CORE CAPITAL OF AT LEAST 3% OF ADJUSTED TANGIBLE ASSETS (THE "LEVERAGE
LIMIT"). Core capital consists of tangible capital plus (1) qualifying goodwill
resulting from pre-April 12, 1989 acquisitions of troubled savings institutions
and (2) certain qualifying intangible assets and mortgage servicing rights.
Certain deferred tax assets must also be deducted from core capital.
TOTAL CAPITAL OF AT LEAST 8% OF RISK-WEIGHTED ASSETS (THE "RISK-BASED
CAPITAL REQUIREMENT"). Total capital includes both core capital and
"supplementary" capital items deemed less permanent than core capital, such as
subordinated debt and general loan loss allowances (subject to certain limits).
Equity investments (with the exception of investments in subsidiaries and
investments permissible for national banks) and portions of certain high-risk
land loans and nonresidential construction loans must be deducted from total
capital. At least half of total capital must consist of core capital.
Risk-weighted assets are determined by multiplying each category of an
institution's assets, including off balance sheet asset equivalents, by an
assigned risk weight based on the credit risk associated with those assets, and
adding the resulting products. The four risk weight categories range from 0% for
cash and government securities to 100% for assets (including past-due loans and
real estate owned ("REO")) that do not qualify for preferential risk-weighting.
On March 18, 1994, the OTS published a final regulation effective on that
date that permits a loan secured by multifamily residential property, regardless
of the number of units, to be risk-weighted at 50% for purposes of the
risk-based capital standards if the loan meets specified criteria relating to
the term of the loan, timely payments of interest and principal, loan-to-value
ratio and ratio of net operating income to debt service requirements. Under the
prior regulation, only loans secured by multifamily residential properties
consisting of 5 to 36 units were eligible for risk-weighting at 50%, and then
only if such loans had a loan-to-value ratio at origination of not more than 80%
and the collateral property had an average annual occupancy rate of at least 80%
for a year or more.
Any loans that qualified for risk-weighting under the prior regulation as
of March 18, 1994 will be "grandfathered" and will continue to be risk-weighted
at 50% as long as they continue to meet the criteria of the prior regulation.
Thus occupancy rates, which recently have been decreasing generally, will
continue to affect the risk-weighting of such grandfathered multifamily loans
unless such loans qualify for 50% risk-weighting under the criteria of the new
rule, which criteria do not include an occupancy requirement.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the OTS was required to revise its risk-based capital standards to
ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and risks of nontraditional activities. The OTS has
incorporated an interest rate risk component into its regulatory capital rule.
Under the rule, savings institutions with "above normal" interest rate risk
exposure would be subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. An institution whose interest
rate risk exposure (measured as set forth in the rule) exceeded 2% would be
required to deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2% multiplied by the estimated economic value of the
bank's assets. That dollar amount would be deducted from a bank's total capital
in calculating compliance with its risk-based capital requirement. Under the
rule, there is a lag between the reporting date of an institution's financial
data and the effective date for the new capital requirement based on that data.
The rule also provides that the Director of the OTS may waive or defer a bank's
interest rate risk component on a case-by-case basis. The OTS has postponed the
implementation of the new rule until the OTS has collected sufficient data to
determine whether the rule is effective in monitoring and managing interest rate
risk. No interest rate risk component would have been required to be added to
the Bank's risk-based capital requirement at December 31, 1998 had the rule been
in effect at that time.
FDICIA PROMPT CORRECTION ACTION REGULATIONS. FDICIA required the OTS to
implement a system requiring regulatory sanctions against institutions that are
not adequately capitalized, with the sanctions growing more severe the lower the
institution's capital. The OTS has established specific capital ratios under the
Prompt Corrective Action ("PCA") Regulations for five separate capital
categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
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Under the OTS regulations implementing FDICIA, an institution is treated as
well capitalized if its ratio of total capital to risk-weighted assets is at
least 10.0%, its ratio of core capital to risk-weighted assets is at least 6.0%,
its ratio of core capital to adjusted tangible assets is at least 5.0%, and it
is not subject to any order or directive by the OTS to meet a specific capital
level. An institution will be adequately capitalized if its ratio of total
capital to risk-weighted assets is at least 8.0%, its ratio of core capital to
risk-weighted assets is at least 4.0%, and its ratio of core capital to adjusted
tangible assets (leverage ratio) is at least 4.0% (3.0% if the institution
receives the highest rating on the OTS financial institutions rating system).
An institution whose capital does not meet the amounts required in order to
be adequately capitalized will be treated as undercapitalized. If an
undercapitalized institution's capital ratios are less than 6.0% total capital
to risk-weighted assets, 3.0% core capital to risk-weighted assets, or 3.0% core
capital to adjusted tangible assets, it will be treated as significantly
undercapitalized. Finally, an institution will be treated as critically
undercapitalized if its ratio of "tangible equity" (core capital plus cumulative
perpetual preferred stock minus intangible assets other than supervisory
goodwill and certain originated and purchased mortgage servicing rights) to
adjusted tangible assets is equal to or less than 2.0%. At December 31, 1998,
the Bank was adequately capitalized. See Item 7. "MD&A--Regulatory Capital
Compliance."
MANDATORY RESTRICTIONS ON UNDERCAPITALIZED INSTITUTIONS. There are numerous
mandatory restrictions on the activities of undercapitalized institutions. An
institution that is undercapitalized must submit a capital restoration plan to
the OTS that the OTS may approve only if it determines that the plan is likely
to succeed in restoring the institution's capital and will not appreciably
increase the risks to which the institution is exposed. In addition, the
institution's performance under the plan must be guaranteed by every company
that controls the institution, up to specified limits. An institution that is
undercapitalized may not acquire an interest in any company, open a new branch
office or engage in a new line of business without OTS or FDIC approval. An
undercapitalized institution also may not increase its average total assets
during any quarter except in accordance with an approved capital restoration
plan. An undercapitalized savings institution generally may not pay any
dividends or make other capital distributions. Undercapitalized institutions
also may not pay management fees to any company or individual that controls the
institution. An undercapitalized savings institution cannot accept, renew, or
rollover deposits obtained through a deposit broker, and may not solicit
deposits by offering interest rates that are more than 75 basis points higher
than market rates. Savings institutions that are adequately capitalized but not
well capitalized must obtain a waiver from the FDIC in order to accept, renew,
or rollover brokered deposits, and even if a waiver is granted may not solicit
deposits, through a broker or otherwise, by offering interest rates that exceed
market rates by more than 75 basis points.
RESTRICTIONS ON SIGNIFICANTLY AND CRITICALLY UNDERCAPITALIZED INSTITUTIONS.
In addition to the above mandatory restrictions which apply to all
undercapitalized savings institutions, institutions that are significantly
undercapitalized may not without the OTS' prior approval (a) pay a bonus to any
senior executive officer or (b) increase any senior executive officer's
compensation over the average rate of compensation (excluding bonuses, options
and profit-sharing) during the 12 months preceding the month in which the
institution became undercapitalized. The same restriction applies to
undercapitalized institutions that fail to submit or implement an acceptable
capital restoration plan. If a savings institution is critically
undercapitalized, the institution is also generally prohibited from making
payments of principal or interest on subordinated debt beginning 60 days after
the institution becomes critically undercapitalized. In addition, the
institution cannot without prior FDIC approval enter into any material
transaction outside the ordinary course of business. Critically undercapitalized
savings institutions must be placed in receivership or conservatorship within 90
days of becoming critically undercapitalized unless the OTS, with the
concurrence of the FDIC, determines that some other action would better resolve
the problems of the institution at the least possible long-term loss to the
insurance fund, and documents the reasons for its determination.
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DISCRETIONARY SANCTIONS. With respect to an undercapitalized institution,
the OTS, under certain circumstances, has the authority, among other things, to
order the institution to recapitalize by selling shares of capital stock or
other securities, order the institution to agree to be acquired by another
depository institution holding company or combine with another depository
institution, restrict transactions with affiliates, restrict the interest rates
paid by the institution on new deposits to the prevailing rates of interest in
the region where the institution is located, require the institution to divest
any subsidiary or the institution's holding company to divest the institution or
any other subsidiary or take any other action that the OTS determines will
better resolve the institution's problems at the least possible loss to the
deposit insurance fund. With respect to significantly undercapitalized
institutions and certain undercapitalized institutions, the OTS must take
certain of the above mentioned actions.
In addition to the mandatory appointment of a conservator or receiver for
critically undercapitalized institutions, described above, the OTS or FDIC may
appoint a receiver or conservator for an undercapitalized institution if it (a)
has no reasonable prospect of becoming adequately capitalized, (b) fails to
submit a capital restoration plan within the required time period or (c)
materially fails to implement its capital restoration plan.
Finally, the OTS can apply to an institution in a particular capital
category the sanctions that apply to the next lower capital category, if the OTS
determines, after providing the institution notice and opportunity for a
hearing, that (a) the institution is in an unsafe or unsound condition or (b)
the institution received, in its most recent report of examination, a
less-than-satisfactory rating for asset quality, management, earnings or
liquidity, and the deficiency has not been corrected. The OTS cannot, however,
use this authority to require an adequately capitalized institution to file a
capital restoration plan, or to subject a significantly undercapitalized
institution to the sanctions applicable to critically undercapitalized
institutions.
FIDELITY REGULATION--ACTIVITIES REGULATION NOT RELATED TO CAPITAL COMPLIANCE
SAFETY AND SOUNDNESS STANDARDS. In addition to the PCA provisions discussed
above based on an institution's regulatory capital ratios, FDICIA contains
several measures intended to promote early identification of management problems
at depository institutions and to ensure that regulators intervene promptly to
require corrective action by institutions with inadequate operational and
managerial standards.
FDICIA requires the OTS to prescribe minimum acceptable operational and
managerial standards, and standards for asset quality, earnings, and valuation
of publicly traded shares, for savings institutions and their holding companies.
The operational standards must cover internal controls, loan documentation,
credit underwriting, interest rate exposure, asset growth and employee
compensation. The asset quality and earnings standards must specify a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses, and minimum ratio of market value to book value for publicly traded
shares.
Any institution or holding company that fails to meet the standards must
submit a plan for corrective action within 30 days. If a savings institution
fails to submit or implement an acceptable plan, the OTS must order it to
correct the safety and soundness deficiency, and may restrict its rate of asset
growth, prohibit asset growth entirely, require the institution to increase its
ratio of tangible equity to assets, restrict the interest rate paid on deposits
to the prevailing rates of interest on deposits of comparable amounts and
maturities, or require the institution to take any other action that the OTS
determines will better carry out the purpose of PCA. Imposition of these
sanctions is within the discretion of the OTS in most cases but is mandatory if
the savings institution commenced operations or experienced a change in control
during the 24 months preceding the institution's failure to meet the safety and
soundness standards, or underwent extraordinary growth during the preceding 18
months.
The OTS has adopted guidelines for operational and managerial standards
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits and excessive
compensatory arrangements for executive officers, employees, directors or
principal shareholders.
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In addition, each depository institution with assets above $500 million
must annually prepare a report, signed by the chief executive officer and chief
financial officer, on the effectiveness of the institution's internal control
structures and procedures for financial reporting, and on the institution's
compliance with laws and regulations relating to safety and soundness. The
institution's independent public accountant must attest to, and report
separately on, management's assertions in that report. The report and the
attestations, along with financial statements and such other disclosure
requirements as the FDIC and the OTS may prescribe, must be submitted to the
FDIC and the OTS. Such institutions must also have an audit committee of its
Board of Directors made up entirely of directors who are independent of the
management of the institution. Audit committees of "large" institutions (defined
by the FDIC as an institution with more than $3 billion in assets, which
includes Fidelity) must include members with banking or financial management
expertise, may not include members who are large customers of the institution,
and must have access to independent counsel.
During the third quarter of 1998, the OTS completed its annual safety and
soundness examination and the Company has addressed the OTS' recommendations.
See Item 7. "MD&A--Recent Developments--Regulatory Capital and Supervision."
QUALIFIED THRIFT LENDER TEST. The QTL test requires that, in at least nine
out of every twelve months, at least 65% of a savings bank's "portfolio assets"
must be invested in a limited list of qualified thrift investments, primarily
investments related to housing loans. If Fidelity fails to satisfy the QTL test
and does not requalify as a QTL within one year, any entity in control of
Fidelity must register and be regulated as a bank holding company, and Fidelity
must either convert to a commercial bank charter or become subject to
restrictions on branching, business activities and dividends as if it were a
national bank. Portfolio assets consist of tangible assets minus (a) assets used
to satisfy liquidity requirements and (b) property used by the institution to
conduct its business. In 1996, the Economic Growth and Regulatory Paperwork
Reduction Act ("EGRPRA") was adopted, amending the QTL requirements to allow
educational loans, small business loans and credit card loans to count as
qualified thrift assets without limit and to allow loans for personal, family or
household purposes to count as qualified thrift assets in the category limited
to 20% of portfolio assets. The previous limit for loans for personal, family or
household purposes was also 10% of portfolio assets. Finally, EGRPRA provided
that as an alternative to the QTL test, thrifts may choose to comply with the
Internal Revenue Service's domestic building and loan tax code test.
INVESTMENTS AND LOANS. In general, federal savings institutions such as
Fidelity may not invest directly in equity securities, noninvestment grade debt
securities or real estate, other than real estate used for the institution's
offices and related facilities. Indirect equity investment in real estate
through a subsidiary is permissible, but subject to certain limitations and
deductions from regulatory capital. Loans by a savings institution to a single
borrower are generally limited to 15% of an institution's "unimpaired capital
and unimpaired surplus," which is similar but not identical to total capital.
Aggregate loans secured by nonresidential real property are generally limited to
400% of an institution's total capital. Commercial loans may not exceed 10% of
an institution's total assets, and consumer loans may not exceed 35% of an
institution's total assets.
ACTIVITIES OF SUBSIDIARIES. A savings institution seeking to establish a
new subsidiary, acquire control of an existing company or conduct a new activity
through an existing subsidiary must provide 30 days prior notice to the FDIC and
OTS. A subsidiary of Fidelity may be able to engage in activities that are not
permissible for Fidelity directly, if the OTS determines that such activities
are reasonably related to Fidelity's business, but Fidelity may be required to
deduct its investment in such a subsidiary from capital. The OTS has the power
to require a savings institution to divest any subsidiary or terminate any
activity conducted by a subsidiary that the OTS determines to be a serious
threat to the financial safety, soundness or stability of such savings
institution or to be otherwise inconsistent with sound banking practices.
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REAL ESTATE LENDING STANDARDS. The OTS and the other federal banking
agencies have adopted regulations which require institutions to adopt and at
least annually review written real estate lending policies. The lending policies
must include diversification standards, underwriting standards (including
loan-to-value limits), loan administration procedures, and procedures for
monitoring compliance with the policies. The policies must reflect consideration
of guidelines adopted by the banking agencies. Among the guidelines adopted by
the agencies are maximum loan-to-value ratios for unimproved land loans (65%);
development loans (75%); construction loans (80%-85%); loans on owner-occupied 1
to 4 family property, including home equity lines of credit (no limit, but loans
at or above 90% require private mortgage insurance); and loans on other improved
property (85%). The guidelines permit institutions to make loans in excess of
the supervisory loan-to-value limits if such loans are supported by other credit
factors, but the aggregate of such nonconforming loans should not exceed the
institution's risk-based capital, and the aggregate of nonconforming loans
secured by real estate other than 1 to 4 family property should not exceed 30%
of risk-based capital.
NOTIFICATION OF NEW OFFICERS AND DIRECTORS. A federal savings bank that
does not comply with all minimum capital requirements under part 567 of the OTS
regulations is deemed to be in "troubled condition" by the OTS, or that has been
notified by the OTS in connection with the review of a capital restriction plan,
or otherwise, that a notice must be provided must give the OTS 30 days notice
prior to any change in its Board of Directors or its senior executive officers.
The OTS must disapprove such change if the competence, experience or integrity
of the affected individual indicates that it would not be in the best interests
of the public to permit the appointment. Fidelity is currently subject to this
notice requirement.
PAYMENT OF DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. The payment of
dividends, stock repurchases, and other capital distributions by Fidelity to
Bank Plus is subject to regulation by the OTS. Currently, 30 days' prior notice
to the OTS of any capital distribution is required.
The OTS has promulgated a "safe-harbor" regulation that permits capital
distributions of certain amounts after providing notice to the OTS, but without
prior approval. Institutions can distribute amounts in excess of the safe harbor
only with the prior approval of the OTS. For institutions ("Tier 1
institutions") that meet their fully phased-in capital requirements (the
requirements that will apply when the phase-out of supervisory goodwill and
investments in certain subsidiaries from capital is complete), the safe harbor
amount is the greater of (a) 75% of net income for the prior four quarters, or
(b) the sum of (1) the current year's net income and (2) the amount that would
reduce the excess of the institution's total capital to risk-weighted assets
ratio over 8% to one-half of such excess at the beginning of the year in which
the dividend is paid. For institutions that meet their current minimum capital
requirements but do not meet their fully phased-in requirements ("Tier 2
institutions"), the safe harbor distribution is 75% of net income for the prior
four quarters reduced by prior distributions during the period. Savings
institutions that do not meet their current minimum capital requirements before,
or on a pro forma basis after giving effect to a proposed distribution, ("Tier 3
institutions") may not make any capital distributions, with certain exceptions.
At December 31, 1998, Fidelity was a Tier 2 institution.
The OTS retains the authority to prohibit any capital distribution
otherwise authorized under the regulation if the OTS determines that the
distribution would constitute an unsafe or unsound practice. The OTS also may
reclassify a Tier 1 institution as a Tier 2 or Tier 3 institution by notifying
the institution that it is in need of more than normal supervision. Further, an
adequately capitalized institution may not make a capital distribution if such
payment would cause the institution to become undercapitalized.
The OTS recently amended the capital distribution rule to conform to the
PCA system. Under the rule, an institution is able to make a capital
distribution (i) without prior notice to the OTS if it is not owned by a savings
and loan holding company and, after the proposed capital distribution, will
remain at least "adequately capitalized," the distribution would not reduce the
amount of common or preferred stock or retire debt that is included in capital,
and the distribution would not otherwise violate any statutory regulatory or
other prohibition; (ii) without an application if the institution has a
composite rating of "1" or "2", is otherwise eligible for expedited treatment
and the distribution does not exceed a specified amount; and (iii) without
notice or application if all of the conditions specified above are met. Fidelity
is still required to obtain OTS approval prior to making a capital distribution.
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REQUIRED LIQUIDITY. OTS regulations require savings institutions to
maintain, for each calendar quarter, an average daily balance of liquid assets
(including cash, certain time deposits, bankers' acceptances, certain
mortgage-related securities, certain loans secured by first liens on residential
property, specified United States government, state and federal agency
obligations, and balances maintained in satisfaction of the FRB reserve
requirements described below) equal to at least 4% of either (i) the prior
quarter end balance of its net withdrawable accounts due in one year or less
plus borrowings due in one year or less (the "liquidity base") or (ii) the
average daily balance of the liquidity base during the prior calendar quarter.
In addition, savings institutions must comply with a general non-quantitative
requirement to maintain a safe and sound level of liquidity. The OTS may change
this liquidity requirement from time to time to an amount within a range of 4%
to 10% of such accounts and borrowings depending upon economic conditions and
the deposit flows of member institutions, and may exclude from the definition of
liquid assets any item other than cash and the balances maintained in
satisfaction of FRB reserve requirements. Fidelity's average regulatory
liquidity ratio for the fourth quarter of 1998 was 18.40%, and accordingly
Fidelity was in compliance with the liquidity requirement. Monetary penalties
may be imposed for failure to meet liquidity ratio requirements.
CLASSIFICATION OF ASSETS. Savings institutions are required to classify
their assets on a regular basis, to establish appropriate allowances for losses
and report the results of such classification quarterly to the OTS. A savings
institution is also required to set aside adequate valuation allowances, and to
establish liabilities for off-balance sheet items, such as letters of credit,
when a loss becomes probable and estimable. The OTS has the authority to review
the institution's classification of its assets and to determine whether
additional assets must be classified, or the institution's valuation allowances
must be increased. See "--Credit Administration--Loan Monitoring."
Assets are classified as "pass", "special mention", "substandard",
"doubtful" or "loss." An asset which possesses no apparent weakness or
deficiency is designated "satisfactory". An asset which possesses weaknesses or
deficiencies deserving close attention is designated as "special mention". An
asset, or a portion thereof, is generally classified as "substandard" if it
possesses a well-defined weakness which could jeopardize the timely liquidation
of the asset or realization of the collateral at the asset's book value. Thus,
these assets are characterized by the possibility that the institution will
sustain some loss if the deficiencies are not corrected. An asset, or portion
thereof, is classified as "doubtful" if a probable loss of principal and/or
interest exists but the amount of the loss, if any, is subject to the outcome of
future events which are indeterminable at the time of classification. If an
asset, or portion thereof, is classified as "loss", the institution must either
establish SVAs equal to the amount classified as loss or charge off such amount.
FIDELITY--DEPOSIT INSURANCE
GENERAL. Fidelity's deposits are insured by the FDIC to the maximum limits
permitted by law. Under FIRREA, the FDIC administers two separate deposit
insurance funds: the Bank Insurance Fund ("BIF") which insures the deposits of
institutions that were insured by the FDIC prior to FIRREA, and the SAIF which
maintains a fund to insure the deposits of institutions, such as Fidelity, that
were insured by the Federal Savings and Loan Insurance Corporation ("FSLIC")
prior to FIRREA.
INSURANCE PREMIUM ASSESSMENTS. The FDICIA directed the FDIC to establish a
risk-based system for setting deposit insurance premium assessments. The FDIC
has implemented such a system, under which an institution's insurance
assessments will vary depending on the level of capital the institution holds
and the degree to which it is the subject of supervisory concern to the FDIC.
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Legislation was enacted on September 30, 1996 to address the disparity in
bank and thrift deposit insurance premiums. Such legislation imposed a
requirement on all SAIF member institutions to fully recapitalize the SAIF by
paying a one-time special assessment of approximately 65.7 basis points on all
assessable deposits as of March 31, 1995. This one-time special assessment of
65.7 basis points resulted in the Bank recording $18.0 million in additional
SAIF premiums. This 1996 legislation also altered the obligation with respect to
the payment of interest on the debt obligations issued by the Financing
Corporation ("FICO Debt") and separated the assessments levied by the FDIC for
deposit insurance coverage from assessments to make such FICO Debt interest
payments. Although the risk-based assessment system for Bank Insurance Fund
("BIF") members and for SAIF members, such as Fidelity, provides for the same
assessment rates for similarly rated institutions, Federal law provides for
different assessment rates for purposes of the FICO Debt interest payments to be
paid on SAIF and BIF deposits until December 31, 1999 or, if earlier, the date
on which the last Federal Savings Association ceases to exist. Under these
provisions, SAIF deposits will be assessed at five times the rate at which BIF
deposits will be assessed. Currently, the SAIF assessment for purposes of paying
FICO Debt interest is 0.0610%. The issue of whether to extend the December 31,
1999, date for an additional three years has been raised in connection with
pending federal banking legislation. It is not possible to predict what federal
legislation, if any, may be enacted on this, or any other, subject affecting the
Bank, Bank Plus, or any affiliate thereof. As of December 31, 1998, the Bank's
core and risk-based capital ratios are 4.36% and 8.95%, respectively, and the
Bank is adequately capitalized under the PCA regulations.
TERMINATION OF DEPOSIT INSURANCE. The FDIC may initiate a proceeding to
terminate an institution's deposit insurance if, among other things, the
institution is in an unsafe or unsound condition to continue operations. It is
the policy of the FDIC to deem an insured institution to be in an unsafe or
unsound condition if its ratio of Tier 1 capital to total assets is less than
2%. Tier 1 capital is similar to core capital but includes certain investments
in and extensions of credit to subsidiaries engaged in activities not permitted
for national banks.
REGULATION OF FIDELITY AFFILIATES
AFFILIATE AND INSIDER TRANSACTIONS. The ability of Bank Plus and its
non-depository subsidiaries to deal with Fidelity is limited by the affiliate
transaction rules, including Sections 23A and 23B of the Federal Reserve Act,
which also govern BIF-insured banks. With very limited exceptions, these rules
require that all transactions between Fidelity and an affiliate must be on arms'
length terms. The term "affiliate" covers any company that controls or is under
common control with Fidelity, but does not include individuals and generally
does not include Fidelity's subsidiaries.
Under Section 23A and Section 11 of the HOLA, specific restrictions apply
to transactions in which Fidelity provides funding to its affiliates: Fidelity
may not purchase the securities of an affiliate, make a loan to any affiliate
that is engaged in activities not permissible for a bank holding company, or
acquire from an affiliate any asset that has been classified, a nonaccrual loan,
a restructured loan, or a loan that is more than 30 days past due. As to
affiliates engaged in bank holding company-permissible activities, the aggregate
of (a) loans, guarantees, and letters of credit provided by the savings bank for
the benefit of any one affiliate and (b) purchases of assets by the savings bank
from the affiliate, may not exceed 10% of the savings bank's capital stock and
surplus (20% for the aggregate of permissible transactions with all affiliates).
All loans to affiliates must be secured by collateral ranging from 100% to 130%
of the amount of the loan, depending on the type of collateral.
In addition, OTS regulations on affiliate transactions require, among other
things, that savings institutions retain records of their affiliate transactions
that reflect such transactions in reasonable detail. If a savings institution
has been the subject of a change of control application or notice within the
preceding two-year period, does not meet its minimum capital requirements, has
entered into a supervisory agreement, is subject to a formal enforcement
proceeding, or is determined by the OTS to be the subject of supervisory
concern, the institution may be required to provide the OTS with 30 days' prior
notice of any affiliate transaction.
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Under OTS regulatory limitations, loans by Fidelity to directors, executive
officers and 10% stockholders of Fidelity, Bank Plus, and Bank Plus'
subsidiaries (collectively, "insiders"), or to a corporation or partnership that
is at least 10% owned by an insider (a "related interest") are subject to limits
separate from the affiliate transaction rules. However, a company that controls
a savings institution is excluded from the coverage of the insider lending rules
even if it owns 10% or more of the stock of the institution, and is subject only
to the affiliate transaction rules. All loans to insiders and their related
interests must be underwritten and made on non-preferential terms; loans in
excess of $500,000 must be approved in advance by Fidelity's Board of Directors;
and Fidelity's total of such loans may not exceed 100% of Fidelity's unimpaired
capital and unimpaired surplus. Loans by Fidelity to its executive officers are
subject to additional limits which are even more stringent. In addition to these
regulatory limitations, Fidelity has adopted a policy which requires prior
approval of its Board of Directors for any loans to insiders or their related
interests.
ENFORCEMENT. Whenever the OTS has reasonable cause to believe that the
continuation by a savings and loan holding company of any activity or of
ownership or control of any non FDIC-insured subsidiary constitutes a serious
risk to the financial safety, soundness, or stability of a savings and loan
holding company's subsidiary savings institution and is inconsistent with the
sound operation of the savings institution, the OTS may order the holding
company, after notice and opportunity for a hearing, to terminate such
activities or to divest such noninsured subsidiary. FIRREA also empowers the
OTS, in such a situation, to issue a directive without any notice or opportunity
for a hearing, which directive may (a) limit the payment of dividends by the
savings institution, (b) limit transactions between the savings institution and
its holding company or its affiliates and (c) limit any activity of the
association that creates a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings institution.
In addition, FIRREA includes savings and loan holding companies within the
category of person designated as "institution-affiliated parties." An
institution-affiliated party may be subject to significant penalties and/or loss
of voting rights in the event such party took any action for or toward causing,
bringing about, participating in, counseling, or aiding and abetting a violation
of law or unsafe or unsound practice by a savings institution.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act ("CRA") requires each savings institution,
as well as other lenders, to identify and delineate the communities served
through and by the institution's offices and to affirmatively meet the credit
needs of its delineated communities and to market the types of credit the
institution is prepared to extend within such communities. The CRA also requires
the OTS to assess the performance of the institution in meeting the credit needs
of its community and to take such assessment into consideration in reviewing
applications for mergers, acquisitions, and other transactions. An
unsatisfactory CRA rating may be the basis for denying such an application.
Performance is assessed on the basis of an institution's actual lending, service
and investment performance rather than the extent to which the institution
conducts needs assessments, documents community outreach or complies with other
procedural requirements. In connection with its assessment of CRA performance,
the OTS assigns a rating of "outstanding," "satisfactory," "needs improvement"
or "substantial noncompliance." Based on its most recent examination, Fidelity
was rated "satisfactory."
FEDERAL HOME LOAN BANK SYSTEM
The Federal Home Loan Banks provide a credit facility for member
institutions. As a member of the FHLB of San Francisco, Fidelity is required to
own capital stock in the FHLB of San Francisco in an amount at least equal to
the greater of 1% of the aggregate principal amount of its unpaid home loans,
home purchase contracts and similar obligations at the end of each calendar
year, assuming for such purposes that at least 30% of its assets were home
mortgage loans, or 5% of its advances from the FHLB of San Francisco. At
December 31, 1998, Fidelity was in compliance with this requirement with an
investment in the stock of the FHLB of San Francisco of $65.4 million. Long-term
FHLB advances may be obtained only for the purpose of providing funds for
residential housing finance and all FHLB advances must be secured by specific
types of collateral.
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FEDERAL RESERVE SYSTEM
The FRB requires savings institutions to maintain noninterest-earning
reserves against certain of their transaction accounts (primarily deposit
accounts that may be accessed by writing unlimited checks) and non-personal time
deposits. For the calculation period at December 31, 1998, Fidelity was required
to maintain $8.9 million in noninterest-earning reserves and was in compliance
with this requirement. The balances maintained to meet the reserve requirements
imposed by the FRB may be used to satisfy Fidelity's liquidity requirements
discussed above.
As a creditor and a financial institution, Fidelity is subject to certain
regulations promulgated by the FRB, including, without limitation, Regulation B
(Equal Credit Opportunity Act), Regulation D (Reserves), Regulation E
(Electronic Funds Transfers Act), Regulation F (limits on exposure to any one
correspondent depository institution), Regulation Z (Truth in Lending Act),
Regulation CC (Expedited Funds Availability Act), and Regulation DD (Truth in
Savings Act). As creditors of loans secured by real property and as owners of
real property, financial institutions, including Fidelity, may be subject to
potential liability under various statutes and regulations applicable to
property owners, generally including statutes and regulations relating to the
environmental condition of the property. See "--Non-Banking Regulation."
NON-BANKING REGULATION
Under various federal, state and local environmental laws and regulations,
a current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous substances on, under or in such
property. In addition, any person or entity who arranges for the disposal or
treatment of hazardous substances may also be liable for the costs of removal or
remediation of hazardous substances at the disposal or treatment facility. Such
laws and regulations often impose liability regardless of fault and liability
has been interpreted to be joint and several unless the harm is divisible and
there is a reasonable basis for allocation of responsibility. Pursuant to these
laws and regulations, under certain circumstances, a lender may become liable
for the environmental liabilities in connection with its borrowers' properties,
if, among other things, it either forecloses or participates in the management
of its borrowers' operations or hazardous substance handling or disposal
practices. Although the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA") and certain state counterparts provide
exemptions for secured lenders, the scope of such exemptions is limited and a
rule issued by the Environmental Protection Agency clarifying such exemption
under CERCLA has recently been held invalid. In addition, CERCLA and certain
state counterparts impose a statutory lien, which may be prior to a bank's
interest securing a loan, for certain costs incurred in connection with removal
or remediation of hazardous substances. Other laws and regulations may also
require the removal or remediation of hazardous substances located on a property
before such property may be sold or transferred.
It is the Bank's current policy to identify and review certain
environmental issues pertaining to its borrowers and the properties securing the
loans of its borrowers prior to making any loan and foreclosing on any
multifamily property. If such review reveals any environmental issues, a Phase I
environmental audit (which generally involves a physical inspection without any
sampling) and under certain circumstances, a Phase II environmental audit (which
generally involves sampling) may be conducted by an independent environmental
consultant. It is also the Bank's current policy with respect to loans secured
by residential property with five or more units to automatically conduct a Phase
I environmental audit prior to foreclosing on such property. Under certain
circumstances, the Bank may decide not to foreclose on a property. There can be
no assurances that such review, Phase I environmental audits or Phase II
environmental audits have identified or will identify all potential
environmental liabilities that may exist with respect to a foreclosed property
or a property securing any loan or that historical, current or future uses of
such property or surrounding properties will not result in the imposition of
environmental liability on the Bank.
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The Bank is aware that certain current or former properties on which it has
foreclosed and properties securing its loans contain contamination or hazardous
substances, including asbestos and lead paint. Under certain circumstances, the
Bank may be required to remove or remediate such contamination or hazardous
substances. Although the Bank is not aware of any environmental liability
relating to these properties that it believes would have a material adverse
effect on its business or results of operations, there can be no assurances that
the costs of any required removal or remediation would not be material or
substantially exceed the value of affected properties or the loans secured by
the properties or that the Bank's ability to sell any foreclosed property would
not be adversely affected.
GATEWAY
Gateway has been an NASD registered broker/dealer since October 1993 and
offers securities products, such as mutual funds and variable annuities, to
customers of the Bank and others. Fixed annuities are offered through the Bank's
insurance agency, Citadel Service Corporation, dba Fidelity Insurance Agency of
Glendale. Gateway does not maintain security or cash accounts for customers or
perform custodial functions relating to customer securities.
Gateway is required to conduct its activities in compliance with the
February 1994 interagency guidelines of the federal bank and thrift regulators
on retail sales of uninsured, nondeposit investment products by federally
insured financial institutions. The interagency guidelines require that, among
other things, customers be fully informed that investment products are not
insured, are not deposits of or guaranteed by the Bank and involve investment
risk including the potential loss of principal.
The securities business is subject to regulation by the Securities and
Exchange Commission ("SEC") and other federal and state agencies. Regulatory
violations can result in the revocation of broker/dealer licenses, the
imposition of censures or fines and the suspension or expulsion from the
securities business of a firm, its officers or employees. With the enactment of
the Insider Trading and Securities Fraud Enforcement Act of 1988, the SEC and
the securities exchanges have intensified their regulation of broker/dealers,
emphasizing in particular the need for supervision and control by broker/dealers
of their own employees. In August of 1998, Gateway was audited by the NASD and
in 1994 by the SEC and the State of California Department of Corporations.
Effective February 15, 1998, the NASD modified its Conduct Rules governing
the activities of NASD members that are conducting broker/dealer services on the
premises of a financial institution where retail deposits are taken. The main
focus of the new rules is to minimize confusion by retail customers. The new
rules cover the location setting, networking and brokerage affiliate agreements,
customer disclosure and written acknowledgment, communications with the public
and notifications of terminations.
As a broker/dealer registered with the NASD, Gateway is subject to the
SEC's uniform net capital rules, designed to measure the general financial
condition and liquidity of a broker/dealer. Gateway is required to file monthly
reports with the NASD and annual reports with the NASD and SEC containing
detailed financial information with respect to its broker/dealer operation.
ITEM 2. PROPERTIES
The executive offices of Fidelity are located at 4565 Colorado Boulevard,
Los Angeles, California 90039. This facility also houses the Bank's
administrative operations and has approximately 130,000 square feet of office
space. The Bank also leases administrative offices in an adjacent building at
4563 Colorado Boulevard (15,500 square feet) in Beaverton, Oregon (approximately
45,000 square feet) and in Irvine, California (approximately 20,000 square
feet).
22
<PAGE>
On December 31, 1998, Fidelity owned 13 of its branch facilities and leased
the remaining 25 of its branch facilities under leases with terms (including
optional extension periods) expiring from 1999 through 2030. All owned and
leased office facilities are located in southern California with the exception
of the leased space for the a branch located in Bloomington, Minnesota and the
credit processing center located in Beaverton, Oregon. The amount of office
space, either leased or owned, is sufficient to meet the Company's anticipated
facilities requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Bank's previously reported litigation with ADC entitled AMERICAN DIRECT
CREDIT, LLC, A NEVADA LIMITED LIABILITY COMPANY, PLAINTIFF v. FIDELITY FEDERAL
BANK, A FEDERAL SAVINGS BANK, DEFENDANT, in the United States District Court,
for the District of Idaho, Civil Case No. 98-0391-BLW was settled as of October
30, 1998 by providing for an orderly termination of the contract between the
Bank and ADC. All documents necessary to effect this settlement between the Bank
and ADC have been executed by the parties and a dismissal with prejudice of
ADC's case was entered by the Court on March 9, 1999.
Under the settlement, ADC was permitted a limited right for a litmited time
to originate further credit card accounts, subject to more stringent credit
underwriting standards, after which no further credit cards would be issued. The
settlement agreement further provided that ADC could purchase the existing
credit card portfolio through March 31, 1999 based upon a specified formula
price. Until March 31, 1999, ADC would provide certain collection services. By
March 31, 1999 all continuing relationships with ADC will be terminated, except
for certain defined obligations to indemnify against third-party claims. To date
ADC has not presented a purchase offer for the portfolio.
Included in ADC's indemnification undertakings is its obligation to provide
a defense to the Bank and Bank Plus in a series of consumer lawsuits pending in
the State of Alabama, including two purported class actions, and to indemnify
the Bank and Bank Plus for any adverse judgment flowing from the same. The
plaintiffs in the Alabama litigation allege, generally, that misrepresentations
were made to them in connection with their purchases of various appliances and
other consumer items, including misrepresentations with respect to the nature
and cost of financing the same through credit cards issued by the Bank. The Bank
believes that it has substantial legal defenses to these claims inasmuch as it
did not control, direct or otherwise have any dealings with the sales people who
supposedly made such misrepresentations. While ADC is currently performing upon
its contractual obligations to provide a defense to the Bank in this litigation,
uncertainty exists as to its financial ability to continue to do so through the
course of the Alabama litigation and to perform upon its indemnification
obligations, if needed, in light of the termination of the agreement between the
Bank and ADC and ADC's apparent inability to date to enter into a similar
agreement with another financial institution.
In November 1997, the Bank entered into a credit card marketing
relationship with MMG. MMG was to solicit members of certain agreed-upon
affinity groups to become credit card holders. The Bank was to provide servicing
and other related functions. MMG and the Bank were to share equally in program
profits and losses. In late summer of 1998, disputes arose between the parties.
The Bank asserted that MMG had improperly induced it to enter into the contract
relationship by material misrepresentation to market to that group. The Bank
further asserted that MMG had breached its contract by, among other things,
engaging in regulatory violations and by engaging in conduct which violated
certain rules pertaining to MasterCard issuance.
On September 8, 1998 the Bank instituted an arbitration proceeding in Los
Angeles based upon such claims, entitled IN THE MATTER OF ARBITRATION BETWEEN
FIDELITY FEDERAL BANK AND MMG DIRECT, INC., American Arbitration Association No.
72 147 01072 98, and in October 1998 the Bank reasserted MMG's defaults and
terminated the MMG contract. Thereafter, MMG filed an Original Petition and
Request for Injunctive Relief in the County Court at Law No. 5, Dallas County,
Texas entitled MMG DIRECT, INC., PLAINTIFF v. FIDELITY FEDERAL BANK, FSB,
DEFENDANT, Case No. 98-10086-E (the "MMG DIRECT, INC. case"). This lawsuit
purports to state a number of claims, including fraud in the inducement, breach
of contract, common law fraud, negligent misrepresentation, accounting and
constructive trust and seeks injunctive relief and damages based upon various
asserted misrepresentations and omissions and failures to perform and breaches
of contract attributed to the Bank. The Bank removed this case to the United
States District Court and filed a motion to dismiss. Recently, following certain
discovery requested by MMG, the Bank renewed its motion to dismiss and filed, in
the alternative, a motion to stay. Briefing has not yet been concluded and the
Court has not ruled on the Bank's renewed motion to dismiss or alternate motion
to stay.
23
<PAGE>
Thereafter, MMG filed a third-party claim against the Bank in a case
brought by one of its purported creditors. That suit is entitled TIM MCCARTHY
ADVERTISING, INC., PLAINTIFF v. MMG DIRECT, INC., DEFENDANT; MMG DIRECT, INC.
THIRD-PARTY PLAINTIFF v. FIDELITY FEDERAL BANK, FSB, THIRD-PARTY DEFENDANT, No.
98-11717-E in the County Court at Law No. 5, Dallas County, Texas (the "MCCARTHY
case"). In this lawsuit MMG asserted that the Bank was obligated to indemnify
MMG against McCarthy's claims under partnership and other theories. The Bank
moved to stay MMG's third-party complaint pending arbitration. The Court granted
the Bank's stay motion. MMG moved for reconsideration and its motion was denied
by the Court on March 24, 1999.
In light of MMG's attempts to avoid arbitration, and to instead litigate in
the Texas courts, the Bank filed a petition to compel arbitration and an
accompanying motion to compel arbitration. The petition and motion were filed in
the United States District Court, Central District of California, Western
Division, Case No. 99-00589-TJH(SHx), under the caption FIDELITY FEDERAL BANK,
FSB, A CALIFORNIA FEDERAL SAVINGS BANK, PLAINTIFF v. MMG DIRECT, INC., A
DELAWARE CORPORATION, DEFENDANT (the "FIDELITY FEDERAL case"). MMG opposed and
filed a motion to dismiss. On March 18, 1999 the Court denied MMG's motion to
dismiss and granted the Bank's motion to compel arbitration.
On March 15, 1999 MMG filed a third-party petition against the Bank filed
in the District Court, 116th Judicial district, Dallas County, Texas, Cause No.
DV-99-01269, entitled REVELATION CORPORATION OF AMERICA, PLAINTIFF V. MMG
DIRECT, INC., DEFENDANT AND THIRD PARTY PLAINTIFF V. FIDELITY FEDERAL BANK, FSB,
THIRD PARTY DEFENDANT (the "REVELATION case"). The allegations in MMG's
third-party petition in this action mirror many of the allegations and claims in
the MMG DIRECT, INC. case, although several of those allegations have been
modified and expanded.
The Bank has recently amended its original arbitration petition to update
and more comprehensively state its claims against MMG. The Bank believes that
MMG's attempts to avoid arbitration are lacking in merit, because those attempts
have been rejected in the McCARTHY case via both the granting by the Court of
the Bank's motion to stay and the denial by the Court of MMG's motion for
reconsideration and in the FIDELITY FEDERAL case through the denial of MMG's
motion to dismiss and the granting of the Bank's motion to compel arbitration.
The Bank believes that the actions of these two Courts should be helpful to the
Bank in persuading the Court in the MMG DIRECT, INC. case and the REVELATION
case that MMG is obligated to arbitrate any claims against the Bank in Los
Angeles, California and may not escape its obligation to do so. The Bank intends
to vigorously pursue its claims against MMG and further believes that the claims
asserted by MMG against the Bank in the Texas litigations and any further such
claims as MMG may assert in any forum, including arbitration, are without merit.
The Bank's contract claims against MMG currently exceed $18 million and are
expected to increase with the passage of time.
The Company believes that all of the litigation instituted in the Texas
courts by MMG violates MMG's obligation to arbitrate.
On March 12, 1999, an action, Case No. BC206945, was filed against the Bank
in the Superior Court of the State of California for the County of Los Angeles.
The case is entitled CHOICE ONE FINANCE CORP., PLAINTIFF, v. FIDELITY FEDERAL
BANK, FSB, AND DOES 1 THROUGH 50 INCLUSIVE, DEFENDANTS. This action alleges that
the Bank breached its contract with the plaintiff and negligently interfered
with contracts that the plaintiff had entered into with third parties. In
addition the complaint has a claim for negligent misrepresentation. The
complaint has not yet been served on the Bank. The Bank disputes the claims set
forth in the complaint. The Bank intends to defend vigorously the asserted
claims.
24
<PAGE>
On October 19, 1998 a purported class action was filed against the Company
and its current and immediately preceding chief executive officers. The case was
originally entitled HOWARD GUNTY PROFIT SHARING PLAN, BOTH INDIVIDUALLY AND ON
BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS v. RICHARD M. GREENWOOD,
MARK K. MASON, BANK PLUS CORPORATION, AND DOES 1 THROUGH 50, INCLUSIVE,
DEFENDANTS, Los Angeles Superior Court, Central Judicial District, Case No.
BC199336. This action originally alleged that the Company failed to make
adequate public disclosure concerning losses in the Bank's credit card
operations during the period from august 14, 1998 (when the Company filed its
quarterly report on Form 10-Q for the second quarter) through September 22, 1998
(when the Company issued a press release concerning its credit card losses).
Recently, an amended complaint was filed in the Los Angeles Superior Court,
Central Judicial District, Case No. BC199336, entitled HOWARD GUNTY PROFIT
SHARING PLAN AND ROBERT E. YELIN, BOTH INDIVIDUALLY AND ON BEHALF OF THE YELIN
FAMILY TRUST U/A, BOTH INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, PLAINTIFFS, v. RICHARD M. GREENWOOD, MARK K. MASON, BANK PLUS
CORPORATION, AND DOES 1 THROUGH 50, INCLUSIVE,. The amended complaint purports
to expand the class period to extend from March 30, 1998 through September 22,
1998. The complaint includes claims for negligent misrepresentation, common law
fraud, statutory fraud and violations of the California Corporations Code. The
complaint has not yet been served on the Company. It is the Company's view that
certain of the claims asserted in the complaint are legally deficient and that
none of the claims asserted by the plaintiff are well grounded factually. The
Company believes that the claims are meritless and intends to vigorously defend
itself.
The Bank was named a defendant in several individual and class actions
brought by several borrowers which raise claims with respect to the manner in
which the Bank serviced certain adjustable rate mortgages which were originated
during the period 1983 through 1988. Six actions were filed between July 1992
and February 1995, one in Federal District Court and five in California Superior
Court. In the federal case the Bank won a summary judgment in the District
Court. This judgment was appealed and the Ninth Circuit Court of Appeals
affirmed in part, reversed in part and remanded back to the District Court for
further proceedings. The District Court has ruled in favor of certifying a class
in that action. Three of the California Superior Court cases resulted in final
judgments in favor of the Bank, after the plaintiffs unsuccessfully appealed the
trial court judgments in favor of the Bank. The other two cases have been
dismissed. The plaintiffs' principal claim in these actions is that the Bank
selected an inappropriate review date to consult the index upon which the rate
adjustment is based that was one or two months earlier than what was required
under the notes. In a declining interest rate environment, the lag effect of an
earlier review date defers the benefit to the borrower of such decline, and the
reverse would be true in a rising interest rate environment. The Bank strongly
disputes these contentions and is vigorously defending the remaining suit. The
parties are in settlement negotiations but no assurances can be given regarding
the outcome of such negotiations.
The legal responsibility and financial exposure with respect to foregoing
claims presently cannot be reasonably ascertained and, accordingly, there is a
risk that the outcome of one or more of these outstanding claims could result in
the payment of amounts which could be material in relation to the financial
condition or results of operations of the Bank.
In the normal course of business, the Company and certain of its
subsidiaries have a number of other lawsuits and claims pending. Although there
can be no assurance, the Company's management and its counsel believe that none
of these other lawsuits or claims will have a material adverse effect on the
financial condition or business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
25
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's Common Stock is listed and quoted on the Nasdaq National
Market ("Nasdaq").
The following table sets forth the high and low daily closing sales prices
of the Common Stock on Nasdaq for each of the following quarters.
HIGH LOW
--------- ---------
1998:
Fourth quarter..............................$ 4.94 $ 2.28
Third quarter............................... 12.63 4.13
Second quarter.............................. 16.13 12.13
First quarter .............................. 15.63 11.63
1997:
Fourth quarter..............................$ 13.69 $ 11.06
Third quarter............................... 13.25 10.75
Second quarter.............................. 11.50 9.63
First quarter .............................. 13.75 10.38
HOLDERS OF RECORD
The number of holders of record of the Company's Common Stock at March 12,
1999 was 811.
DIVIDENDS
Bank Plus has paid no dividends on the Common Stock since its formation in
May 1996. Prior thereto, Fidelity had not paid dividends on its Common Stock
since August 1994. Bank Plus currently has no plans to pay dividends on the
Common Stock. Bank Plus is a holding company with no significant assets other
than its investment in the Bank and Gateway, and is substantially dependent on
dividends from such subsidiaries to meet its cash requirements, including its
interest obligations on the Senior Notes. The ability of the Bank to pay
dividends or to make certain loans or advances to Bank Plus is subject to
significant restrictions. See "Business--Regulation and Supervision--Fidelity
Regulation--Activities Regulation Not Related to Capital Compliance" and
"--Regulation of Fidelity Affiliates."
26
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
The table below sets forth certain historical financial data regarding the
Company. This information is derived in part from, and should be read in
conjunction with, the Company's consolidated financial statements and notes
thereto.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................... $ 3,712,059 $ 4,167,806 $ 3,330,290 $ 3,299,444 $ 3,709,838
Total loans, net........................... 2,665,576 2,823,577 2,691,931 2,935,116 3,288,303
Deposits................................... 2,922,531 2,891,801 2,495,933 2,600,869 2,697,272
FHLB advances.............................. 585,000 1,009,960 449,851 292,700 332,700
Senior Notes............................... 51,478 51,478 -- -- --
Other borrowings........................... -- -- 140,000 150,000 500,000
Preferred stock............................ 272 272 51,750 51,750 --
Common stockholders' equity................ 127,388 181,345 161,657 177,293 156,547
Stockholders' equity per common share (1).. 6.55 9.36 8.86 9.72 24.11
Common shares outstanding (1).............. 19,434,043 19,367,215 18,245,265 18,242,465 6,492,465
OPERATING DATA:
Interest income............................ $ 300,347 $ 255,007 $ 237,913 $ 246,477 $ 241,465
Interest expense........................... 209,204 174,009 152,623 174,836 155,828
Net interest income........................ 91,143 80,998 85,290 71,641 85,637
Provision for estimated loan losses (3).... 73,032 13,004 15,610 69,724 65,559
Noninterest income (expense)............... 34,418 3,890 2,246 11,062 (7,793)
Operating expense (4)...................... 104,959 63,096 82,451 81,954 157,253
(Loss) earnings before income taxes........ (52,430) 8,788 (10,525) (68,975) (144,968)
Net (loss) earnings........................ (56,328) 12,653 (14,089) (68,979) (128,444)
Net (loss) earnings available for common
Stockholders (56,328) 12,653 (15,642) (68,979) (128,444)
(Loss) Earnings Per Share (1)(2):
Basic.................................... (2.90) 0.67 (0.86) (8.84) (39.08)
Diluted.................................. (2.90) 0.66 (0.86) (8.84) (39.08)
Weighted Average Common Shares Outstanding
(1) (2):
Basic.................................... 19,395,337 18,794,887 18,242,887 7,807,201 3,286,960
Diluted.................................. 19,395,337 19,143,233 18,242,887 7,807,201 3,286,960
SELECTED OPERATING RATIOS:
(Loss) return on average assets............ (1.32)% 0.35% (0.42)% (1.92)% (3.17)%
(Loss) return on average equity............ (33.71)% 7.43% (7.01)% (42.31)% (83.00)%
Average equity divided by average assets... 3.92% 4.67% 6.71% 4.54% 3.82%
Ending equity divided by ending assets..... 3.43% 4.35% 4.85% 6.94% 4.22%
Operating expense to average assets (5).... 2.46% 1.73% 1.94% 2.28% 2.27%
Efficiency ratio (6)....................... 76.10% 67.46% 67.77% 89.81% 97.58%
Yield on interest-earning assets........... 7.30% 7.16% 7.29% 7.04% 6.27%
Cost of interest bearing liabilities....... 5.16% 5.11% 4.98% 5.15% 4.03%
Net yield on interest-earning assets....... 2.22% 2.27% 2.63% 2.05% 2.22%
ASSET QUALITY DATA:
NPAs (7)................................... $ 23,304 $ 25,367 $ 60,788 $ 71,431 $ 85,729
NPAs to total assets....................... 0.63% 0.61% 1.83% 2.16% 2.31%
Nonaccruing loans ("NPLs")................. $ 14,372 $ 13,074 $ 36,125 $ 51,910 $ 71,614
NPLs to total loans, net................... 0.54% 0.46% 1.34% 1.77% 2.18%
Classified assets.......................... $ 133,085 $ 153,502 $ 174,096 219,077 $ 141,536
Classified assets to total assets.......... 3.59% 3.68% 5.23% 6.64% 3.82%
Total allowance for estimated losses....... $ 109,198 $ 55,993 $ 59,589 $ 92,927 $ 69,520
Total allowance for estimated losses to
net classified assets.................... 82.05% 36.48% 34.23% 42.42% 49.12%
(CONTINUED)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(CONTINUED)
<S> <C> <C> <C> <C> <C>
REGULATORY CAPITAL RATIOS:
Tangible capital ratio..................... 4.36% 5.26% 6.28% 6.91% 4.28%
Core capital ratio......................... 4.36% 5.26% 6.29% 6.92% 4.29%
Risk-based capital ratio................... 8.95% 11.57% 11.85% 12.43% 8.28%
OTHER DATA:
Sales of investment products............... $ 180,660 $ 159,791 $ 118,061 $ 89,824 $ 112,430
Real estate loans funded................... $ 138,991 $ 233,107 $ 13,859 $ 19,396 $ 521,580
Number of:
Real estate loan accounts (in thousands). 11 12 11 12 14
Deposit accounts (in thousands).......... 198 205 194 207 216
</TABLE>
(1) On February 9, 1996, the Bank's stockholders approved a four-for-one
reverse stock split. All per share data and weighted average common shares
outstanding have been retroactively adjusted to reflect this change.
(2) For the periods prior to August 4, 1994, Fidelity's one share owned by
Citadel Holding Corporation ("Citadel"), its former holding company and
sole stockholder, has been retroactively reclassified into 1,050,561 shares
of Common Stock.
(3) Provision for estimated loan losses in 1994 and 1995 include significant
provisions related to the resolution of assets in the Bank's multifamily
loan portfolio. In 1998, the provision for estimated loan losses increased
significantly due to credit losses in the Bank's credit card loan
portfolio.
(4) Operating expenses in 1995 included a restructuring and recapitalization
charge of $65.4 million. In 1996, the Bank paid a $18.0 million SAIF
special assessment. In 1998, the Company incurred $20.2 million of
operating expenses related to the servicing of the credit card portfolio.
(5) Excludes the impact of the 1996 SAIF special assessment and the 1994
restructuring and recapitalization charges.
(6) The efficiency ratio is computed by dividing total operating expense by net
interest income and noninterest income, excluding infrequent items,
provisions for estimated loan and real estate losses, direct costs of real
estate operations and gains/losses on the sale and writedown of securities.
(7) Nonperforming assets ("NPAs") include NPLs and foreclosed real estate, net
of SVAs and REO valuation allowances, if any.
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements included in this Annual Report on Form 10-K, including
without limitation statements containing the words "believes", "anticipates",
"intends", "expects", "plans" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of Bank Plus and its subsidiaries to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. A number of other factors may have a
material adverse effect on the Company's financial performance. These factors
include a national or regional economic slowdown or recession which increases
the risk of defaults and credit losses; movements in market interest rates;
restrictions imposed on the Bank's operations by regulators such as a
prohibition on the payment of dividends to Bank Plus; an increase in the number
of customers seeking protection under the bankruptcy laws which increases the
amount of charge-offs; the effects of fraud by third parties or customers; the
effectiveness of the Company's credit card collection efforts; and the outcome
of pending and future litigation. Given these uncertainties, undue reliance
should not be placed on such forward-looking statements. Bank Plus disclaims any
obligation to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements included herein to reflect
future events or developments.
RESULTS OF OPERATIONS
SUMMARY
The Company reported a net loss of $56.3 million for the year ended
December 31, 1998, as compared to net earnings of $12.7 million for the year
ended December 31, 1997. During 1998, the Company recorded a provision for
estimated loan losses of $73.0 million and incurred operating expenses of $105.0
million. Increasing delinquencies and charge-offs in the credit card loan
portfolio were the primary causes for the significant increase in the provision
for estimated loan losses. Operating expenses, which increased $41.9 million for
the year as compared to the corresponding 1997 period, were higher primarily due
to costs associated with the Bank's credit card programs and other business
initiatives.
For the year ended December 31, 1997, the Company reported net earnings of
$12.7 million as compared to a net loss of $15.6 million for the year ended
December 31, 1996. During 1997, the Company incurred operating expenses of $63.1
million, a $19.4 million reduction from 1996, and recorded $8.1 million of
income tax benefits. The reduction in operating expenses primarily related to
lower FDIC insurance costs resulting from the special one-time SAIF
recapitalization payment of $18.0 million in the third quarter of 1996.
29
<PAGE>
NET INTEREST INCOME
The following tables present the primary determinants of net interest
income for the periods indicated. For the purpose of this analysis, nonaccruing
mortgage loans are included in the average balances, and delinquent interest on
such loans has been deducted from interest income.
<TABLE>
CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------- -------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
DAILY YIELD/ DAILY YIELD/ DAILY YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans...................... $2,665,050 $198,724 7.46% $2,797,556 $ 204,252 7.30% $2,901,908 $ 213,013 7.34%
Credit card loans.......... 205,921 26,305 12.77 12,637 1,023 8.10 -- -- --
MBS........................ 701,961 43,305 6.17 429,483 29,435 6.85 78,242 5,772 7.38
Investment securities...... 477,965 28,313 5.92 263,573 16,822 6.38 233,797 16,056 6.87
Investment in FHLB stock... 62,985 3,700 5.87 55,129 3,475 6.30 50,976 3,072 6.03
----------- ---------- ----------- ---------- ----------- ----------
Total interest-earning
assets................. 4,113,882 300,347 7.30 3,558,378 255,007 7.16 3,264,923 237,913 7.29
---------- ---------- ----------
Noninterest-earning assets... 144,742 88,119 57,351
----------- ----------- -----------
Total assets................. $4,258,624 $3,646,497 $3,322,274
=========== =========== ===========
Interest-bearing liabilities:
Deposits:
Demand deposits.......... $ 351,250 4,161 1.18 $ 282,886 3,451 1.22 $ 298,287 3,098 1.04
Savings deposits......... 122,662 3,630 2.96 112,904 3,678 3.26 137,885 3,743 2.71
Time deposits............ 2,520,706 137,229 5.39 2,246,770 119,588 5.29 2,103,369 113,424 5.38
----------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
Total deposits......... 2,994,618 145,020 4.84 2,642,560 126,717 4.80 2,539,541 120,265 4.72
Borrowings................. 1,056,866 64,184 6.07 764,350 47,292 6.19 515,435 32,358 6.26
----------- ---------- ----------- ---------- ----------- ----------
Total interest-bearing
liabilities............ 4,051,484 209,204 5.16 3,406,910 174,009 5.11 3,054,976 152,623 4.98
---------- ---------- ----------
Noninterest-bearing
liabilities................ 39,793 40,621 44,251
Preferred stock issued by
consolidated subsidiary.... 272 28,640 51,750
Stockholders' equity......... 167,075 170,326 171,297
----------- ----------- -----------
Total liabilities and equity. $4,258,624 $3,646,497 $3,322,274
=========== =========== ===========
Net interest income;
interest rate spread....... $ 91,143 2.14% $ 80,998 2.05% $ 85,290 2.31%
========== ======= ========== ======= ========== =======
Net yield on interest
earning assets............. 2.22% 2.27% 2.63%
======= ======= =======
Average NPL balance included
in average loan balance.... $ 21,495 $ 43,117 $ 60,364
=========== ========== ===========
Net delinquent interest removed
from interest income....... $ 1,899 $ 3,909 $ 6,018
========== ========== ==========
Reduction in net yield on
interest-earning assets
due to delinquent interest. 0.05% 0.11% 0.18%
======= ======= =======
</TABLE>
Net interest income is primarily affected by (a) the average volume and
repricing characteristics of the Company's interest-earning assets and
interest-bearing liabilities, (b) the level and volatility of market interest
rates, (c) the level of NPLs and (d) the interest rate spread between the yields
earned and the rates paid.
30
<PAGE>
The following tables present the dollar amount of changes in interest
income and expense for each major component of interest-earning assets and
interest-bearing liabilities and the amount of change attributable to changes in
average balances and average rates for the periods indicated. Because of
numerous changes in both balances and rates, it is difficult to allocate
precisely the effects thereof. For purposes of these tables, the change due to
volume is initially calculated as the change in average balance multiplied by
the average rate during the prior period and the change due to rate is
calculated as the change in average rate multiplied by the average volume during
the prior period. Any change that remains unallocated after such calculations is
allocated proportionately to changes in volume and changes in rates.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
COMPARED TO COMPARED TO
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
FAVORABLE (UNFAVORABLE) FAVORABLE (UNFAVORABLE)
---------------------------------- -----------------------------------
VOLUME RATE NET VOLUME RATE NET
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans.................................... $ (9,899) $ 4,371 $ (5,528) $ (7,608) $ (1,153) $ (8,761)
Credit card loans........................ 24,364 918 25,282 512 511 1,023
MBS...................................... 17,044 (3,174) 13,870 24,107 (444) 23,663
Investment securities.................... 12,782 (1,291) 11,491 1,926 (1,160) 766
Investment in FHLB stock................. 473 (248) 225 254 149 403
---------- ---------- ---------- ---------- ---------- ----------
Total interest income.................. 44,764 576 45,340 19,191 (2,097) 17,094
---------- ---------- ---------- ---------- ---------- ----------
Interest expense:
Deposits:
Demand deposits........................ (824) 114 (710) 166 (519) (353)
Savings deposits....................... (305) 353 48 746 (681) 65
Time deposits.......................... (15,273) (2,368) (17,641) (7,990) 1,826 (6,164)
---------- ---------- ---------- ---------- ---------- ----------
Total deposits...................... (16,402) (1,901) (18,303) (7,078) 626 (6,452)
Borrowings............................... (17,823) 931 (16,892) (15,301) 367 (14,934)
---------- ---------- ---------- ---------- ---------- ----------
Total interest expense................. (34,225) (970) (35,195) (22,379) 993 (21,386)
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net interest income.. $ 10,539 $ (394) $ 10,145 $ (3,188) $ (1,104) $ (4,292)
========== ========== ========== ========== ========== ==========
</TABLE>
The $10.1 million increase in net interest income between the year ended
December 31, 1998 and the year ended December 31, 1997 reflects the 15.6%
increase in the average balance of interest-earning assets, offset by a decrease
in the net yield to 2.22% from 2.27%. The increases in the average balances of
interest-earning assets are due to increases in credit card loans and increases
in MBS and the short-term investment portfolios, which is in line with the
Company's prior plans to leverage excess capital. The net yield decreased due to
the use of higher costing CDs and FHLB advances to fund the increase in
interest-earning assets, higher prepayments on the MBS portfolio causing
increased amortization of the purchase premiums and the amortization of losses
incurred in the second quarter of 1998 on the hedging program for fixed rate
MBS. These were partially offset by a lower average balance of NPLs and an
increase in the average balance of higher yielding credit card loans.
The $4.3 million decrease in net interest income between 1997 and 1996 was
primarily due to decreased rates on average interest-earning assets combined
with an increase in the average balance of higher cost of FHLB advances. This
was partially offset by an increase in the level of interest-earning assets and
a reduction in the cost of CDs.
The Company's net interest income, interest rate margin and operating
results have been negatively affected by the level of loans on nonaccrual
status. Gross balances of NPLs averaged $21.5 million, $43.1 million, and $60.4
million in 1998, 1997, and 1996, respectively. As a result, the Company's net
interest rate margin was decreased by 0.05%, 0.11%, and 0.18% in those years,
respectively.
31
<PAGE>
PROVISION FOR ESTIMATED LOAN LOSSES
The increase in provisions for estimated loan losses of $60.0 million for
the year ended December 31, 1998, as compared to the corresponding period in
1997, was primarily due to increasing delinquencies and charge-offs in a rapidly
growing sub-prime credit card portfolio. Gross credit card balances were $350.1
million as compared to $50.8 million, and delinquencies were 21.36% as compared
to 10.65% at December 31, 1998 and December 31, 1997, respectively. Credit card
charge-offs were $35.2 million in 1998, including $25.7 million of loans
purchased by marketers of the credit enhancement credit card programs, with no
comparable amounts in 1997.
The decrease in provisions for estimated loan losses of $2.6 million for
the year ended December 31, 1997, as compared to the corresponding period in
1996, was primarily due to decreased mortgage loan delinquencies and lower NPAs.
While the Bank believes that the actions it has taken to significantly
reduce credit card originations will reduce future credit losses in the credit
card portfolio, no assurances can be given that these actions will have that
result. In addition, a number of other factors could have a material adverse
effect on the financial results of the credit card programs and the Company's
overall financial performance. These factors include a national or regional
economic slowdown or recession which increases the risk of defaults and credit
losses; an increase in the number of customers seeking protection under the
bankruptcy laws which increases the amount of charge-offs; the effects of fraud
by third parties or customers; the effectiveness of the Company's collection
efforts; and the financial performance of the Bank's remaining credit card
marketers, which may impact their ability to fulfill their contractual financial
obligations which may result in increased losses to the Bank.
NONINTEREST INCOME (EXPENSE)
The following table presents noninterest income (expense) for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
----------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Loan fee income........................................... $ 3,255 $ 2,076 $ 2,295
Credit card fees.......................................... 21,414 45 --
Fee income from the sale of uninsured investment products. 7,019 5,959 4,456
Fee income from deposits and other fee income............. 3,331 3,365 3,044
(Losses) gains on securities and trading activities, net.. (860) (2,168) 1,336
Fee income on ATM cash services........................... 3,375 1,049 --
Other income (expense).................................... (481) 37 22
Real estate operations, net............................... (2,635) (6,473) (8,907)
----------- ----------- ----------
Total noninterest income................................ $ 34,418 $ 3,890 $ 2,246
=========== =========== ==========
</TABLE>
Noninterest income increased by $30.5 million to $34.4 million for the year
ended December 31, 1998 from $3.9 million for the year ended December 31, 1997.
Included in credit card fees, which increased $21.4 million in 1998, are
origination and annual fees net of origination costs which are deferred and
amortized into income over a 12 month period, interchange fees, late payment
fees and other ancillary fees. Credit card origination cost represent marketing
fees paid to MMG to originate cards under the MMG credit card program. Of the
marketing fees paid to MMG during 1998, the Bank was entitled to reimbursement
of $8.2 million related to the cancellation of previously opened credit card
accounts. However, due to the uncertainty regarding the collectibility of these
amounts, the Bank wrote off the $8.2 million against credit card fee income. In
1997 substantially all credit card fees were passed through to the credit card
marketers under the credit enhancement programs.
32
<PAGE>
The loss on securities was $0.9 million in 1998 as compared to $2.2 million
for 1997. The 1998 activity included a loss of $4.0 million related to a hedging
program for the fixed rate MBS portfolio. During 1998, the Company used futures
on Treasury Notes to hedge the valuation fluctuations of its fixed rate MBS
portfolio. Based on historical performance, futures on Treasury Notes provided
an expectation of high correlation with the MBS. Based on the correlation
analysis completed for the period ended June 30, 1998, it was determined that
high correlation in the fluctuations of the fair values of the MBS and the hedge
instruments had not occurred. As a result, the $4.0 million loss was recorded,
which represented the extent to which the futures results had not been offset by
the effects of price changes on the MBS. The $4.0 million loss was offset by
gains on the sale of securities and recoveries related to past loan
securitizations.
Other components of the increase in noninterest income in 1998 from 1997
include (a) an increase in ATM cash services income of $2.3 million, which is
due to higher cash balances outstanding for the period based on a higher number
of ATMs serviced; (b) decreased real estate operations costs of $3.8 million
primarily due to improved execution of REO sales and a lower volume of
foreclosed properties; and (c) an increase in investment products and loan fee
income of $2.2 million due to a higher volume of sales of investment and loan
products for the year, $0.8 million of which were related to the CalPERS
program. These favorable variances were offset by $1.3 million in prepayment
expenses on the early repayment of FHLB advances related to the Bank's efforts
to reduce assets for regulatory capital purposes.
Noninterest income increased by $1.7 million from $2.2 million in 1996 to
$3.9 million in 1997. The major component of this increase are (a) fee income
from sale of uninsured investment products increased by $1.5 million as a result
of increased sales, (b) fee income on deposits and other income increased by
$0.3 million primarily as a result of a higher average volume of deposit
balances in 1997 as compared to 1996, (c) net gains on securities activities in
1997 increased by $1.3 million from 1996 primarily due to increased sales, (d)
fee income on Americash increased $1.0 million as a result of cash services fees
received in 1997, with no comparable amounts in 1996 and (e) decreased real
estate operations of $2.4 million primarily due to improved execution on sales
of foreclosed properties. These favorable variances were partially offset by the
writedown of securities of $4.8 million. The writedown was based on the
significant deterioration in the credit worthiness of the borrowers of the
underlying loans collateralizing the securities.
OPERATING EXPENSES
The following table presents operating expenses for the periods indicated:
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- ----------
(Dollars in thousands)
Personnel and benefits......... $ 46,040 $ 29,564 $ 27,022
Occupancy...................... 14,591 11,647 10,353
FDIC insurance................. 2,637 2,563 24,936
Professional services.......... 16,901 11,054 11,156
Credit card servicing.......... 10,848 -- --
Office-related expenses........ 6,759 3,819 3,552
Other.......................... 7,183 4,449 5,432
----------- ----------- ----------
Total operating expense...... $ 104,959 $ 63,096 $ 82,451
=========== =========== ==========
Operating expenses increased by $41.9 million to $105.0 million for the
year ended December 31, 1998 compared to $63.1 million for the year ended
December 31, 1997. The increase in expenses was due primarily to costs
associated with the Bank's credit card programs and other business initiatives.
Servicing of the Bank's credit card programs, which is performed by third
party servicers and BPCS, increased $21.7 million in 1998 as compared to 1997.
This increase was due to the significant increase in the Bank's credit card
portfolio in 1998 and the increasing delinquencies and charge-offs in the credit
card portfolio. One of the most significant costs in servicing credit card
accounts is the collection efforts expended on delinquent accounts.
33
<PAGE>
Several business initiatives were started late in 1997 or early 1998, which
contributed to the increase in operating expenses in 1998. The CalPERS, MOA,
Internet bank and other projects contributed $11.5 million to the increase in
operating expenses for 1998. In addition, the Year 2000 compliance project
activities and represented $3.8 million of the $5.8 million increase in 1998 in
professional services expense.
Increases in personnel and benefits, occupancy and office related expenses
were due to acquisitions, in the third quarter of 1997, of Hancock Savings Bank,
FSB ("Hancock"), a five-branch savings association, and one branch from Coast
Federal Bank, FSB ("Coast"). Increased expenses related to such acquisitions
totaled $1.1 million.
The Company has taken steps to reduce operating expenses in 1999, including
a reduction in staffing, which, along with executive management changes,
resulted in $2.1 million in severance expense in 1998.
Although the Company is currently taking steps to reduce operating
expenses, most of these reductions will not be fully effective until sometime in
1999 and these reductions will be offset by higher FDIC insurance rates,
litigation costs and increased regulatory costs.
Operating expenses decreased by $19.4 million to $63.1 million for the year
ended December 31, 1997 compared to $82.5 million (including the SAIF special
assessment of $18.0 million) for the year ended December 31, 1996. The change
was primarily due to (a) a decrease of $22.4 million of FDIC insurance costs
resulting from the special one-time recapitalization payment of $18.0 million to
the SAIF in the third quarter of 1996 and an upgrade in the Bank's assessment
classification, (b) a decrease of $1.0 million in other expenses primarily due
to lower legal settlement costs related to certain litigation. These favorable
variances were partially offset by (a) a $2.5 million increase in personnel and
benefit expense due to a 23% increase of in FTEs during 1997 primarily due to
the Hancock acquisition and the start-up of new business initiatives; (b) an
increase of $1.3 million in occupancy costs primarily due to Hancock and Coast
branch acquisitions.
INCOME TAXES
For federal income tax purposes, the maximum rate of tax applicable to
savings institutions is currently 35% for taxable income over $10 million. For
California franchise tax purposes, savings institutions are taxed as "financial
corporations" at a higher rate than that applicable to nonfinancial corporations
because of exemptions from certain state and local taxes. The California
franchise tax rate applicable to financial corporations is approximately 11%.
The Company's expected combined federal and state statutory tax rate is
approximately 42.0% of earnings before income taxes. For 1998, the Company's
actual effective income tax rate was an expense of 7.4% on losses before income
taxes. This tax expense differs from the expected statutory tax benefit
primarily due to federal and state tax expense attributable to the payment of
alternative minimum tax, the establishment of additional valuation allowances
and the Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes", limitations on the recognition of the deferred
tax asset attributable to the current period book losses. The effective tax
benefit rate of 92.2% on earnings before income taxes for 1997 reflects the
federal and state tax benefit attributable to the utilization of net operating
loss ("NOL") carryforwards and the partial recognition of the deferred tax asset
based on anticipated future operations.
Under SFAS No. 109, the recognition of a net deferred tax asset is
dependent upon a "more likely than not" expectation of realization of the
deferred tax asset, based upon the analysis of available evidence. A valuation
allowance is required to sufficiently reduce the deferred tax asset to the
amount that is expected to be realized on a "more likely than not" basis. As of
December 31, 1997, the Company reflected a net deferred tax asset of $8.3
million. After consideration of the Company's recent earnings history and other
available evidence, management of the Company determined that under the criteria
of SFAS No. 109 it was appropriate to reduce the allowable net deferred tax
asset to $4.9 million as of December 31, 1998.
34
<PAGE>
The analysis of available evidence is performed each quarter utilizing the
"more likely than not" criteria required by SFAS No. 109 to determine the
amount, if any, of the deferred tax asset to be realized. Adjustments to the
valuation allowance are made accordingly. There can be no assurance that the
Company will recognize additional portions of the deferred tax asset in future
periods. Furthermore, the criteria of SFAS No. 109 could require the recording
of additional valuation allowances against the $4.9 million net deferred tax
asset through the recording of tax expense in future periods.
Various federal Form 1120Xs "Amended U.S. Corporation Income Tax Return"
were filed in 1996 for years 1986 through 1989, 1991, 1992 and 1994 to reflect
the 10-year loss carryback under Internal Revenue Code ("IRC") Section 172(f)
for qualifying deductions through August 4, 1994. These amended tax returns were
filed with the Bank's former parent company, Citadel. Fidelity recorded $1.1
million of tax benefit in 1996 with respect to these amended tax returns. The
Internal Revenue Service (the "Service") has completed its examination of the
federal income tax returns for 1992, 1993 and tax year ended August 4, 1994 and
review of the aforementioned carryback claim. A compromise of all unagreed
issues for these years has been reached and is currently under review by the
Service's Joint Committee on Taxation.
IRC Sections 382 and 383 and the Treasury Regulations thereunder generally
provide that following an ownership change of a corporation with an NOL, a net
unrealized built-in loss or tax credit carryovers, the amount of annual
post-ownership change taxable income that can be offset by pre-ownership change
NOLs or recognized built-in losses and the amount of post-ownership change tax
liability that can be offset by pre-ownership change tax credits, cannot exceed
a limitation prescribed by IRC Section 382. This annual limitation generally
equals the product of the fair market value of the equity of the corporation
immediately before the ownership change (subject to various adjustments) and the
long-term tax-exempt rate prescribed monthly by the Service.
As a result of the 1994 restructure and recapitalization, the Bank
underwent an ownership change, ceased to be a member of the Citadel consolidated
group, and became subject to the annual limitations under IRC Section 382. As a
result of the 1995 recapitalization, the Bank again underwent an ownership
change and became subject to additional annual limitations under IRC Section
382. The limitations imposed by the 1995 change of ownership are inclusive of
the limitations imposed by the 1994 change of ownership. The measurement of
whether a change in ownership has occurred is based on changes in the holdings
of significant shareholders and on the period of time in which any changes
occur. The Company has experienced substantial changes in ownership of its
significant shareholders and further changes may create a change in ownership as
defined by IRC Section 382. If this would occur, the Company would become
subject to a new annual limitation under IRC Section 382.
Hancock was merged with and into Fidelity as of June 30, 1997 in a tax-free
reorganization within the meaning of IRC Section 368(a)(1)(A), by reason of the
application of IRC Section 368(a)(2)(D). The total net deferred tax assets of
Hancock and the related valuation allowance are included in the balances of net
deferred taxes starting as of December 31, 1997. In accordance with SFAS No.
109, any subsequent reductions in the valuation allowance associated with the
deferred tax assets of Hancock will be reflected as an adjustment to any
remaining unamortized goodwill with respect to this acquisition.
As of December 31, 1998, the Bank had an estimated NOL carryover for
federal income tax purposes of $71.7 million expiring in years 2008 through
2011. Of this amount, $59.8 million is subject to annual utilization limitations
as a result of the Bank's 1994 and 1995 changes of ownership and Hancock's
change of ownership occurring as part of its 1997 acquisition by the Bank. For
California franchise tax purposes, the Bank had an estimated NOL carryover of
$30.2 million. Of the estimated California NOL carryover, $26.6 million relates
to the Bank's operations and expire in years 1999 through 2002, and $3.6 million
relates to Hancock's NOLs expiring in years 2000 through 2009. Of the total
$30.2 million California NOL, $16.3 million is subject to annual utilization
limitations as a result of the Bank's 1995 change of ownership and Hancock's
1997 change of ownership.
Effective for taxable years beginning after 1995, legislation enacted in
1996 has repealed for federal purposes the reserve method of accounting for bad
debts for thrift institutions. While thrifts qualifying as "small banks" may
continue to use the experience method, Fidelity, deemed a "large bank," is
required to use the specific charge-off method. In addition, this enacted
legislation contains certain income recapture provisions, which are discussed
below.
35
<PAGE>
Thrift institutions deemed "large banks" are required to include into
income ratably over 6 years, beginning with the first taxable year beginning
after 1995, the institution's "applicable excess reserves." The applicable
excess reserves are the excess of (1) the balance of the institution's reserves
for losses on loans other than supplemental reserves at the close of its last
taxable year beginning before January 1, 1996, over (2) the adjusted balance of
such reserves as of the close of its last taxable year beginning before January
1, 1988. Fidelity's applicable excess reserves at December 31, 1995 were $14.6
million. This amount is being recognized into taxable income over six years at
the rate of $2.4 million per year starting with the taxable year ended December
31, 1996. In addition, $1.5 million in Hancock excess reserves were recorded as
part of its acquisition as of June 30, 1997. This excess reserve amount is to be
recognized into income over a four-year period. The remaining applicable excess
reserves at December 31, 1998 were $8.3 million.
The remaining adjusted pre-1988 total reserve balance of $26.3 million at
December 31, 1998, will be recaptured into taxable income in the event Fidelity
(1) ceases to be a "bank" or "thrift," (2) makes distributions to shareholders
in excess of current or accumulated post-1951 earnings and profits, or (3) makes
distributions to shareholders in a partial or complete redemption or
liquidation. Based on current estimates, Fidelity had current earnings and
profits at December 31, 1998 sufficient to cover 1998 distributions to
shareholders. As a result, Fidelity did not trigger any reserve recapture into
taxable income for 1998.
FINANCIAL CONDITION
LOAN PORTFOLIO
The Company's mortgage loan portfolio is primarily secured by assets
located in southern California and is comprised principally of single family and
multifamily (2 units or more) residential loans. At December 31, 1998, 18.1% of
Fidelity's real estate loan portfolio consisted of California single family
residences, while another 11.4% and 60.7% consisted of California multifamily
dwellings of 2 to 4 units and 5 or more units, respectively. At December 31,
1997, 22.2% of Fidelity's real estate loan portfolio consisted of California
single family residences, while another 11.2% and 57.3% consisted of California
multifamily dwellings of 2 to 4 units and 5 or more units, respectively.
The Company's credit card portfolio consists primarily of sub-prime credits
with revolving credit limits ranging from $100 to $5,000. The MMG credit card
program was marketed primarily to individuals at the lower end of the credit
spectrum and charged origination fees of $249 and annual fees of $50, which were
deferred and are being amortized over a 12 month period. At December 31, 1998,
outstanding balances in the Bank's credit card portfolio were $350.1 million.
The credit card program with MMG represented $170.9 million of the outstanding
balances and the program with ADC represented $147.3 million of the outstanding
balances. At year end, the MMG and ADC programs together accounted for 91% of
the total outstanding credit card balances. At December 31, 1998, 43% of the
credit card portfolio is fixed rate, 48% adjust with the Wall Street prime rate
and 9% adjust with to LIBOR. During 1998, the actual rate charged on the credit
card accounts ranged from 15% to 25%.
36
<PAGE>
All presentations of the total loan portfolio include loans receivable and
loans held for sale unless stated otherwise. The following table sets forth the
composition of total loans at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
LOANS BY TYPE (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Residential loans:
Single family......................... $ 486,864 $ 638,539 $ 517,288 $ 594,019 $ 755,253
Multifamily:
2 to 4 units........................ 281,960 322,309 319,281 345,884 393,943
5 to 36 units....................... 1,220,585 1,343,597 1,408,317 1,521,056 1,612,926
37 units and over................... 247,638 308,473 307,741 329,916 345,287
------------- ------------- ------------- ------------- -------------
Total multifamily................. 1,750,183 1,974,379 2,035,339 2,196,856 2,352,156
------------- ------------- ------------- ------------- -------------
Total residential loans................. 2,237,047 2,612,918 2,552,627 2,790,875 3,107,409
------------- ------------- ------------- ------------- -------------
Other real estate loans:
Commercial & industrial............... 179,956 204,656 203,510 234,384 248,255
Land and land improvements............ 39 1,656 1,670 3,032 2,050
------------- ------------- ------------- ------------- -------------
Total other real estate loans........... 179,995 206,312 205,180 237,416 250,305
------------- ------------- ------------- ------------- -------------
Gross mortgage loans.................... 2,417,042 2,819,230 2,757,807 3,028,291 3,357,714
Credit card loans....................... 350,078 50,828 -- -- --
Other loans............................. 29,884 12,084 6,373 6,040 7,251
------------- ------------- ------------- ------------- -------------
Total loans, gross...................... 2,797,004 2,882,142 2,764,180 3,034,331 3,364,965
------------- ------------- ------------- ------------- -------------
Less:
Undisbursed loan funds................ 42 1,710 -- -- 259
Unearned (premiums) discounts, net.... (4,227) (2,722) 1,974 2,463 1,980
Deferred loan fees.................... 29,442 9,039 12,767 7,317 7,221
Allowances for estimated loan losses.. 106,171 50,538 57,508 89,435 67,202
------------- ------------- ------------- ------------- -------------
Total............................... 131,428 58,565 72,249 99,215 76,662
------------- ------------- ------------- ------------- -------------
Total loans, net........................ $ 2,665,576 $ 2,823,577 $ 2,691,931 $ 2,935,116 $ 3,288,303
============= ============= ============= ============= =============
</TABLE>
Since 1994, when the Bank ceased its mortgage loan origination operations,
the Bank has experienced a decreasing mortgage loan portfolio. Increases in
mortgage loans have primarily consisted of limited purchases of mortgages
secured by single family and multifamily 2 to 4 unit properties. Beginning in
1997, the Bank began originating credit card loans and other consumer loans. The
increases in the deferred loan fees and allowances for estimated loan losses in
1998 primarily relate to the Bank's credit card portfolio.
37
<PAGE>
The following table details the activity in the gross loan portfolio for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Principal balance at beginning of period. $ 2,882,142 $ 2,764,180 $ 3,034,331 $ 3,364,965 $ 3,807,232
Real estate loans originated:
Conventional:
Single family............................ 2,558 836 -- 3,411 238,944
Multifamily:
2 to 4 units.......................... -- -- -- 515 38,100
5 to 36 units......................... 192 7,373 1,673 4,743 68,862
37 units and over..................... 18 1,144 3,628 3,207 65,940
------------ ------------ ------------ ------------ ------------
Total multifamily................... 210 8,517 5,301 8,465 172,902
Commercial & industrial.................. 5,324 2,150 533 6,586 5,597
------------ ------------ ------------ ------------ ------------
Total real estate loans originated.... 8,092 11,503 5,834 18,462 417,443
------------ ------------ ------------ ------------ ------------
Real estate loans purchased:
Single family (1).......................... 118,955 195,333 7,444 (1,237) 100,756
Multifamily:
2 to 4 units............................. 11,744 23,749 319 -- 250
5 to 36 units............................ 50 338 -- -- 2,466
37 units and over........................ 150 2,184 -- -- 665
------------ ------------ ------------ ------------ ------------
Total multifamily..................... 11,944 26,271 319 -- 3,381
Commercial & industrial.................... -- -- 262 2,171 --
------------ ------------ ------------ ------------ ------------
Total real estate loans purchased........ 130,899 221,604 8,025 934 104,137
------------ ------------ ------------ ------------ ------------
Total real estate loans funded................ 138,991 233,107 13,859 19,396 521,580
------------ ------------ ------------ ------------ ------------
Loans sold or securitized:
Whole loans................................ (99,964) (13,516) (4,508) (123,080) (326,797)
Bulk sales................................. -- -- -- -- (341,432)
Repurchases................................ 2,512 6,842 6,577 9,850 9,072
------------ ------------ ------------ ------------ ------------
Total loans sold or securitized............... (97,452) (6,674) 2,069 (113,230) (659,157)
------------ ------------ ------------ ------------ ------------
Amortization and prepayments.................. (418,322) (236,389) (208,992) (143,989) (208,404)
Foreclosures.................................. (27,774) (75,385) (77,585) (92,661) (102,293)
Hancock loans acquired........................ -- 146,802 -- -- --
Increase in credit card loans................. 299,249 50,828 -- -- --
Other increase (decrease) in total loans, net. 20,170 5,673 498 (150) 6,007
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in total loans, net... (85,138) 117,962 (270,151) (330,634) (442,267)
------------ ------------ ------------ ------------ ------------
Principal balance at end of period............ $ 2,797,004 $ 2,882,142 $ 2,764,180 $ 3,034,331 $ 3,364,965
============ ============ ============ ============ ============
- ----------------
(1) Net of repurchases.
</TABLE>
Beginning in 1994 the Bank entered into agreements with established
providers of consumer credit products pursuant to which all mortgage products
made available to retail branch customers were referred to and underwritten,
funded and serviced by third parties. Of the $130.9 million in net loan
purchases in 1998, $89.3 million were CRA qualifying product for which the Bank
is required to have minimum investments. Another $41.6 million in purchases
related to the nonconforming loan division of the Bank that was established in
the third quarter of 1998. Approximately $100 million in CRA product purchased
in 1997 and 1998 was sold at a gain of $0.8 million in the third quarter of
1998.
38
<PAGE>
Of the $418.3 million in amortization and prepayments of mortgage loans in
1998, approximately $370 million was due to prepayments. Prepayments increased
in 1998 due to lower market interest rates and improving real estate prices in
Southern California.
The increase in credit card loans was primarily due to increases of $96.5
million and $170.9 million in the ADC and MMG credit card portfolios,
respectively. As a result of the discontinuance of originations under the ADC,
MMG and FAMCO programs, credit card loan balances are not expected to increase
in 1999.
The following table presents gross mortgage loans by type and location as
of December 31, 1998:
<TABLE>
<CAPTION>
COMMERCIAL
MULTIFAMILY & INDUSTRIAL
------------------------------------- ------------------------
SINGLE 2 TO 4 5 TO 36 37 UNITS HOTEL/ OTHER
FAMILY UNITS UNITS AND OVER MOTEL C&I TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
California:
Southern California Counties:
Los Angeles.................. $ 199,825 $ 104,373 $ 886,352 $ 157,375 $ 8,444 $ 81,784 $1,438,153
Orange....................... 65,178 102,901 133,487 21,399 18,978 32,256 374,199
San Diego.................... 23,161 10,041 70,598 29,419 -- 2,527 135,746
San Bernardino/Riverside..... 41,587 18,226 43,766 17,309 -- 13,098 133,986
Ventura/other................ 34,090 12,839 47,419 9,677 2,371 7,458 113,854
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Southern California 363,841 248,380 1,181,622 235,179 29,793 137,123 2,195,938
counties........................
Northern California counties.. 72,600 27,167 38,963 11,297 1,136 5,050 156,213
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total California............. 436,441 275,547 1,220,585 246,476 30,929 142,173 2,352,151
Other states................... 50,423 6,413 -- 1,162 1,772 5,121 64,891
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross mortgage loans........... $ 486,864 $ 281,960 $1,220,585 $ 247,638 $ 32,701 $ 147,294 $2,417,042
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The following table sets forth, by contractual maturity and loan type, the
loan portfolio at December 31, 1998. The table does not consider the prepayment
experience of the loan portfolio when scheduling the maturities of loans.
<TABLE>
<CAPTION>
MATURES IN
---------------------------------------------------
TOTAL LOANS 2000- AFTER
RECEIVABLE 1999 2005 2005
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Residential loans:
Single family...................... $ 486,864 $ 636 $ 5,690 $ 480,538
Multifamily:
2 to 4 units..................... 281,960 3 17,491 264,466
5 to 36 units.................... 1,220,585 868 223,792 995,925
37 units and over................ 247,638 1,045 61,433 185,160
--------------- --------------- --------------- ---------------
Total multifamily.............. 1,750,183 1,916 302,716 1,445,551
--------------- --------------- --------------- ---------------
Total residential loans........ 2,237,047 2,552 308,406 1,926,089
--------------- --------------- --------------- ---------------
Other real estate loans:
Commercial and industrial.......... 179,956 12,690 147,708 19,558
Land & land improvements........... 39 39 -- --
--------------- --------------- --------------- ---------------
Total other real estate loans.... 179,995 12,729 147,708 19,558
--------------- --------------- --------------- ---------------
Gross mortgage loans................. 2,417,042 15,281 456,114 1,945,647
--------------- --------------- --------------- ---------------
Credit card loans.................... 350,078 350,078 -- --
Other loans.......................... 29,884 4,800 17,915 7,169
--------------- --------------- --------------- ---------------
Total loans, gross................... $ 2,797,004 $ 370,159 $ 474,029 $ 1,952,816
=============== =============== =============== ===============
</TABLE>
39
<PAGE>
The following table sets forth, by contractual maturity and interest rate,
the fixed rate and adjustable rate mortgage loan portfolios at December 31,
1998. The table does not consider the prepayment experience of the loan
portfolio when scheduling the maturities of loans.
<TABLE>
<CAPTION>
MATURITIES
GREATER WEIGHTED
MORTGAGE LOANS MATURES THAN AVERAGE
RECEIVABLE IN 1999 ONE YEAR SPREAD
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Adjustable rate loans:
COFI-- 1 month.................. $ 1,723,394 $ 4,666 $ 1,718,728 2.493%
COFI-- 6 month.................. 371,304 6,161 365,143 2.350%
COFI-- other.................... 9,862 203 9,659 1.897%
Treasury Bill-- 12 months....... 77,779 47 77,732 2.988%
Treasury Bill-- other........... 30,381 -- 30,381 3.126%
Other........................... 77,943 3,785 74,158 4.540%
-------------- -------------- --------------
Total adjustable rate loans.... 2,290,663 14,862 2,275,801
Fixed rate loans.................... 126,379 419 125,960
-------------- -------------- --------------
Total mortgage loans, gross......... $ 2,417,042 $ 15,281 $ 2,401,761
============== ============== ==============
</TABLE>
TREASURY ACTIVITIES
The following table reconciles the amortized cost and aggregate fair value
of the investment securities and MBS AFS portfolios at December 31, 1998:
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED ---------------------------------------- AGGREGATE
COST GAINS LOSSES NET FAIR VALUE
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Investment securities:
Old Line Funding Corp. commercial paper......... $ 28,797 $ -- $ -- $ -- $ 28,797
------------ ------------ ------------ ------------ ------------
MBS:
FHLMC 3,843 -- (52) (52) 3,791
FNMA............................................ 170,506 232 (752) (520) 169,986
Government National Mortgage Association ("GNMA") 86,422 218 (84) 134 86,556
Fidelity participation certificates............. 23,055 -- -- -- 23,055
CMO:
FNMA 74,749 -- (1,998) (1,998) 72,751
Residential Funding Mortgage Securities....... 2,170 -- (91) (91) 2,079
Residential Asset Securitization Trust........ 10,237 119 -- 119 10,356
Saxon Mortgage Securities Corp................ 3,527 -- (41) (41) 3,486
------------ ------------ ------------ ------------ ------------
Total CMO................................... 90,683 119 (2,130) (2,011) 88,672
------------ ------------ ------------ ------------ ------------
Dynex financing note trust...................... 48,084 -- (332) (332) 47,752
Structured Asset Securities Corp. mortgage-backed
note 45,212 -- (14) (14) 45,198
------------ ------------ ------------ ------------ ------------
Total MBS..................................... 467,805 569 (3,364) (2,795) 465,010
------------ ------------ ------------ ------------ ------------
Total AFS.......................................... $ 496,602 $ 569 $ (3,364) $ (2,795) $ 493,807
============ ============ ============ ============ ============
</TABLE>
The Company has in the past employed various derivative financial
instruments to hedge valuation fluctuations in its trading and AFS securities
portfolios. Realized gains and losses on termination of such hedge instruments
are amortized into interest income or expense over the expected remaining life
of the hedged asset. Realized losses of $3.3 million at December 31, 1998
related to the hedging program for the fixed rate MBS AFS portfolio are recorded
as adjustments to the cost basis of the securities being hedged and are being
amortized over the life of the securities as a yield adjustment. Due to the
volatility of the correlation between futures on Treasury Notes and the cost of
40
<PAGE>
a hedging program in relation to its benefits, the Company terminated this
hedging program in July 1998. As of December 31, 1998, the Company had no
derivative financial instruments outstanding.
The securities portfolio consisted of the following at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996
------------------------ ----------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------ -------- ------------ -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Whole loan investment repurchase
agreements.............................. $ -- --% $ 28,000 7.19% $ -- --%
Federal funds sold........................ 220,000 4.36 -- -- 29,000 7.00
------------ ------------ ------------
Total cash equivalents.................. 220,000 4.36 28,000 7.19 29,000 7.00
------------ ------------ ------------
Investment securities:
AFS:
U.S. Government and agency
obligations......................... -- -- 100,837 5.53 156,251 6.20
Other investments..................... 28,797 5.55 -- -- -- --
------------ ------------ ------------
Total AFS........................... 28,797 5.55 100,837 5.53 156,251 6.20
------------ ------------ ------------
Held to maturity:
Other investments..................... 1,084 6.19 3,189 6.00 5,178 5.77
------------ ------------ ------------
Total investment securities............... 29,881 5.57 104,026 5.54 161,429 6.19
------------ ------------ ------------
MBS:
AFS:
FHLMC................................. 3,791 6.00 10,275 6.35 62,362 7.87
FNMA.................................. 169,986 7.12 230,509 6.96 55,548 7.24
GNMA.................................. 86,556 7.00 222,808 6.98 35,680 6.54
Participation certificates............ 23,055 6.04 24,860 6.04 25,813 6.72
CMO................................... 88,672 7.10 343,212 7.22 -- --
LIBOR Asset Trust..................... -- -- 20,940 7.47 -- --
Financing note trust ................. 47,752 5.78 -- -- -- --
Mortgage-backed note.................. 45,198 5.97 -- -- -- --
------------ ------------ ------------
Total AFS............................. 465,010 6.79 852,604 7.05 179,403 7.51
------------ ------------ ------------
Held to maturity:
LIBOR Asset Trust..................... -- -- -- -- 30,024 7.52
------------ ------------ ------------
Trading:
GNMA.................................. -- -- 41,050 6.66 14,121 6.52
------------ ------------ ------------
Total MBS................................. 465,010 6.79 893,654 7.03 223,548 7.51
------------ ------------ ------------
FHLB stock................................ 65,358 5.76 60,498 6.10 52,330 6.00
------------ ------------ ------------
Total securities portfolio.............. $ 780,249 5.97 $ 1,086,178 6.85 $ 466,307 6.85
============ ============ ============
</TABLE>
41
<PAGE>
The following table summarizes the maturity and weighted average yield of
investment securities at December 31, 1998.
<TABLE>
<CAPTION>
MATURES IN
-------------------------------------------------
TOTAL 1999 AFTER 2009
------------------------ ------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------ ----- ------------ ----- ------------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Whole loan investment repurchase
agreements........................ $ 220,000 4.36% $ 220,000 4.36% $ -- --%
------------ ------------ ------------
Investment securities:
U.S. Government and
agency obligations:
Held to maturity................ 1,084 6.19 1,084 6.19 -- --
AFS............................. 28,797 5.55 28,797 5.55 -- --
------------ ------------ ------------
Total investment securities... 29,881 5.57 29,881 5.57 -- --
------------ ------------ ------------
MBS, AFS............................ 465,010 6.79 152,983 6.04 312,027 7.16
FHLB stock.......................... 65,358 5.76 65,358 5.76 -- --
------------ ------------ ------------
Total securities portfolio........ $ 780,249 5.97 $ 468,222 5.18 $ 312,027 7.16
============ ============ ============
</TABLE>
ASSET QUALITY
The Company's mortgage loan portfolio is primarily secured by assets
located in southern California and is comprised principally of single family and
multifamily (2 units or more) residential loans. At December 31, 1998, 18.1% of
Fidelity's real estate loan portfolio consisted of California single family
residences, while another 11.4% and 60.7% consisted of California multifamily
dwellings of 2 to 4 units and 5 or more units, respectively.
The performance of the Company's loans secured by multifamily and
commercial properties has been affected by southern California economic
conditions. These portfolios are particularly susceptible to the potential for
declines in the southern California economy, such as increasing vacancy rates,
declining rents, increasing interest rates, declining debt coverage ratios, and
declining market values for multifamily and commercial properties. In addition,
the possibility that investors may abandon properties or seek bankruptcy
protection with respect to properties experiencing negative cash flow,
particularly where such properties are not cross-collateralized by other
performing assets, can also adversely affect the multifamily loan portfolio.
During 1998, the Company significantly increased its primarily sub-prime
credit card portfolio. During the third quarter of 1998, the Bank experienced
increases in delinquencies and charge-offs in excess of prior expectations. The
performance of the Bank's credit card portfolio may be adversely affected by a
number of factors, including a national or regional economic slowdown or
recession, an increase in the number of customers seeking protection under the
bankruptcy laws, the effectiveness of the Company's collection efforts, and
fraud by third parties or customers. In addition, because the portfolio is
primarily sub-prime, the Bank may experience significantly higher delinquencies
and charge-offs than those experienced by other credit card issuers whose
portfolios are not sub-prime.
42
<PAGE>
DELINQUENT LOANS
The following tables present net delinquent loans at the dates indicated:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1998 1998 1998 1998 1997
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Mortgage loan delinquencies by number of days:
30 to 59 days......................... $ 6,556 $ 8,706 $ 6,401 $ 11,664 $ 9,433
60 to 89 days......................... 4,936 4,776 4,647 3,079 4,095
90 days and over...................... 13,841 15,551 18,338 16,420 13,074
------------ ------------ ------------ ------------ ------------
Total.................................... $ 25,333 $ 29,033 $ 29,386 $ 31,163 $ 26,602
============ ============ ============ ============ ============
As a percentage of outstanding balances:
30 to 59 days......................... 0.27% 0.35% 0.24% 0.42% 0.34%
60 to 89 days......................... 0.21 0.19 0.17 0.11 0.14
90 days and over...................... 0.57 0.61 0.69 0.60 0.47
------------ ------------ ------------ ------------ ------------
Total.................................... 1.05% 1.15% 1.10% 1.13% 0.95%
============ ============ ============ ============ ============
Credit card loan delinquencies by number of days:
30 to 59 days......................... $ 19,609 $ 26,892 $ 9,187 $ 4,097 $ 2,472
60 to 89 days......................... 15,391 10,606 5,419 2,814 1,432
90 to 119 days........................ 17,969 5,983 3,691 2,190 705
120 to 149 days....................... 17,363 5,031 2,278 1,553 376
150 days and over..................... 4,460 1,420 1,206 1,003 428
------------ ------------ ------------ ------------ ------------
Total.................................... $ 74,792 $ 49,932 $ 21,781 $ 11,657 $ 5,413
============ ============ ============ ============ ============
As a percentage of outstanding balances:
30 to 59 days......................... 5.60% 8.64% 4.73% 3.63% 4.86%
60 to 89 days......................... 4.40 3.41 2.79 2.50 2.82
90 to 119 days........................ 5.13 1.92 1.90 1.94 1.39
120 to 149 days....................... 4.96 1.62 1.17 1.38 0.74
150 days and over..................... 1.27 0.46 0.62 0.89 0.84
------------ ------------ ------------ ------------ ------------
Total.................................... 21.36% 16.05% 11.21% 10.34% 10.65%
============ ============ ============ ============ ============
Other loan delinquencies by number of days:
30 to 59 days......................... $ 2,079 $ 965 $ 284 $ 375 $ --
60 to 89 days......................... 533 227 155 -- 14
90 days and over...................... 414 294 349 137 70
------------ ------------ ------------ ------------ ------------
Total.................................... $ 3,026 $ 1,486 $ 788 $ 512 $ 84
============ ============ ============ ============ ============
As a percentage of outstanding balances:
30 to 59 days......................... 8.48% 3.69% 1.45% 2.41% --%
60 to 89 days......................... 2.18 0.87 0.79 -- 0.54
90 days and over...................... 1.69 1.12 1.78 0.88 2.71
------------ ------------ ------------ ------------ ------------
Total.................................... 12.35% 5.68% 4.02% 3.29% 3.25%
============ ============ ============ ============ ============
</TABLE>
Of the $25.3 million in mortgage loan delinquencies at December 31, 1998,
$7.7 million are loans on single family residences which have Veterans
Administration ("VA") or FHA guarantees. As a result of the VA or FHA guarantees
no losses are expected from these loans.
Credit card delinquencies increased $69.4 million as of December 31, 1998
as compared to December 31, 1997. The increase in delinquencies in the credit
card portfolio is due to a significant increase in first payment defaults on new
cards originated during the third quarter and the continued seasoning of the
portfolio originated in prior periods. Of the total increase of $69.4 million in
credit card delinquencies, $54.5 million related to the MMG portfolio and $12.5
million related to the ADC portfolio. As a result of the Bank significantly
43
<PAGE>
curbing new card originations and the attrition of accounts previously
outstanding, the overall delinquency percentage of the credit card portfolio is
expected to decrease in future periods.
The following table presents the credit card loan portfolio by program at
the dates indicated:
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1998 1998 1998 1998 1997
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MMG outstanding balances:
Current........................... $ 116,431 $ 132,855 $ 78,446 $ 33,143 $ 229
Delinquencies:
30 to 59 days................... 11,810 19,486 4,419 934 --
60 to 89 days................... 10,089 6,257 1,589 4 --
90 to 119 days.................. 13,472 2,944 986 -- --
120 to 149 days................. 14,660 2,304 338 -- --
150 days and over............... 4,460 1,175 4 -- --
------------- ------------- ------------- ------------- -------------
Total delinquencies.......... 54,491 32,166 7,336 938 --
------------- ------------- ------------- ------------- -------------
Total................................ $ 170,922 $ 165,021 $ 85,782 $ 34,081 $ 229
============= ============= ============= ============= =============
As a percentage of outstanding
balances:
30 to 59 days..................... 6.91% 11.81% 5.15% 2.74% --%
60 to 89 days..................... 5.90 3.79 1.85 0.01 --
90 to 119 days.................... 7.88 1.78 1.15 -- --
120 to 149 days................... 8.58 1.40 0.40 -- --
150 days and over................. 2.61 0.71 -- -- --
------------- ------------- ------------- ------------- -------------
Total................................ 31.88% 19.49% 8.55% 2.75% --%
============= ============= ============= ============= =============
ADC outstanding balances:
Current........................... $ 129,450 $ 107,099 $ 82,506 $ 64,992 $ 45,054
Delinquencies:
30 to 59 days................... 6,603 6,755 4,610 3,153 2,472
60 to 89 days................... 4,633 3,973 3,687 2,810 1,432
90 to 119 days.................. 3,959 2,864 2,695 2,190 705
120 to 149 days................. 2,699 2,727 1,940 1,553 376
150 days and over............... -- 245 1,202 1,003 428
------------- ------------- ------------- ------------- -------------
Total delinquencies.......... 17,894 16,564 14,134 10,709 5,413
------------- ------------- ------------- ------------- -------------
Total................................ $ 147,344 $ 123,663 $ 96,640 $ 75,701 $ 50,467
============= ============= ============= ============= =============
As a percentage of outstanding
balances:
30 to 59 days..................... 4.48% 5.46% 4.77% 4.17% 4.90%
60 to 89 days..................... 3.14 3.21 3.82 3.71 2.84
90 to 119 days.................... 2.69 2.32 2.79 2.89 1.40
120 to 149 days................... 1.83 2.21 2.00 2.05 0.75
150 days and over................. -- 0.20 1.24 1.33 0.84
------------- ------------- ------------- ------------- -------------
Total................................ 12.14% 13.40% 14.62% 14.15% 10.73%
============= ============= ============= ============= =============
(CONTINUED)
</TABLE>
44
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1998 1998 1998 1998 1997
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Other credit card loans outstanding balances:
Current........................... $ 29,405 $ 21,365 $ 11,590 $ 2,923 $ 132
Delinquencies:
30 to 59 days................... 1,196 651 158 10 --
60 to 89 days................... 669 376 143 -- --
90 to 119 days.................. 538 175 10 -- --
120 to 149 days................. 4 -- -- -- --
150 days and over............... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Total delinquencies.......... 2,407 1,202 311 10 --
------------- ------------- ------------- ------------- -------------
Total................................ $ 31,812 $ 22,567 $ 11,901 $ 2,933 $ 132
============= ============= ============= ============= =============
As a percentage of outstanding
balances:
30 to 59 days..................... 3.76% 2.88% 1.33% 0.34% --%
60 to 89 days..................... 2.10 1.67 1.21 -- --
90 to 119 days.................... 1.69 0.77 0.08 -- --
120 to 149 days................... 0.01 -- -- -- --
150 days and over................. -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Total................................ 7.56% 5.32% 2.62% 0.34% --%
============= ============= ============= ============= =============
</TABLE>
The available credit on credit cards outstanding at December 31, 1998 was
$26.9 million, $31.1 million and $23.2 million for MMG, ADC and other card
programs, respectively.
The following table presents the credit card portfolio by geographic
location at December 31, 1998:
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT TOTAL
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
State:
Alabama............................................. $ 19,244 5.50%
Arkansas............................................ 6,684 1.91
California.......................................... 35,434 10.12
Florida............................................. 46,208 13.20
Georgia............................................. 14,622 4.18
Illinois............................................ 9,178 2.62
Louisiana........................................... 9,426 2.69
Maryland............................................ 6,876 1.96
Michigan............................................ 9,748 2.78
Massachusetts....................................... 10,761 3.07
North Carolina...................................... 17,726 5.06
New York............................................ 20,258 5.79
Ohio................................................ 11,551 3.30
Pennsylvania........................................ 10,290 2.94
South Carolina...................................... 11,884 3.39
Tennessee........................................... 10,349 2.96
Texas............................................... 25,165 7.19
Virginia............................................ 6,498 1.86
Other states........................................ 68,176 19.48
---------------- ----------------
Total.................................................. $ 350,078 100.00%
================ ================
</TABLE>
45
<PAGE>
NONACCRUING LOANS
The Bank places a loan, other than a credit card loan, on nonaccrual status
whenever the payment of interest is 90 or more days delinquent, or earlier if
management determines that it is warranted. Loans on nonaccrual status are
resolved by the borrower bringing the loan current, by the Bank and the borrower
agreeing to modify the terms of the loan or by foreclosure of the collateral
securing the loan.
The following table presents net nonaccruing loans at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Single family............................. $ 6,349 $ 4,221 $ 8,019 $ 7,226 $ 7,775
Multifamily:
2 to 4 units......................... 2,609 948 5,959 6,671 6,590
5 to 36 units........................ 3,568 4,753 18,071 14,312 23,112
37 units and over.................... 562 2,090 2,671 3,190 7,088
------------- ------------- ------------- ------------- -------------
Total multifamily................. 6,739 7,791 26,701 24,173 36,790
Commercial & industrial................... 1,127 1,062 1,405 20,511 27,049
Other loans............................... 157 -- -- -- --
------------- ------------- ------------- ------------- -------------
Total.................................. $ 14,372 $ 13,074 $ 36,125 $ 51,910 $ 71,614
============= ============= ============= ============= =============
</TABLE>
It is the Bank's policy to reserve all earned but unpaid interest on
mortgage and other loans placed on nonaccrual status. The reduction in income
related to such reserves, net of interest recognized on cured delinquencies, was
$1.9 million, $3.9 million and $6.0 million for 1998, 1997 and 1996,
respectively.
ACCRUING DELINQUENT LOANS
Credit card loans accrue interest up to the date of charge-off. Finance
charges are included in the principal balance of the credit card loan and are
charged to the ALLL when the credit card balance is charged-off.
The following table presents net accruing loans delinquent 90 days or
greater at the dates indicated:
DECEMBER 31,
------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
90 to 119 days............................... $ 17,969 705
120 to 149 days.............................. 17,363 376
150 days and over............................ 4,460 428
----------- -----------
Total..................................... $ 39,792 $ 1,509
=========== ===========
46
<PAGE>
RESTRUCTURED LOANS
The Bank will consider modifying the terms of a mortgage loan when the
borrower is experiencing financial difficulty and the Bank determines that the
loan, as modified, is likely to result in a greater ultimate recovery to the
Bank than taking title to the property.
According to SFAS No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructuring," a troubled debt restructuring ("TDR") occurs when a
creditor, for economic or legal reasons related to a debtor's difficulties,
grants a concession to the debtor that it would not otherwise consider.
Generally, Fidelity restructures loans by temporarily or permanently reducing
interest rates, allowing interest only payments, reducing the loan balance,
extending property tax repayment plans, extending maturity dates or recasting
principal and interest payments. However, debt restructuring is not necessarily
a TDR even if the borrower is experiencing some difficulties, as long as the
restructuring terms are consistent with current market rates and risk. The
adoption of SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures," requires that TDRs be measured for
impairment in the same manner as any impaired loan. A loan is considered
impaired when, based on current information and events, it is probable that the
Bank will be unable to collect all amounts due (contractual interest and
principal) according to the contractual terms of the loan agreement.
The following table presents TDRs by property type at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Property type:
Single family.................................... $ 561 $ 575 $ 1,178 $ 1,162 $ 459
Multifamily:
2 to 4 units.................................. 2,167 3,287 4,260 2,597 2,511
5 to 36 units................................. 15,694 14,972 11,647 15,189 35,347
37 units and over............................. 8,156 6,485 5,805 9,109 10,292
------------ ------------ ------------ ------------ ------------
Total multifamily........................... 26,017 24,744 21,712 26,895 48,150
Commercial and industrial........................ 21,440(1) 18,674(1) 22,306(1) 3,688 1,645
Land............................................. -- -- -- 946 1,890
------------ ------------ ------------ ------------ ------------
Total TDRs.................................. $ 48,018 $ 43,993 $ 45,196 $ 32,691 $ 52,144
- ----------------- ============ ============ ============ ============ ============
</TABLE>
(1) Includes a hotel property loan with a balance of $18.0 million,
$18.1 million and $18.4 million at December 31, 1998, 1997 and 1996,
respectively.
ACCELERATED ASSET RESOLUTION PLAN
In the fourth quarter of 1995, the Bank adopted the Accelerated Asset
Resolution Plan (the "Plan"), which was designed to aggressively dispose of,
resolve or otherwise manage a pool of primarily multifamily loans and REO that
at that time were considered by the Bank to have higher risk of future
nonperformance or impairment relative to the remainder of the Bank's multifamily
loan portfolio.
As of June 30, 1998, the Plan was terminated based on the minimal remaining
assets and the determination that the resolution of these assets would be
conducted in a similar manner as the Bank's regular portfolio. As of June 30,
1998, the remaining 30 assets with a book balance, net of SVA and writedowns, of
$9.4 million, comprised of accruing and nonaccruing multifamily real estate
loans totaling approximately $4.8 million and REO properties totaling
47
<PAGE>
approximately $4.6 million. The $1.6 million of unallocated ALLL remaining as of
June 30, 1998 from the original $50.8 million reserves established for the Plan
was included in the Bank's ALLL at June 30, 1998.
CLASSIFIED ASSETS
The following table summarizes classified assets net of SVAs and writedowns at
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Performing classified loans:
Single family......................... $ 3,492 $ 3,551 $ 4,555 $ 4,368 $ 544
Multifamily:
2 to 4 units........................ 2,672 4,241 6,030 8,297 951
5 to 36 units....................... 39,570 63,777 60,785 85,581 28,872
Over 37 units....................... 17,027 22,704 10,375 39,301 19,925
------------- ------------- ------------- ------------- -------------
Total multifamily................ 59,269 90,722 77,190 133,179 49,748
Commercial and industrial............. 5,802 10,412 29,503 10,099 5,515
Credit card loans..................... 39,792 -- -- -- --
------------- ------------- ------------- ------------- -------------
Total performing classified loans... 108,355 104,685 111,248 147,646 55,807
------------- ------------- ------------- ------------- -------------
NPAs:
NPLs 14,372 13,074 36,125 51,910 71,614
REO................................... 8,397 12,293 24,663 19,521 14,115
Other repossessed assets.............. 535 -- -- -- --
------------- ------------- ------------- ------------- -------------
Total NPAs.......................... 23,304 25,367 60,788 71,431 85,729
------------- ------------- ------------- ------------- -------------
Other classified assets.................. 1,426 23,450 2,060 -- --
------------- ------------- ------------- ------------- -------------
Total classified assets.................. $ 133,085 $ 153,502 $ 174,096 $ 219,077 $ 141,536
============= ============= ============= ============= =============
Classified asset ratios:
NPLs to total assets.................. 0.39% 0.31% 1.08% 1.57% 1.93%
NPLs to total loans................... 0.54% 0.46% 1.34% 1.77% 2.18%
NPAs to total assets.................. 0.63% 0.61% 1.83% 2.16% 2.31%
TDRs to total assets.................. 1.29% 1.06% 1.36% 0.99% 1.40%
NPAs and TDRs to total assets......... 1.92% 1.66% 3.18% 3.16% 3.72%
Classified assets to total assets..... 3.59% 3.68% 5.23% 6.64% 3.82%
REO to NPAs........................... 36.03% 48.46% 40.57% 27.33% 16.47%
NPLs to NPAs.......................... 61.67% 51.54% 59.43% 72.67% 83.53%
</TABLE>
Total classified assets decreased $20.4 million or 13.3% from December 31,
1997, to $133.1 million at December 31, 1998. This decrease was due to a $34.8
million decrease in classified mortgage loans and a $22.0 million decrease in
other classified assets offset by a $39.8 million increase in classified credit
card loans. The decrease in classified mortgage loans reflects the improving
performance of the underlying income properties and increases in property values
in Southern California. Other classified assets decreased due to the sale of
certain classified asset backed securities in 1998. The increase in classified
credit card loans was the result of the increase in accounts delinquent greater
than 90 days.
48
<PAGE>
REO
The following table presents REO by property type and information about the
change in the book value and the number of properties owned and foreclosed for
the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Single family............................... $ 2,453 $ 2,611 $ 3,185 $ 2,952 $ 930
Multifamily:
2 to 4 units............................ 1,281 1,091 3,410 2,598 198
5 to 36 units........................... 1,735 5,318 13,574 8,421 4,884
37 units and over....................... 1,844 3,149 1,844 -- 1,041
------------- ------------- ------------- ------------- -------------
Total multifamily....................... 4,860 9,558 18,828 11,019 6,123
Commercial and industrial................... 1,584 624 3,950 7,850 7,062
Valuation allowances........................ (500) (500) (1,300) (2,300) --
------------- ------------- ------------- ------------- -------------
Total net REO........................... $ 8,397 $ 12,293 $ 24,663 $ 19,521 $ 14,115
============= ============= ============= ============= =============
Properties foreclosed during the period:
Number.................................. 62 88 131 109 64
Gross book value........................ $ 27,774 $ 75,385 $ 77,585 $ 92,661 $ 102,293
Average book value...................... $ 231 $ 294 $ 343 $ 343 $ 441
</TABLE>
ALLOWANCE FOR ESTIMATED LOAN AND REO LOSSES
The following table summarizes the activity in the allowance for estimated
loan and REO losses for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period................. $ 55,993 $ 59,589 $ 92,927 $ 69,520 $ 101,547
------------- ------------- ------------- ------------- -------------
Charge-offs................................. (25,624) (44,000) (55,471) (52,636) (72,505)
Recoveries.................................. 5,085 9,118 3,304 2,953 4,542
------------- ------------- ------------- ------------- -------------
Net charge-offs........................... (20,539) (34,882) (52,167) (49,683) (67,963)
Provision:
Estimated loan losses..................... 73,032 13,004 15,610 69,724 65,559
REO....................................... 251 1,060 3,219 3,366 8,768
Net change in cash reserves................. 461(2) 4,332 -- -- --
ALLL charged off on bulk sale assets........ -- -- -- -- (38,391)
Allowances related to acquisition (1)....... -- 12,890 -- -- --
------------- ------------- ------------- ------------- -------------
Balance at end of period....................... $ 109,198 $ 55,993 $ 59,589 $ 92,927 $ 69,520
============= ============= ============= ============= =============
Ratio of net charge-offs during the period to
average loans outstanding................... 0.8% 1.2% 1.8% 1.6% 1.9%
</TABLE>
(1) Represents the estimated loan losses included in the acquisition of
Hancock.
(2) Net change in cash reserves includes fundings, repurchases and
transfers from credit card marketers.
49
<PAGE>
The following table presents loan and REO charge-offs and recoveries for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Charge-offs:
Single family.............................. $ 1,143 $ 3,343 $ 4,345 $ 2,650 $ 4,127
Multifamily loans:
2 to 4 units............................. 1,490 6,306 6,242 5,218 8,584
5 to 36 units............................ 8,384 28,664 33,083 33,948 39,050
37 units and over........................ 3,515 3,548 6,043 8,179 16,291
------------- ------------- ------------- ------------- -------------
Total multifamily..................... 13,389 38,518 45,368 47,345 63,925
Commercial and industrial.................. 529 2,139 5,758 2,641 4,453
Credit card loans.......................... 9,502 -- -- -- --
Other loans................................ 1,061 -- -- -- --
------------- ------------- ------------- ------------- -------------
Total charge-offs............................. $ 25,624 $ 44,000 $ 55,471 $ 52,636 $ 72,505
============= ============= ============= ============= =============
Recoveries:
Single family.............................. $ 1,345 $ 2,199 $ 645 $ 57 $ 158
Multifamily loans:
2 to 4 units............................. 798 1,286 303 62 169
5 to 36 units............................ 2,286 4,611 1,144 1,781 3,227
37 units and over........................ 511 247 491 829 727
------------- ------------- ------------- ------------- -------------
Total multifamily..................... 3,595 6,144 1,938 2,672 4,123
Commercial and industrial.................. 63 775 721 224 261
Credit card loans.......................... -- -- -- -- --
Other loans................................ 82 -- -- -- --
------------- ------------- ------------- ------------- -------------
Total recoveries.............................. $ 5,085 $ 9,118 $ 3,304 $ 2,953 $ 4,542
============= ============= ============= ============= =============
</TABLE>
In addition to reserves established by the Bank, cash reserves have been
provided by credit card affinity marketers under the credit enhancement programs
which are utilized to purchase accounts from the Bank after the accounts reach a
certain delinquent status. At December 31, 1998 and 1997, cash reserves were
$1.9 million and $4.3 million, respectively, and were recorded as deposits on
the Company's statements of financial condition. Accounts purchased from cash
reserves during 1998 totaled $25.7 million and are not included in the above
table. No accounts were purchased from cash reserves in 1997.
50
<PAGE>
The following table sets forth the allowance for estimated loan and REO
losses at the dates indicated:
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1998 1998 1998 1998 1997
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans:
ALLL ............................... $ 98,229 $ 88,500 $ 36,088 $ 32,192 $ 32,426
SVA................................. 7,942 10,522 15,800 15,843 18,112
------------- ------------- ------------- ------------- -------------
Total ALLL and SVA................ 106,171 99,022 51,888 48,035 50,538
Cash reserves....................... 1,888 7,656 8,334 6,488 4,332
------------- ------------- ------------- ------------- -------------
Total allowances and cash reserves 108,059 106,678 60,222 54,523 54,870
------------- ------------- ------------- ------------- -------------
REO valuation allowances............... 1,139 1,032 1,041 1,068 1,123
------------- ------------- ------------- ------------- -------------
Total allowances and cash reserves..... $ 109,198 $ 107,710 $ 61,263 $ 55,591 $ 55,993
============= ============= ============= ============= =============
Selected ratios:
Total loan allowances to gross loans 3.86% 3.68% 2.06% 1.86% 1.90%
Total allowances to loans and REO... 3.94% 3.77% 2.12% 1.91% 1.95%
Total ALLL and cash reserves to:
Net loans......................... 3.62% 3.38% 1.31% 1.33% 1.29%
Net NPLs.......................... 696.61% 569.48% 185.27% 232.15% 281.15%
Net loans and REO................. 3.63% 3.38% 1.55% 1.34% 1.30%
Net NPAs.......................... 431.75% 354.97% 148.84% 143.79% 146.88%
Total assets...................... 2.71% 2.53% 1.05% 0.92% 0.89%
</TABLE>
Credit losses are inherent in the business of originating and retaining
loans. The Company maintains an allowance for credit losses to absorb losses
inherent in the loan portfolio. These allowances consist of SVAs and an ALLL
which are based on ongoing, quarterly assessments of the probable estimated
losses inherent in the loan portfolio. In addition, the Company's allowances
incorporate the results of measuring impaired loans as provided in:
o SFAS No. 5, "Accounting for Contingencies"
o SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and
o SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures."
These accounting standards prescribe the measurement methods, income
recognition and disclosures concerning impaired loans.
The SVA is established where management has identified significant
conditions or circumstances related to a specific loan that management believes
indicate the probability that a loss has been incurred.
The ALLL is established to provide for credit losses inherent in the loan
portfolio other than those provided for in SVAs. The ALLL is computed utilizing
several models and methodologies which are based upon a number of factors,
including historical delinquency and loss experience, the level of nonperforming
and internally classified loans, the composition of the loan portfolio,
estimated remaining lives of the various types of loans within the portfolio,
prevailing and forecasted economic conditions and management's judgment. For
small-dollar-value homogeneous loans (such as consumer installment loans,
residential mortgages and credit card loans), the Company utilizes computations
based on various factors, including past loss experience, recent economic events
and current conditions and portfolio delinquency rates. For loans or groups of
loans for which the Company has little or no loss experience of its own, the
Company utilizes the loss experience for similar types of loans of other
enterprises.
51
<PAGE>
The Company's methodology for assessing the appropriateness of the ALLL
consists of:
o a calculated component, and
o a judgmental component
The calculated component of the ALLL at December 31, 1998 was determined as
follows:
o SINGLE FAMILY MORTGAGE LOANS: A delinquency migration model was
utilized which applies delinquency and loss factors to the
outstanding portfolio segregated by delinquency status. The
delinquency and loss factors are based on delinquency migration
results of the Company's single family loan portfolio for the
most recent twelve months, or, in the case of nonconforming
mortgage loans, are based on the delinquency and loss experience
for similar types of loans of other enterprises. Estimated
charge-offs in 1999 are expected to be $1.7 million.
o MULTIFAMILY MORTGAGE LOANS GRADED PASS OR SPECIAL MENTION: Loss
factors were applied to outstanding loan balances based on the
internal risk grade of those loans or pools of loans. These loss
factors are based on classification migration models that track
three years of the Company's historical loss experience.
Estimated charge-offs in 1999 are expected to be $8.3 million.
o COMMERCIAL & INDUSTRIAL REAL ESTATE LOANS GRADED PASS OR SPECIAL
MENTION: Loss factors were applied to outstanding loan balances
based on the internal risk grade of those loans or pools of
loans. These loss factors are based on loss experiences for
similar types of loans of other enterprises. Estimated
charge-offs in 1999 are expected to be $1.3 million.
o MULTIFAMILY AND COMMERCIAL & INDUSTRIAL REAL ESTATE LOANS GRADED
SUBSTANDARD: For all loans greater than $1 million, an estimated
allowance was computed based on the estimated value of the
underlying collateral of each loan net of estimated selling and
disposition costs. For all other loans, loss factors were applied
to the outstanding loan balances based on their relative size or
loan to value ratio. The loss factors utilized were based in part
on the Company's historical experience and current expectations.
Estimated charge-offs in 1999 are expected to be $5.8 million.
o CREDIT CARD LOANS ORIGINATED UNDER THE ADC AND MMG AGREEMENTS:
The Company utilized a delinquency migration model that applies
delinquency migration factors to the outstanding portfolio
segregated by delinquency status. The delinquency migration model
assumes the continuation of historical delinquency patterns from
current accounts to charge-off. No recovery of charged off
accounts was assumed. Estimated charge-offs in 1999 are expected
to be $72.5 million.
o CREDIT CARD LOANS ORIGINATED UNDER OTHER PROGRAMS: Delinquency
migration models based on the related credit card portfolios
specific experience were utilized or, for the most recently
established programs, loss factors based in part on the Company's
loss experience for its other credit card portfolios were
applied. Estimated charge-offs in 1999, net of related cash
deposits and guarantees of credit enhanced credit card program
marketers, are expected to be $0.2 million.
o AUTO LOANS: A delinquency migration model, which applies
delinquency and loss factors to the outstanding portfolio
segregated by delinquency status, was utilized. Estimated
charge-offs in 1999 are expected to be $3.5 million.
o ALL OTHER LOANS: Loss factors were applied to the outstanding
loan balances. These loss factors were based on the Company's
historical experience or the loss experience for similar types of
loans of other enterprises. Estimated charge-offs in 1999 are
expected to be $0.2 million.
52
<PAGE>
Loans with SVAs are excluded from the computation of ALLL.
The judgmental component is based upon management's evaluation of various
conditions, the effects of which are not directly measured in determining SVA or
the calculated component. The evaluation of the inherent loss regarding these
conditions involves a higher degree of uncertainty because they are not
identified with specific problem credits or portfolio segments. The conditions
evaluated in connection with the judgmental component include the following
conditions:
o level of inherent uncertainty in the precision of the calculated
component,
o general economic and business conditions affecting key lending areas,
o credit quality trends, including trends in nonperforming loans expected
to result from existing conditions,
o recent trends in collateral values,
o loan volumes and concentrations,
o seasoning of the loan portfolios,
o specific industry conditions within portfolio segments,
o recent loss experience in particular segments of the portfolio,
o duration of the current business cycle, and
o bank regulatory examination results
Executive management reviews these conditions quarterly. If any of these
conditions is evidenced by a specifically identifiable problem credit as of the
evaluation date, management's estimate of the effect of this condition may be
reflected as a specific allowance applicable to this credit. Where any of these
conditions are not evidenced by a specifically identifiable problem credit as of
the evaluation date, management's evaluation of the probable loss concerning
this condition is reflected in the judgmental component.
The credit enhanced credit card programs require the marketing agent, as
part of their contractual obligation to reimburse Fidelity for credit losses, to
maintain cash deposits with Fidelity. These cash deposits are deducted from the
computed amount of estimated future credit losses in determining the required
levels of ALLL and are considered part of the reserves available to cover future
credit losses. In addition, the Bank does not provide for estimated credit
losses in excess of cash deposits for the credit enhanced credit card programs
if a determination is made that the Bank can rely on the marketer for payment of
future credit losses.
The Company's allowance for credit losses is based upon estimates of
probable losses inherent in the loan portfolio. The amount actually observed for
these losses can vary significantly from the estimated amounts. The Company's
methodology includes several features that are intended to reduce the difference
between estimated and actual losses. The migration models that are used are
designed to be self-correcting by taking into account the Company's recent
delinquency and loss experience. Pooled loan loss factors are adjusted quarterly
based upon the level of net charge-offs expected by management in the next
twelve months. Furthermore, the Company's methodology permits adjustments to any
loss factor used in the computation of the formula allowance in the event that,
in management's judgment, significant factors that affect the collectibility of
the portfolio as of the evaluation date are not reflected in the loss factors.
By assessing the probable estimated losses inherent in the loan portfolio on a
quarterly basis, the Company is able to adjust specific and inherent loss
estimates based upon any more recent information that has become available.
The Company believes its policies and procedures for establishing the
allowance for credit losses and for providing provisions for estimated loan
losses are in accordance with generally accepted accounting principles ("GAAP"),
including SFAS No. 5, SFAS No. 114, SFAS No. 118 and regulatory standards
established by the OTS.
The allowance for loan losses does not represent the amount of losses that
could be incurred under adverse conditions that management does not consider to
be the most likely to arise. In addition, management's classification of assets
and evaluation of the adequacy of the allowance for loan losses is an ongoing
process. Consequently, there can be no assurance that material additions to the
Bank's allowance for loan losses will not be required in the future, thereby
adversely affecting earnings and the Bank's ability to maintain or build
capital.
53
<PAGE>
REGULATORY CAPITAL COMPLIANCE
The OTS capital regulations, as required by FIRREA include three separate
minimum capital requirements for the savings institution industry--a "tangible
capital requirement," a "leverage limit" and a "risk-based capital requirement."
These capital standards must be no less stringent than the capital standards
applicable to national banks.
The Bank's actual and required capital are as follows at the dates
indicated:
<TABLE>
<CAPTION>
TO BE CATEGORIZED
AS ADEQUATELY TO BE CATEGORIZED
ACTUAL CAPITALIZED AS WELL CAPITALIZED
---------------------- ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Total capital (to risk-weighted assets).....$ 188,746 8.95% $ 168,656 8.00% $ 210,820 10.00%
Core capital (to adjusted tangible assets).. 161,506 4.36 111,028 3.00 185,046 5.00
Tangible capital (to tangible assets)....... 161,506 4.36 55,514 1.50 N/A
Core capital (to risk-weighted assets)...... 161,506 7.66 N/A 126,492 6.00
AS OF DECEMBER 31, 1997:
Total capital (to risk-weighted assets)..... 244,719 11.57 169,157 8.00 211,447 10.00
Core capital (to adjusted tangible assets).. 218,296 5.26 124,485 3.00 207,476 5.00
Tangible capital (to tangible assets)....... 218,296 5.26 62,243 1.50 N/A
Core capital (to risk-weighted assets)...... 218,296 10.32 N/A 126,868 6.00
</TABLE>
54
<PAGE>
The following table reconciles the Company's stockholders' equity and the
Bank's capital in accordance with GAAP to the Bank's tangible, core and
risk-based capital at the dates indicated:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
--------------------------------------------
<S> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Consolidated stockholders' equity................. $ 127,388 $ 127,388 $ 127,388
Adjustments:
Fidelity's Preferred Stock...................... 51,750 51,750 51,750
Bank Plus equity excluding Fidelity............. (6,152) (6,152) (6,152)
------------ ------------ ------------
Fidelity's stockholders' equity................... 172,986 172,986 172,986
Accumulated other comprehensive loss.............. 2,795 2,795 2,795
Adjustments:
Intangible assets............................... (14,268) (14,268) (14,268)
Nonincludable subsidiaries...................... (7) (7) (7)
Excess ALLL..................................... -- -- 27,240
------------ ------------ ------------
Regulatory capital.................................. $ 161,506 $ 161,506 $ 188,746
============ ============ ============
AS OF DECEMBER 31, 1997:
Consolidated stockholders' equity................. $ 181,345 $ 181,345 $ 181,345
Adjustments:
Fidelity's Preferred Stock...................... 51,750 51,750 51,750
Bank Plus equity excluding Fidelity............. (3,063) (3,063) (3,063)
------------ ------------ ------------
Fidelity's stockholders' equity................... 230,032 230,032 230,032
Accumulated other comprehensive loss.............. 4,467 4,467 4,467
Adjustments:
Intangible assets............................... (16,185) (16,185) (16,185)
Nonincludable subsidiaries...................... (18) (18) (18)
Excess ALLL..................................... -- -- 26,505
Equity investments.............................. -- -- (82)
------------ ------------ ------------
Regulatory capital.................................. $ 218,296 $ 218,296 $ 244,719
============ ============ ============
</TABLE>
As of December 31, 1998, the Bank was "adequately capitalized" under the
PCA regulations adopted by the OTS pursuant to FDICIA. As of December 31, 1998,
the most constraining of the capital ratio measurements was core capital to
adjusted tangible assets which had an excess of $13.5 million above the minimum
level required to be considered adequately capitalized. The Bank's capital
amounts and classification are subject to review by federal regulators about
components, risk-weightings and other factors. There are no conditions or events
since December 31, 1998 that management believes have changed the institution's
category.
LIQUIDITY
The Bank derives funds from deposits, FHLB advances, securities sold under
agreements to repurchase, and other short-term and long-term borrowings. In
addition, funds are generated from loan payments and payoffs as well as from the
sale of loans and investments.
55
<PAGE>
DEPOSITS
The largest source of funds for the Company is deposits. Customer deposits
are insured by the FDIC to the maximum amount permitted by law up to $100,000
per account. The Company has several types of deposit accounts designed to
attract both short-term and long-term deposits.
At December 31, 1998, the Company had deposits of $2.9 billion. The
following table presents the distribution of deposit accounts at the dates
indicated:
DECEMBER 31,
----------------------------
1998 1997
------------ -------------
(DOLLARS IN THOUSANDS)
Passbook accounts........................... $ 56,836 $ 67,502
Checking accounts........................... 380,292 336,036
Money market savings accounts............... 56,451 55,885
------------ -------------
Total transaction accounts............. 493,579 459,423
------------ -------------
CDs......................................... 2,428,952 2,432,378
------------ -------------
Total deposits......................... $ 2,922,531 $ 2,891,801
============ =============
There were no brokered deposits outstanding at December 31, 1998 and 1997.
The following table summarizes CDs by remaining maturity and weighted
average rate at December 31, 1998.
<TABLE>
<CAPTION>
REMAINING TERM TO MATURITY
-----------------------------------------------------------------------------
GREATER
LESS THAN 3 TO 6 6 TO 12 THAN
3 MONTHS MONTHS MONTHS 12 MONTHS TOTAL
------------- -------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CDs:
Less than $100,000.................... $ 521,560 $ 397,020 $ 576,217 $ 300,203 $ 1,795,000
Greater than $100,000................. 186,848 117,219 181,374 148,511 633,952
------------- -------------- ------------- ------------- -------------
Total CDs................................. $ 708,408 $ 514,239 $ 757,591 $ 448,714 $ 2,428,952
============= ============== ============= ============= =============
Weighted average yield:
Less than $100,000.................... 5.23% 5.11% 4.91% 4.96% 5.06%
Greater than $100,000................. 5.59 5.39 5.23 5.02 5.32
------------- -------------- ------------- ------------- -------------
Total weighted average yield on
CDs 5.32% 5.18% 4.99% 4.98% 5.12%
============= ============== ============= ============= =============
</TABLE>
56
<PAGE>
The following table provides information with regards to the Bank's most
recent quarterly experience in the levels of and pricing of CDs for the period
indicated:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE RATE
-----------------------
NEW OR NEW OR
MATURITIES RENEWED NET CHANGE MATURITIES RENEWED
------------- ------------- ------------ ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CDs maturing in quarter ended:
December 31, 1998................. $ 588,091 $ 436,875 $ (151,216) 5.42% 4.30%
September 30, 1998................ 604,220 591,719 (12,501) 5.43 5.06
June 30, 1998..................... 456,817 617,404 160,587 5.34 5.24
March 31, 1998.................... 637,224 701,988 64,764 5.26 5.42
December 31, 1997................. 443,897 461,385 17,488 5.31 5.39
</TABLE>
The distribution of certificate accounts by date of maturity is an
important indicator of the relative stability of a major source of funds. Longer
term certificate accounts generally provide greater stability as a source of
funds, but currently entail greater interest costs than passbook accounts. The
following tables summarize certificate accounts by maturity, as a percentage of
total deposits and weighted average rate at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
PERCENT OF TOTAL AVERAGE
MATURES IN QUARTER ENDED: AMOUNT DEPOSITS RATE
------------------------- ------------- ---------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
March 31, 1999................................................... $ 612,653 21.0% 5.19%
June 30, 1999.................................................... 424,396 14.5 5.21
September 30, 1999............................................... 374,016 12.8 4.97
December 31, 1999................................................ 250,603 8.6 4.86
March 31, 2000................................................... 232,679 8.0 4.83
June 30, 2000.................................................... 36,430 1.2 4.26
September 30, 2000............................................... 7,442 0.3 5.40
December 31, 2000 and after...................................... 490,733 16.7 5.42
------------- ------
Total CDs..................................................... $ 2,428,952 83.1% 5.12
============= ======
</TABLE>
57
<PAGE>
BORROWINGS
The following table sets forth certain information as to the Company's FHLB
advances and other borrowings at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances:
Fixed rate advances........................................... $ 585,000 $ 835,000 $ 237,151
Floating rate advances........................................ -- 174,960 212,700
------------- ------------- -------------
Total FHLB advances.......................................... 585,000 1,009,960 449,851
------------- ------------- -------------
Other borrowings:
Senior Notes.................................................. 51,478 51,478 --
Mortgage-backed notes......................................... -- -- 100,000
Commercial paper.............................................. -- -- 40,000
------------- ------------- -------------
Total other borrowings....................................... 51,478 51,478 140,000
------------- ------------- -------------
Total borrowings................................................. $ 636,478 $ 1,061,438 $ 589,851
============= ============ =============
Weighted average interest rate on all borrowings................. 6.20% 6.13% 6.02%
============= ========= =========
Percent of total borrowings to total liabilities and
stockholders' equity.......................................... 17.15% 25.46% 17.71%
============= ========= =========
</TABLE>
UNDRAWN SOURCES
The Company maintains other sources of liquidity to draw upon, which at
December 31, 1998 include (a) a line of credit with the FHLB with $156.0 million
available, (b) $76.5 million in unpledged securities available to be placed in
reverse repurchase agreements or sold and (c) $294.3 million of unpledged loans,
some of which would be available to collateralize additional FHLB or private
borrowings, or be securitized.
CONTINGENT OR POTENTIAL USES OF FUNDS
The Bank had unfunded loans totaling less than $0.1 million and $1.7
million at December 31, 1998 and 1997, respectively. The Bank had no unfunded
loans at December 31, 1996. Additionally, unused lines of credit related to
credit card loans and other credit lines totaled $114.8 million, $46.0 million
and $19.7 million at December 31, 1998, 1997 and 1996, respectively.
LIQUIDITY
The regulatory required average daily balance of liquid assets is 4% of the
liquidity base, which is based on a quarterly average. The Bank's quarterly
average regulatory liquidity ratio was 18.40% and 22.75% at December 31, 1998
and 1997, respectively. The Bank's monthly average regulatory liquidity ratio,
under the liquidity regulations in force at the time was 6.86% for December 31,
1996.
HOLDING COMPANY LIQUIDITY
At December, 1998 and 1997, Bank Plus had cash and cash equivalents of $0.7
million and $1.0 million, respectively. Bank Plus has no material potential cash
producing operations or assets other than its investments in Fidelity, Gateway
and BPCS. Accordingly, Bank Plus is substantially dependent on dividends from
Fidelity, Gateway and BPCS in order to fund its cash needs, including its
payment obligations on the $51.5 million principal amount of the Senior Notes
issued in exchange for Fidelity's Preferred Stock.
58
<PAGE>
Bank Plus has funded the interest payments on its Senior Notes through
preferred stock and common stock dividends from Fidelity. The preferred stock
carries a 10% rate and is not subject to OTS approval unless, among other
things, the Bank's regulatory capital falls below adequately capitalized. The
common stock dividends, which are used to fund the difference between the rate
on the Senior Notes and the rate on the preferred stock dividends, are currently
subject to OTS approval. No assurance can be given that the OTS will approve the
common stock dividends in the future, or that the OTS will approve the preferred
stock dividends in the future if the Bank's regulatory capital falls below
adequately capitalized. The February 1999 Senior Note interest payments were
funded by the preferred stock dividend from Fidelity and cash on hand at Bank
Plus. In future periods, Bank Plus may be able to increase its liquidity through
dividends from Gateway or BPCS. No assurance can be given that funds will
continue to be available at Bank Plus to pay future interest payments, or that
dividends will be able to be made by Gateway or BPCS to provide additional
liquidity.
COMMITMENTS AND CONTINGENCIES
Fidelity enters into agreements to extend credit to customers on an ongoing
basis. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Most commitments are expected to be
drawn upon and, therefore, the total commitment amounts generally represent
future cash requirements. At December 31, 1998, the Company had less than $0.1
million in commitments to fund loans. There was an unused line of credit of
$16.9 million associated with a mortgage warehouse credit agreement. In
addition, the Company has extended lines of credit in the form of credit cards
totaling $431.3 million, of which $81.2 million was unused and available at
December 31, 1998.
As of December 31, 1998, the Company had certain mortgage loans with a
gross principal balance of $78.7 million, of which $65.7 million had been sold
in the form of mortgage pass-through certificates, over various periods of time,
to four investor financial institutions leaving a balance of $13.0 million in
loans retained by the Company. These mortgage pass-through certificates provide
a credit enhancement to the investors in the form of the Company`s subordination
of its retained percentage interest to that of the investors. In this regard,
the aggregate of $65.7 million held by investors are deemed Senior Mortgage
Pass-Through Certificates and the $13.0 million in loans held by the Company are
subordinated to the Senior Mortgage Pass-Through Certificates in the event of
borrower default. Full recovery of the $13.0 million is subject to this
contingent liability due to its subordination. In 1993, the Bank repurchased as
an investment a portion of the mortgage pass-through certificates, and at
December 31, 1998, the balance of the repurchased certificate was $23.1 million
and was included in the MBS AFS portfolio and accounted for in accordance with
SFAS No. 115. The other Senior Mortgage Pass-Through Certificates totaling $42.6
million at December 31, 1998 are owned by other investor institutions. The
contingent liability for credit losses on these mortgage pass-through
certificates was $0.9 million and $2.1 million at December 31, 1998 and 1997,
respectively, and is included in other liabilities.
The Company also effected the securitization by FNMA of multifamily
mortgages wherein whole loans were swapped for Triple A rated MBS through FNMA`s
Alternative Credit Enhancement Structure ("ACES") program. These MBS were later
sold and the current outstanding balance as of December 31, 1998 of $89.8
million is serviced by the Company, including commitments assumed as a result of
the Hancock acquisition. As part of a credit enhancement to absorb losses
relating to the ACES transaction, the Company has pledged and placed in a trust
account, as of December 31, 1998, $16.4 million, comprised of $12.2 million in
cash and $4.2 million in U.S. Treasury securities and MBS. The Company shall
absorb losses, if any, which may be incurred on the securitized multifamily
loans to the extent of $16.4 million. FNMA is responsible for any losses in
excess of the $16.4 million. The corresponding contingent liability for credit
losses was $2.3 million and $4.0 million at December 31, 1998 and 1997,
respectively, and is included in other liabilities.
59
<PAGE>
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
The objective of asset/liability management is to maximize the net income
of the Company while controlling interest rate risk exposure. Banks and savings
institutions are subject to interest rate risk when assets and liabilities
mature or reprice at different times (duration risk), against different indices
(basis risk) or for different terms (yield curve risk). The decision to control
or accept interest rate risk can only be made with an understanding of the
probability of various scenarios occurring. Having liabilities that reprice more
quickly than assets is beneficial when interest rates fall, but may be
detrimental when interest rates rise.
The following table sets out the maturity and rate sensitivity of the
interest-earning assets and interest-bearing liabilities as of December 31,
1998. "Gap," as reflected in the table, represents the estimated difference
between the amount of interest-earning assets and interest-bearing liabilities
repricing during future periods as adjusted for interest-rate swaps and other
financial instruments as applicable, and based on certain assumptions, including
those stated in the notes to the table.
<TABLE>
MATURITY AND RATE SENSITIVITY ANALYSIS
<CAPTION>
AS OF DECEMBER 31, 1998
MATURITY OR REPRICING
-------------------------------------------------------------------------
WITHIN 3 4-12 1-5 6-10 OVER 10
MONTHS MONTHS YEARS YEARS YEARS TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Cash and cash equivalents.............. $ 233,894 $ -- $ -- $ -- $ -- $ 233,894
Investment securities (1) (2).......... 94,155 1,084 -- -- -- 95,239
MBS (1) 152,004 980 -- -- 312,026 465,010
Loans receivable:
ARMs and other adjustables (3)....... 351,914 2,203,996 98,722 10,455 401 2,665,488
Fixed rate loans..................... 5,059 -- 4,007 12,771 109,679 131,516
----------- ------------ --------- ---------- ---------- -----------
Total gross loans receivable....... 356,973 2,203,996 102,729 23,226 110,080 2,797,004
----------- ------------ --------- ---------- ---------- -----------
Total interest-earning assets............ 837,026 2,206,060 102,729 23,226 422,106 $3,591,147
----------- ------------ --------- ---------- ---------- ===========
INTEREST-BEARING LIABILITIES:
Deposits:
Checking and savings accounts (4).... 437,128 -- -- -- -- $ 437,128
Money market accounts (4)............ 56,451 -- -- -- -- 56,451
Fixed maturity deposits:
Retail customers................... 700,295 1,271,830 447,594 616 404 2,420,739
Wholesale customers................ 8,113 -- 100 -- -- 8,213
----------- ------------ --------- ---------- ---------- -----------
Total deposits................... 1,201,987 1,271,830 447,694 616 404 2,922,531
----------- ------------ --------- ---------- ---------- -----------
Borrowings:
FHLB advances (3).................... -- -- 585,000 -- -- 585,000
Other................................ -- -- -- 51,478 -- 51,478
----------- ------------ --------- ---------- ---------- -----------
Total borrowings................... -- -- 585,000 51,478 -- 636,478
----------- ------------ --------- ---------- ---------- -----------
Total interest-bearing liabilities....... 1,201,987 1,271,830 1,032,694 52,094 404 $ 3,559,009
----------- ------------ ----------- ---------- ---------- ============
Repricing Gap............................ $ (364,961) $ 934,230 $ (929,965) $ (28,868) $ 421,702
=========== ============ =========== ========== ==========
Gap to total assets...................... (9.83)% 25.17% (25.05)% (0.78)% 11.36%
Cumulative Gap to Total Assets........... (9.83)% 15.34% (9.71)% (10.49)% 0.87%
</TABLE>
(1) Repricings shown are based on the contractual maturity or repricing
frequency of the instrument.
(2) Investment securities include FHLB stock of $65.4 million.
(3) ARMs are primarily in the shorter categories as they are subject to interest
rate adjustments.
(4) These liabilities are subject to daily adjustments and are therefore
included in the "Within 3 Months" category.
60
<PAGE>
The Company manages interest rate risk by, among other things, maintaining
a portfolio consisting primarily of adjustable rate mortgage ("ARM") loans. ARM
loans comprised 95%, 94% and 97% of the total mortgage loan portfolio at
December 31, 1998, 1997 and 1996, respectively. The percentage of monthly
adjustable ARMs to total mortgage loans was approximately 71%, 71% and 76% at
December 31, 1998, 1997 and 1996, respectively. Interest sensitive assets
provide the Company with a degree of long-term protection from rising interest
rates. At December 31, 1998, approximately 91% of Fidelity's total mortgage loan
portfolio consisted of loans which mature or reprice within one year, compared
to approximately 93% at both December 31, 1997 and 1996. Fidelity has in recent
periods been negatively impacted by the fact that increases in the interest
rates accruing on Fidelity's ARMs lagged the increases in interest rates
accruing on its deposits due to reporting delays and contractual look-back
periods contained in the Bank's loan documents. At December 31, 1998, 87% of the
Bank's mortgage loans, which are indexed to COFI, as with all COFI portfolios in
the industry, do not reprice until some time after the industry liabilities
composing COFI reprice. The Company's liabilities reprice generally in line with
the cost of funds of institutions which comprise the FHLB Eleventh District. In
the Company's case, the lag between the repricing of its liabilities and its ARM
loans indexed to COFI is approximately four months. Thus, in a rising rate
environment there will be upward pressure on rates paid on deposit accounts and
wholesale borrowings, and the Company's net interest income will be adversely
affected until the majority of its interest-earning assets fully reprice.
Conversely, in a falling interest rate environment, net interest income will be
positively affected.
Analysis of the Gap provides only a static view of the Company's interest
rate sensitivity at a specific point in time. The actual impact of interest rate
movements on the Company's net interest income may differ from that implied by
any Gap measurement. The actual impact on net interest income may depend on the
direction and magnitude of the interest rate movement, as well as competitive
and market pressures.
The Company may employ interest rate swaps, caps and floors in the
management of interest rate risk. An interest rate swap agreement is a financial
transaction where two counterparties agree to exchange different streams of
payments over time. An interest rate swap involves no exchange of principal
either at inception or upon maturity; rather, it involves the periodic exchange
of interest payments arising from an underlying notional principal amount.
Interest rate caps and floors generally involve the payment of a one-time
premium to a counterparty who, if interest rates rise or fall, above or below a
predetermined level, will make payments to the Company at an agreed upon rate
for the term of the agreement until such time as interest rates fall below or
rise above the cap or floor level. By their nature all such instruments involve
risk, and the maximum potential loss may exceed the value at which such
instruments are carried. As is customary for these types of instruments, the
Company usually does not require collateral or other security from other parties
to these instruments. The Company manages its credit exposure to counterparties
through credit approvals, credit limits and other monitoring procedures. The
Company's Credit Policy Committee makes recommendations regarding counterparties
and credit limits which are subject to approval by the Board of Directors.
In 1997, the Bank entered into an interest rate swap agreement with a
notional amount of $90.0 million to convert a fixed rate FHLB advance to a
floating rate. The swap was terminated in the fourth quarter of 1997 and as a
result recorded a deferred gain of $0.6 million that is being amortized as a
yield adjustment over the remaining life of the FHLB advance.
There were no derivative financial instruments outstanding at December 31, 1998.
MARKET RISK
The Bank's Asset Liability Committee ("ALCO"), which includes senior
management representatives, monitors and considers methods of managing the rate
and sensitivity repricing characteristics of the balance sheet components
consistent with maintaining acceptable levels of changes in net portfolio value
("NPV") and net interest income. A primary purpose of the Company's
asset/liability management is to manage interest rate risk to effectively invest
the Company's capital and to preserve the value created by its core business
operations. As such, certain management monitoring processes are designed to
minimize the impact of sudden and sustained changes in interest rates on NPV and
net interest income.
61
<PAGE>
The Company's exposure to interest rate risk is reviewed on at least a
quarterly basis by the Board of Directors and the ALCO. Interest rate risk
exposure is measured using interest rate sensitivity analysis to determine the
Company's change in NPV in the event of hypothetical changes in interest rates
and interest rate sensitivity gap analysis is used to determine the repricing
characteristics of the Bank's assets and liabilities.
Interest rate sensitivity analysis is used to measure the Company's
interest rate risk by computing estimated changes in NPV of its cash flows from
assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. NPV is equal to the estimated market
value of assets minus the market value of liabilities, with adjustments made for
off-balance sheet items. This analysis assesses the risk of loss in market risk
sensitive instruments in the event of a sudden and sustained one hundred to
three hundred basis points increase or decrease in the market interest rates.
NPV is calculated by the Company pursuant to the guidelines established by the
OTS. The calculation is based on the net present value of estimated discounted
cash flows utilizing market prepayment assumptions and market rates of interest
provided by independent broker quotations and other public sources as of
December 31, 1998, with adjustments made to reflect the shift in the treasury
yield curve as appropriate. Computation of prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative
levels of market interest rates, loan prepayments and deposits decay, and should
not be relied upon as indicative of actual results. Further, the computations do
not contemplate any actions the ALCO could undertake in response to changes in
interest rates.
The following table presents the Company's projected change in NPV for the
various rate shock levels at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- -----------------------------
PERCENTAGE CHANGE IN PERCENTAGE CHANGE IN
CHANGE IN INTEREST RATES NET INTEREST NET PORTFOLIO NET INTEREST NET PORTFOLIO
(IN BASIS POINTS) INCOME (1) VALUE (2) INCOME (1) VALUE (2)
------------------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
+300 1% --% (17)% (13)%
+200 3 4 (11) (7)
+100 4 5 (6) (1)
Base Case -- -- -- --
-100 (6) (7) 5 (4)
-200 (13) (15) 10 (7)
-300 (19) (19) 15 (7)
</TABLE>
(1) The percentage change in this column represents net interest income for 12
months in a stable interest rate environment versus the net interest income
in the various rate scenarios.
(2) The percentage change in this column represents the NPV of the Bank in a
stable interest rate environment versus the NPV in the various rate
scenarios.
62
<PAGE>
The following table shows the Company's financial instruments that are
sensitive to change in interest rates, categorized by expected maturity, and the
instruments' fair values at December 31, 1998. This data differs from that in
the Gap table as it does not incorporate the repricing characteristics of assets
and liabilities. Rather, it only reflects contractual maturities adjusted for
anticipated prepayments. Market risk sensitive instruments are generally defined
as on and off balance sheet derivatives and other financial instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
EXPECTED MATURITY DATE AT DECEMBER 31, 1998 (1) 1997
----------------------------------------------------------------------------------------------- -----------
TOTAL FAIR FAIR
1999 2000 2001 2002 2003 THEREAFTER BALANCE VALUE (2) VALUE (2)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-SENSITIVE ASSETS:
Investment securities. $ 29,881 $ -- $ -- $ -- $ -- $ -- $ 29,881 $ 29,896 $ 104,045
Average coupon rate. 5.30% --% --% --% --% --% 5.30%
MBS AFS 269,739 76,935 37,930 20,170 11,724 48,512 465,010 465,010 852,604
Average coupon rate. 7.01% 7.58% 7.40% 7.27% 6.99% 6.80% 7.13%
MBS held for trading.. -- -- -- -- -- -- -- -- 41,050
Loans receivable...... 770,034 456,630 647,882 225,900 188,957 376,173 2,665,576 2,707,333 2,818,236
Average interest rate 8.76% 7.08% 10.59% 6.56% 6.80% 6.57% 8.28%
Mortgage servicing
assets.............. -- -- -- -- -- 1,630 1,630 5,368 5,346
Other assets.......... -- -- -- -- -- -- -- -- 922
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total interest-sensitive
assets............. $1,069,654 $ 533,565 $ 685,812 $ 246,070 $ 200,681 $ 426,315 $3,162,097 $3,207,607 $3,822,203
=========== =========== =========== =========== =========== =========== =========== =========== ===========
INTEREST-SENSITIVE LIABILITIES:
Deposits:
Transaction accounts $ 404,719 $ 17,772 $ 17,772 $ 17,772 $ 17,772 $ 17,772 $ 493,579 $ 493,579 $ 459,748
Average interest
rate........... 1.68% 1.30% 1.29% 1.16% 1.17% 1.17% 1.61%
CDs................ 1,981,042 184,413 239,602 18,848 4,661 386 2,428,952 2,445,581 2,440,216
Average interest
rate........... 5.26% 4.63% 4.27% 6.04% 6.07% 5.51% 5.12%
Borrowings........... -- 45,000 -- -- 540,000 51,478 636,478 663,520 1,074,162
Average interest
rate........... --% 6.80% --% --% 5.60% 12.00% 6.20%
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total interest-sensitive
liabilities........... $2,385,761 $ 247,185 $ 257,374 $ 36,620 $ 562,433 $ 69,636 $3,559,009 $3,602,680 $3,974,126
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
(1) Expected maturities are contractual maturities adjusted for prepayments of
principal. The Company uses certain assumptions to estimate expected
maturities. For assets, expected maturities are based upon contractual
maturity, projected repayments and prepayments of principal. The prepayment
experience reflected herein is based on the Company's historical
experience.
(2) The estimated fair values were computed as follows: a) investment and MBS
securities were based on quoted market prices, b) mortgage loans, mortgage
servicing rights and all interest sensitive liabilities were based on an
option adjusted cash flow valuation, which includes forward interest rate
simulations, and c) credit card loans are equal to the outstanding balances
of the credit card loans less any applicable allowances for loan losses and
deferred fees. The credit card portfolio is relatively unseasoned and was
generally marketed to customers with lower credit quality. In addition,
there exists a high level of uncertainty related to the future performance
of the credit card portfolio because of the high levels of delinquencies
and charge-offs. As a result, the Company is not currently able to compute
a fair value of the credit card portfolio, including any unused credit
lines. The fair values may not be indicative of the value derived upon a
sale of all or part of the portfolios.
63
<PAGE>
YEAR 2000
The Company utilizes computer software programs, systems and devices
("Systems") throughout the organization in order to support its on-going
operations. If corrective action is not taken, many of these Systems may not be
able to correctly interpret and process dates into 2000. The Company
has inventoried and analyzed its Systems to determine which will require
modification, upgrade, or replacement.
The Company has established a Year 2000 project office to provide the
business units with the support, guidance, and project management expertise to
ensure that the Company meets its Year 2000 objectives. The Year 2000 project
office is responsible for ensuring that the Company complies with the guidelines
established by the Federal Financial Institutions Examinations Council
("FFIEC"). The FFIEC issues guidelines to provide further clarification on the
federal regulatory requirements mandating how financial institutions prepare for
the Year 2000. In addition, the Company has engaged an independent third party
to provide project oversight and Year 2000 subject matter expertise.
PROJECT'S STATE OF READINESS
The Year 2000 project is comprised of two major phases. Phase I involves
the installation of upgraded mission critical Systems that are reported to be
Year 2000 complaint. Phase II involves the testing of mission critical Systems
using future dates to certify the system as Year 2000 compliant.
Phase I of the project was completed in October 1998 with the upgrade of
the Company's deposit servicing Systems to current release levels which are
reported by the software vendor to be Year 2000 compliant. This milestone also
included the conversion of the Company's accounts payable and general ledger
applications to new Systems that the software vendor states are Year 2000
compliant. All Systems upgraded during Phase I have been successfully migrated
into the Company's production environment. Additionally, the Company's mission
critical embedded Systems and mission critical applications that run on
distributed platforms have been renovated and validated for Year 2000
compliance.
The Company initiated Phase II of this project in November 1998. Phase II
is the testing and validating of the Company's mission critical Systems using
future dates. The Company's internal testing strategy includes the thirteen
future dates recommended by the FFIEC plus additional dates that are believed to
be important for certain applications. The Company has successfully tested a
total of thirteen future dates. Nine of the future dates tested are included in
the list of thirteen dates recommended by the FFIEC.
During Phase II, the Company has installed a number of program fixes to
correct test exceptions identified during the first group of future date testing
or to follow recommendations from the software vendor. Regression or re-testing
of these Systems using future dates has begun to ensure that the identified test
exceptions have been resolved.
Future date testing of the Company's internal mission critical Systems will
be completed by the end of the first quarter of 1999 with the exception of four
non-critical Year 2000 dates, which are scheduled for completion early in the
second quarter. Future date validation of the Company's externally operated
mission critical Systems has begun and is scheduled to be completed by the end
of the second quarter of 1999.
The Company implemented a Year 2000 customer awareness plan to address Year
2000 issues raised by customers. As part of this plan, the Company included a
project status update in the December and January deposit account statements. A
risk management plan was developed to address risks posed by the Company's
material customers. Both of these plans were developed in accordance with the
FFIEC guidelines and are being reviewed and updated each quarter or as required.
ESTIMATED YEAR 2000 PROJECT COSTS
The total expense estimate for anticipated Year 2000 project activities is
$6.3 million. This forecast is based on information currently known about the
Company's Systems and servicers as well as management's interpretation of the
FFIEC guidelines released to date. A significant portion of this budget is
allocated to the staffing of technology and support personnel to implement the
required modifications and upgrades. Additional personnel are also required to
perform the system testing, produce testing documentation, and prepare
contingency plans required by the FFIEC. As of December 31, 1998, the Company
had incurred Year 2000 related expenses of approximately $3.8 million.
64
<PAGE>
CONTINGENCY PLANS
The FFIEC requires the development of remediation and business resumption
contingency plans. Remediation contingency plans are initiated if the Company
fails to successfully complete renovation, validation, or implementation of a
mission-critical system. Business resumption plans are initiated if business
interruptions should occur during the Year 2000 event. The contingency plans are
designed to provide for the continuation of the Company's critical business
functions should such interruptions occur.
An overall Year 2000 contingency plan strategy document has been developed
and distributed to Company business units. The contingency plan was developed
based on guidelines issued by the FFIEC, the United States General Accounting
Office and other sources. Company business units are in the process of creating
detailed contingency plans. The contingency planning process has been divided
into the following five phases:
o Contingency Planning Phase I
Phase I of the contingency planning process has been completed. This
phase required business units owners to identify critical business
functions and to complete a risk assessment for the critical business
functions.
o Contingency Planning Phase II
Phase II of the contingency planning process has been completed. In
Phase II of the contingency planning process, the business units
provided additional information, such as estimating the probability of
a system failing, determining how long they could operate without
certain functionality and a brief description of the work-around that
would be implemented if a system failed.
o Contingency Planning Phase III
Phase III of the contingency planning process is almost complete. This
Phase of the contingency planning process includes the identification
of all of the documentation, resources, trigger dates, interfaces, and
vendors required to finalize the contingency plan.
o Contingency Planning Phase IV
Phase IV of the contingency planning process was initiated in January
1999. During this phase, a representative of the Project Office is
meeting with each of the business units to review and finalize the
documentation provided in Phase III. The deliverable for Phase IV is
the written contingency plan containing details of the work-around as
well as departmental needs for seven identified disaster scenarios.
o Contingency Planning Phase V
After Phase IV is completed, the Company will begin Phase V of the
contingency planning process. Phase V consists of the testing and
validation of the contingency plans and completion of an event plan
for year end.
The FDIC guidelines state that the Bank must complete the organizational
planning and business impact analysis contingency plans by March 31, 1999. The
interagency statement established June 30, 1999 as the date by which the Year
2000 contingency plans are to be substantially complete. The Company is
currently on schedule to complete these plans within the specified time frames.
Once the contingency plans have been completed and tested, the Company will
continue to review and update these plans on a regular basis to ensure they are
consistent with the Company's operations.
65
<PAGE>
RISK FACTORS
The Company utilizes the Systems and services of a number of third parties.
The failure of a key third-party service provider could result in a material
business interruption. Therefore, the Company is monitoring the Year 2000
progress of the Company's third party vendors. A third-party vendor test plan
has been developed to test mission critical services provided by third parties,
where appropriate, for Year 2000 compliance by June 30, 1999. Additional
expenses and delays may be incurred if future date testing or further analysis
reveals test exceptions that require additional system renovations, system
replacement, or the selection of another third party vendor.
Unknown expenses and consequences could result if it becomes necessary to
execute elements of the Company's Year 2000 contingency plans. Although the
Company has given the Year 2000 project a high priority and management believes
that Year 2000 compliance will be achieved, there are no assurances that the
Company will be successful in addressing Year 2000 issues within this estimated
timeframe or budget.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for financial statements for
periods beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires the Company to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement allows derivatives to be designated as hedges only
if certain criteria are met, with the resulting gain or loss on the derivative
either charged to income or reported as a part of other comprehensive income. At
this time, the Company has not determined whether the adoption of SFAS No. 133
will have a material impact on its operations and financial position.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise", effective for the first fiscal
quarter beginning after December 15, 1998. SFAS No. 134 amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities," which establishes
accounting and reporting standards for certain activities of mortgage banking
enterprises and other enterprises that conduct operations that are substantially
similar. SFAS No. 134 requires that after the securitization of mortgage loans
held for sale, the resulting MBS and other retained interest should be
classified in accordance with SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities," based on the Company's ability and intent to
sell or hold those investments. The Company does not believe the adoption of
SFAS No. 134 will have a material impact on its operations or financial
position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMTARY DATA
See Index to Financial Statements on Page F-1.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
None
66
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by this reference is the information set forth in the
section entitled "DIRECTORS AND EXECUTIVE OFFICERS" contained in the Company's
Proxy Statement for its 1999 Annual Meeting of Stockholders (the "1999 Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by this reference is the information set forth in the
section entitled "EXECUTIVE COMPENSATION" contained in the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by this reference is the information set forth in the
section entitled "BENEFICIAL OWNERSHIP OF COMMON STOCK" contained in the 1999
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by this reference is the information set forth in the
section entitled "RELATED PARTY TRANSACTIONS" contained in the 1999 Proxy
Statement.
67
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------
3.1 Certificate of Incorporation of Bank Plus Corporation
(Incorporated by reference to Exhibit 3.1 to the Form 8-B).*
3.2 Amended and Restated Bylaws of Bank Plus Corporation
(incorporated by reference to Exhibit 5 to the current report on
Form 8-K filed with the SEC on March 30, 1999).*
3.3 Certificate of Designations of Series C Junior Participating
Cumulative Preferred Stock (Par Value $.01 per share) of Bank
Plus Corporation.
4.1 Specimen of Common Stock Certificate (incorporated by reference
to Exhibit 4.1 to the Form 8-B).*
4.2 Indenture dated as of July 18, 1997 between Bank Plus Corporation
and The Bank of New York, as trustee relating to the 12% Senior
Notes due July 18, 2007 of Bank Plus Corporation (incorporated by
reference to Exhibit 4.4 of the Registration Statement on Form
S-8 of Bank Plus filed on September 4, 1997).*
4.3 Form of Amended and Restated Rights Agreement, dated as of March
26, 1999, between Bank Plus and American Stock Transfer & Trust
Company, as Rights Agent (incorporated by reference to Exhibit 4
to the current report on Form 8-K filed with the SEC on March 30,
1999).*
10.1 Promissory Note, dated August 3, 1994, by Citadel Realty, Inc. in
favor of Fidelity and related loan documents (1661 Camelback
Road) (incorporated by reference to Exhibit 10.14 to the Form
8-B).*
10.2 Guaranty Agreement, dated August 3, 1994, by Citadel Holding
Corporation ("Citadel") in favor of Fidelity (incorporated by
reference to Exhibit 10.15 to the Form 8-B).*
10.3 Tax Disaffiliation Agreement, dated as of August 4, 1994, by and
between Citadel and Fidelity (incorporated by reference to
Exhibit 10.16 to the Form 8-B).*
10.4 Option Agreement, dated as of August 4, 1994, by and between
Fidelity and Citadel (incorporated by reference to Exhibit 10.17
to the Form 8-B).*
10.5 Executive Employment Agreement, dated as of August 1, 1997,
between Richard M. Greenwood and Fidelity (incorporated by
reference to Exhibit 10.18 to the quarterly report on Form 10-Q
for the quarter ended June 30, 1997).*
10.6 Guaranty of Employment Agreement, dated as of August 1, 1997,
between Richard M. Greenwood and Bank Plus (incorporated by
reference to Exhibit 10.19 to the quarterly report on Form 10-Q
for the quarter ended June 30, 1997).*
10.7 Litigation and Judgment Assignment and Assumption Agreement,
dated as of August 3, 1994, between Fidelity and Citadel
(incorporated by reference to Exhibit 10.23 to the Form 8-B).*
10.8 Stock Option and Equity Incentive Plan (incorporated by reference
to Exhibit 10.24 to the quarterly report on Form 10-Q for the
quarterly period ended March 31, 1997).*
10.9 Retirement Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.25 to the Form 8-B).*
10.10 Form of Change in Control Agreement between the Bank and Mr.
Greenwood (incorporated by reference to Exhibit 10.28 to the
quarterly report on Form 10-Q for the quarter ended June 30,
1997).*
68
<PAGE>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------
10.11 Form of Severance and Change in Control Agreement between the
Bank and each of Messrs. Austin, Evans & Taylor (incorporated by
reference to Exhibit 10.29 to the quarterly report on Form 10-Q
for the quarter ended June 30, 1997).*
10.12 Form of Severance and Change in Control Agreement between the
Bank and each of Messrs. Condon & Stutz (incorporated by
reference to Exhibit 10.30 to the quarterly report on Form 10-Q
for the quarter ended June 30, 1997).*
10.13 Form of Incentive Stock Option Agreement between the Bank and
certain officers (incorporated by reference to Exhibit 10.30 to
the Form 8-B).*
10.14 Form of Amendment to incentive Stock Option Agreement between the
Bank and certain officers (incorporated by reference Exhibit
10.31 to the Form 8-B).*
10.15 Form of Non-Employee Director Stock Option Agreement between the
Bank and certain directors (incorporated by reference to Exhibit
10.32 to the Form 8-B).*
10.16 Form of Amendment to Non-Employee Director Stock Option Agreement
between the Bank and certain directors (incorporated by reference
to Exhibit 10.33 to the Form 8-B).*
10.17 Standard Office Lease--Net, dated July 15, 1994, between the Bank
and 14455 Ventura Blvd., Inc. (incorporated by reference to
Exhibit 10.35 to the Form 8-B).*
10.18 Standard Office Lease--Modified Gross, dated July 15, 1994,
between the Bank and Citadel Realty, Inc. (incorporated by
reference to Exhibit 10.36 to the Form 8-B).*
10.19 Loan Servicing Purchase and Sale Agreement dated March 31, 1995
between the Bank and Western Financial Savings Bank, FSB
(incorporated by reference to Exhibit 10.37 to the Form 8-B).*
10.20 Loan Servicing Purchase and Sale Agreement dated May 15, 1996
between Fidelity and Western Financial Savings Bank (incorporated
by reference to Exhibit 10.37 to the quarterly report on Form
10-Q for the quarterly period ended June 30, 1996).*
10.21 First Amendment to Standard Office Lease--Modified Gross, dated
as of May 15, 1995 between the Bank and Citadel Realty, Inc
(incorporated by reference to Exhibit 10.42 to the quarterly
report on Form 10-Q for the quarterly period ended September 30,
1996).*
10.22 Second Amendment to Standard Office Lease--Modified Gross, dated
as of October 1, 1996, between the Bank and Citadel Realty, Inc
(incorporated by reference to Exhibit 10.43 to the quarterly
report on Form 10-Q for the quarterly period ended September 30,
1996).*
10.23 Form of Indemnity Agreement between Bank Plus and its directors
and senior officers (incorporated by reference to Exhibit 10.44
to the quarterly report on Form 10-Q for the quarterly period
ended September 30, 1996).*
10.24 Promissory Note, dated July 31, 1996, from Richard M. Greenwood
to Bank Plus (incorporated by reference to Exhibit 10.55 to the
1996 Form 10-K).*
10.25 Bank Plus Corporation Deferred Compensation Plan (incorporated by
reference to Exhibit 10.56 to the quarterly report on Form 10-Q
for the quarter ended June 30, 1997).*
10.26 Form of 1997 Non-Employee Director Stock Option Agreement between
the Company and certain directors (incorporated by reference to
Exhibit 10.57 to the 1997 Form 10-K).*
10.27 Form of 1998 Non-Employee Director Stock Option Agreement between
the Company and certain directors (incorporated by reference to
Exhibit 10.58 to the quarterly report on Form 10-Q for the
quarter ended March 31, 1998).*
10.28 Form of Stock Option Agreement between the Company and Messrs.
Greenwood, Austin, Condon, Evans, Stutz and Taylor (incorporated
by reference to Exhibit 10.58 to the quarterly report on Form
10-Q for the quarter ended March 31, 1998).*
10.29 Form of Incentive Stock Option Agreement between the Company and
Messrs. McNamara and Villa (incorporated by reference to Exhibit
10.58 to the quarterly report on Form 10-Q for the quarter ended
March 31, 1998).*
69
<PAGE>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------
10.30 Form of Change in Control Agreement between the Company and
Messrs. McNamara and Villa (incorporated by reference to Exhibit
10.58 to the quarterly report on Form 10-Q for the quarter ended
March 31, 1998).*
10.31 Settlement Agreement and General Mutual Release dated as of
December 1998 between Fidelity and American Direct Credit LLC.
10.32 Severance Agreement dated September 19, 1998 among Richard M.
Greenwood, Bank Plus and Fidelity.
10.33 Release Agreement dated as of September 21, 1998 among Richard M.
Greenwood, Bank Plus and Fidelity.
10.34 Consulting Agreement dated as of September 21, 1998 among Richard
M. Greenwood, Bank Plus and Fidelity.
10.35 Release Agreement dated as of November 16, 1998 among W.C. Taylor
III, Bank Plus, Fidelity and BPCS.
10.36 Consulting Agreement dated as of November 16, 1998 among W.C.
Taylor III, Bank Plus, Fidelity and BPCS.
10.37 Release Agreement dated as of January 19, 1999 among Robert P.
Condon, Bank Plus, Fidelity and Gateway.
10.38 Consulting and Profit Sharing Agreement dated as of January 19,
1999 among Robert P. Condon, Bank Plus, Fidelity and Gateway.
10.39 Severance Agreement dated November 23, 1998 among Stephen J.
Austin, Bank Plus and Fidelity.
10.40 Employment Agreement dated as of October 28, 1998 among Mark K.
Mason, Bank Plus and Fidelity.
10.41 Employment Agreement dated as of November 19, 1998 among Godfrey
B. Evans, Bank Plus and Fidelity.
10.42 Employment Agreement dated as of November 19, 1998 among John M.
Michel, Bank Plus and Fidelity.
10.43 Form of Stock Option Agreement dated as of November 19, 1998
between Bank Plus and each of Messrs. Mason, Evans, and Michel.
10.44 Master Agreement dated as of December 17, 1998 by and among The
Variable Annuity Life Insurance Company ("VALIC"), Gateway and
Bank Plus.
10.45 Limited Liability Company Agreement of American General Gateway
Services, L.L.C. dated as of January 1, 1999 between VALIC and
Gateway.
11. Statement re Computation of Per Share Earnings.
12. Computation of Ratio of Earnings (Loss) to Combined Fixed Charges
and Preferred Stock Dividends.
21.1 List of Subsidiaries.
27. Financial Data Schedule.
o * Indicates previously filed documents.
70
<PAGE>
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statements on page F-1. Financial Statement
Schedules are omitted as the required information is inapplicable or the
information is presented in the consolidated financial statements or related
notes, thereto.
REPORTS ON FORM 8-K
A current report on Form 8-K was filed with the SEC on November 30, 1998
reporting on Item 5 "Other Events" regarding the announcement of a new
management team and the restructuring of management and incentive compensation.
71
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
BANK PLUS CORPORATION
By: /S/ GORDON V. SMITH
-------------------------------------
GORDON V. SMITH
CHAIRMAN OF THE BOARD
Date: March 31, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
------------ ------------ --------
<S> <C> <C>
/S/ GORDON V. SMITH Chairman of the Board of Directors March 31, 1999
- ------------------------------------
GORDON V. SMITH
/S/ MARK K. MASON President and Chief Executive Officer; Vice March 31, 1999
- ------------------------------------ Chairman of the Board
MARK K. MASON (Principal Executive Officer)
/S/ NORMAN BARKER, JR. Director March 31, 1999
- ------------------------------------
NORMAN BARKER, JR.
/S/ WALDO H. BURNSIDE Director March 31, 1999
- -----------------------------------
Waldo H. Burnside
/S/ GEORGE GIBBS, JR. Director March 31, 1999
- -----------------------------------
GEORGE GIBBS, JR.
/S/ LILLY V. LEE Director March 31, 1999
- -----------------------------------
LILLY V. LEE
/S/ JOHN M. MICHEL Executive Vice President, Chief Financial Officer March 31, 1999
- ----------------------------------- (Principal Financial Offier)
JOHN M. MICHEL
/S/ RICHARD VILLA Senior Vice President, March 31, 1999
- ----------------------------------- Director of Finance and Treasurer
RICHARD VILLA (Principal Accounting Officer)
</TABLE>
72
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
INDEPENDENT AUDITORS' REPORT........................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Financial Condition..................... F-3
Consolidated Statements of Operations.............................. F-4
Consolidated Statements of Comprehensive Income.................... F-5
Consolidated Statements of Stockholders' Equity.................... F-6
Consolidated Statements of Cash Flows.............................. F-7
Notes to Consolidated Financial Statements......................... F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Bank Plus Corporation
Los Angeles, California
We have audited the consolidated statements of financial condition of Bank
Plus Corporation and subsidiaries (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of operations, comprehensive
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Bank Plus
Corporation and subsidiaries at December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 19, 1999
F-2
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
-------------- -------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents....................................................... $ 380,507 $ 165,945
Investment securities available for sale ("AFS"), at fair value................. 28,797 100,837
Investment securities held to maturity, at amortized cost....................... 1,084 3,189
Mortgage-backed securities ("MBS") held for trading, at fair value.............. -- 41,050
Mortgage-backed securities available for sale, at fair value.................... 465,010 852,604
Loans receivable, net of allowances for estimated loan losses
of $106,171 and $50,538 at December 31, 1998 and 1997, respectively........... 2,665,576 2,823,577
Investment in Federal Home Loan Bank ("FHLB") stock............................. 65,358 60,498
Premises and equipment.......................................................... 39,042 32,707
Other assets.................................................................... 66,685 87,399
-------------- -------------
Total Assets....................................................................... $ 3,712,059 $ 4,167,806
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits...................................................................... $ 2,922,531 $ 2,891,801
FHLB advances................................................................. 585,000 1,009,960
Senior Notes.................................................................. 51,478 51,478
Other liabilities............................................................. 25,390 32,950
-------------- -------------
Total Liabilities.......................................................... 3,584,399 3,986,189
-------------- -------------
Commitments and contingencies
Minority interest............................................................... 272 272
Stockholders' equity:
Common stock:
Common stock, par value $.01 per share; 78,500,000 shares
authorized; 19,434,043 and 19,367,215 shares outstanding
at December 31, 1998 and December 31, 1997, respectively................. 194 194
Paid-in capital............................................................... 275,131 274,432
Accumulated other comprehensive loss.......................................... (2,795) (4,467)
Accumulated deficit........................................................... (145,142) (88,814)
-------------- -------------
Total Stockholders' Equity................................................. 127,388 181,345
-------------- -------------
Total Liabilities and Stockholders' Equity......................................... $ 3,712,059 $ 4,167,806
============== =============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans........................................................ $ 225,029 $ 205,275 $ 213,013
MBS.......................................................... 43,305 29,435 5,772
Investment securities and other.............................. 32,013 20,297 19,128
-------------- -------------- --------------
Total interest income...................................... 300,347 255,007 237,913
-------------- -------------- --------------
INTEREST EXPENSE:
Deposits..................................................... 145,020 126,717 120,265
FHLB advances................................................ 57,992 40,807 16,161
Other borrowings............................................. 6,192 6,485 16,197
-------------- -------------- --------------
Total interest expense..................................... 209,204 174,009 152,623
-------------- -------------- --------------
Net interest income............................................. 91,143 80,998 85,290
Provision for estimated loan losses............................. 73,032 13,004 15,610
-------------- -------------- --------------
Net interest income after provision for estimated loan losses... 18,111 67,994 69,680
-------------- -------------- --------------
NONINTEREST INCOME (EXPENSE):
Loan fee income.............................................. 3,255 2,076 2,295
Credit card fees............................................. 21,414 45 --
Fee income from the sale of uninsured investment products.... 7,019 5,959 4,456
Fee income from deposits and other fee income................ 3,331 3,365 3,044
(Losses) gains on securities and trading activities.......... (860) (2,168) 1,336
Fee income from ATM cash services............................ 3,375 1,049 --
Other income (expense)....................................... (481) 37 22
Real estate operations, net.................................. (2,635) (6,473) (8,907)
-------------- -------------- --------------
Total noninterest income................................... 34,418 3,890 2,246
-------------- -------------- --------------
OPERATING EXPENSE:
Personnel and benefits....................................... 46,040 29,564 27,022
Occupancy.................................................... 14,591 11,647 10,353
Federal Deposit Insurance Corporation ("FDIC") insurance..... 2,637 2,563 24,936
Professional services........................................ 16,901 11,054 11,156
Credit card data processing.................................. 10,848 -- --
Office-related expenses...................................... 6,759 3,819 3,552
Other........................................................ 7,183 4,449 5,432
-------------- -------------- --------------
Total operating expense.................................... 104,959 63,096 82,451
-------------- -------------- --------------
(Loss) earnings before income taxes and minority
interest in subsidiary....................................... (52,430) 8,788 (10,525)
Income tax expense (benefit).................................... 3,870 (8,100) (1,093)
-------------- -------------- --------------
(Loss) earnings before minority interest in subsidiary.......... (56,300) 16,888 (9,432)
Minority interest in subsidiary................................. 28 4,235 4,657
-------------- -------------- --------------
Net (loss) earnings............................................. (56,328) 12,653 (14,089)
Preferred stock dividends....................................... -- -- 1,553
-------------- -------------- --------------
(Loss) earnings available for common stockholders............... $ (56,328) $ 12,653 $ (15,642)
============== ============== ==============
(LOSS) EARNINGS PER SHARE:
Basic........................................................ $ (2.90) $ 0.67 $ (0.86)
============== ============== ==============
Diluted...................................................... $ (2.90) $ 0.66 $ (0.86)
============== ============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic........................................................ 19,395,337 18,794,887 18,242,887
============== ============== ==============
Diluted...................................................... 19,395,337 19,143,233 18,242,887
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
(Loss) earnings available for common stockholders............. $ (56,328) $ 12,653 $ (15,642)
-------------- -------------- --------------
Other comprehensive earnings (loss):
Investment and MBS securites AFS:
Unrealized holdong gains (losses) arising during
the period, net........................................ (2,565) (1,807) 1,712
Reclassificaiton adjustment for (gains)losses
included in earnings/loss, net......................... (1,461) 2,355 (1,156)
-------------- -------------- --------------
Total............................................... (4,026) 548 556
-------------- -------------- --------------
Derivative financial instruments:
Unrealized holding gains (losses) arising during
the period, net........................................ 1,376 (6,068) (301)
Reclassification adjustment for (gains) losses
included in earnings/loss, net......................... 4,322 10 --
-------------- -------------- --------------
Total............................................... 5,698 (6,058) (301)
-------------- -------------- --------------
Other comprehensive earnings (loss)....................... 1,672 (5,510) 255
-------------- -------------- --------------
Comprehensive (loss) earnings................................. $ (54,656) $ 7,143 $ (15,387)
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
CLASS A
COMMON STOCK COMMON STOCK PREFERRED STOCK
------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996........................... -- -- 18,242,465 $ 182 2,070,000 $ 51,750
Accumulated other comprehensive earnings........... -- -- -- -- -- --
Cash dividends on preferred stock issued by
consolidated subsidiary............................ -- -- -- -- -- --
Exercise of stock options.......................... -- -- 2,800 -- -- --
Holding company reorganization and capitalization.. 18,245,265 $ 182 (18,245,265) (182) (2,070,000) (51,750)
Net loss for 1996.................................. -- -- -- -- -- --
------------- --------- ------------- --------- ------------- ---------
Balance, December 31, 1996......................... 18,245,265 182 -- -- -- --
Accumulated other comprehensive loss............... -- -- -- -- -- --
Minority interest in subsidiary.................... -- -- -- -- -- --
Acquisition of Hancock Savings Bank................ 1,058,575 11 -- -- -- --
Exercise of stock options.......................... 63,375 1 -- -- -- --
Net earnings for 1997.............................. -- -- -- -- -- --
------------- --------- ------------- --------- ------------- ---------
Balance, December 31, 1997......................... 19,367,215 194 -- -- -- --
Accumulated other comprehensive earnings........... -- -- -- -- -- --
Exercise of stock options and other stock 66,828 -- -- -- -- --
activity...........................................
Net loss for 1998.................................. -- -- -- -- -- --
------------- --------- ------------- --------- ------------- ---------
Balance, December 31, 1998......................... 19,434,043 $ 194 -- $ -- -- $ --
============= ========= ============ ========= ============= =========
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
(DOLLARS IN THOUSANDS)
<CAPTION>
ACCUMULATED
OTHER TOTAL
PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
CAPITAL GAIN/(LOSS) DEFICIT EQUITY
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996........................... $ 262,151 $ 788 $ (85,828) $ 229,043
Accumulated other comprehensive earnings........... -- 255 -- 255
Cash dividends on preferred stock issued by
consolidated -- -- (1,553) (1,553)
subsidiary......................................
Exercise of stock options.......................... 23 -- -- 23
Holding company reorganization and capitalization (272) -- -- (52,022)
Net loss for 1996.................................. -- -- (14,089) (14,089)
----------- ------------ ----------- -------------
Balance, December 31, 1996......................... 261,902 1,043 (101,470) 161,657
Accumulated other comprehensive loss............... -- (5,510) -- (5,510)
Minority interest in subsidiary.................... -- -- 3 3
Acquisition of Hancock Savings Bank................ 12,001 -- -- 12,012
Exercise of stock options.......................... 529 -- -- 530
Net earnings for 1997.............................. -- -- 12,653 12,653
----------- ------------ ----------- -------------
Balance, December 31, 1997......................... 274,432 (4,467) (88,814) 181,345
Accumulated other comprehensive earnings........... -- 1,672 -- 1,672
Exercise of stock options and other stock 699 -- -- 699
activity...........................................
Net loss for 1998.................................. -- -- (56,328) (56,328)
----------- ------------ ----------- -------------
Balance, December 31, 1998......................... $ 275,131 $ (2,795) $ (145,142) $ 127,388
=========== ============ =========== =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings................................................. $ (56,328) $ 12,653 $ (14,089)
Adjustments to reconcile net (loss) earnings to net
cash provided by (used in) operating activities:
Provisions for estimated loan and real estate losses........... 73,283 14,064 18,829
Losses (gains) on sale of loans and securities................. 10 2,131 (1,358)
FHLB stock dividends........................................... (3,699) (3,473) (3,072)
Depreciation and amortization.................................. 7,373 4,764 3,834
Amortization of discounts and net deferred loan fees and
accretion of premiums........................................ 7,448 263 (2,152)
Deferred income tax expense (benefit).......................... 3,117 (8,353) --
Issuance of stock and options.................................. 460 -- --
Purchases of MBS held for trading................................... (48,978) (60,717) (38,972)
Principal repayments of MBS held for trading........................ 2,829 2,405 62
Proceeds from sales of MBS held for trading......................... 86,481 31,915 24,971
Purchases of FHLB stock............................................. (1,250) (3,506) --
Interest receivable decrease (increase)............................. 5,364 (2,795) (39)
Other assets decrease (increase).................................... 6,335 31,317 (34,383)
Interest payable (decrease) increase................................ (4,383) 989 1,280
Other liabilities increase (decrease)............................... 1,852 (5,681) 2,554
-------------- -------------- --------------
Net cash provided by (used in) operating activities............... 79,914 15,976 (42,535)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Hancock Savings Bank, FSB ("Hancock") acquisition................... -- 52,908 --
Coast Federal Bank, FSB ("Coast") deposit acquisition............... -- 47,489 --
Purchases of investment securities AFS.............................. (28,600) -- (201,313)
Maturities of investment securities AFS............................. 10,000 15,000 42,950
Proceeds from sales of investment securities AFS ................... 90,805 42,850 89,479
Maturities of investment securities held to maturity................ 2,280 2,286 2,286
Purchases of MBS AFS................................................ (159,835) (945,191) (206,089)
Principal repayments of MBS AFS..................................... 374,316 62,798 4,655
Proceeds from sales of MBS AFS...................................... 167,343 234,747 40,490
Purchase of MBS held to maturity.................................... -- -- (15,869)
Principal repayments of MBS held to maturity........................ -- 3,037 1,397
Purchase of derivative securities................................... (5,322) (3,541) --
Loans receivable, net decrease (increase)........................... 60,488 (52,292) 184,768
Proceeds from sales of real estate.................................. 28,956 59,542 35,544
Purchases of premises and equipment................................. (11,792) (3,768) (844)
-------------- -------------- --------------
Net cash provided by (used in) investing activities............... 528,639 (484,135) (22,546)
-------------- -------------- --------------
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
F-7
<PAGE>
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Demand deposits and passbook savings, net increase (decrease)......$ 34,156 $ (3,179) $ (125,589)
Certificate accounts, net (decrease) increase...................... (3,426) 146,518 20,653
Payment of Preferred Stock dividend................................ -- -- (1,553)
Proceeds from FHLB advances........................................ 705,000 1,320,941 349,008
Repayments of FHLB advances........................................ (1,129,960) (760,832) (191,857)
Short-term borrowing decrease...................................... -- (40,000) (10,000)
Repayments of long-term borrowings................................. -- (100,000) --
Bank Plus capitalization costs..................................... -- -- (272)
Proceeds from exercise of stock options............................ 239 530 23
-------------- -------------- --------------
Net cash (used in) provided by financing activities.............. (393,991) 563,978 40,413
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents.................. 214,562 95,819 (24,668)
Cash and cash equivalents at beginning of period...................... 165,945 70,126 94,794
-------------- -------------- --------------
Cash and cash equivalents at end of the period........................$ 380,507 $ 165,945 $ 70,126
============== ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on deposits, advances and other borrowings...........$ 212,222 $ 171,811 $ 149,067
Income tax payments (refunds)...................................... 755 (493) (257)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired through foreclosure......................... 25,500 53,214 48,663
Loans originated to finance sale of real estate owned............ 189 8,378 4,758
Transfers of MBS from held to maturity portfolio to AFS portfolio -- 26,998 --
Transfers from AFS portfolio to held to maturity portfolio:
Investment securities......................................... -- -- 7,378
MBS........................................................... -- -- 15,552
Exchange of Preferred Stock for Senior Notes..................... -- 51,478 --
DETAILS OF HANCOCK ACQUISITION:
Fair value of assets and core deposit intangibles.................. -- 212,693 --
Goodwill........................................................... -- 6,589 --
Liabilities assumed................................................ -- 207,270 --
Common stock issued................................................ -- 12,012 --
Cash acquired...................................................... -- 52,908 --
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bank Plus
Corporation ("Bank Plus") and subsidiaries. Bank Plus is the holding company for
Fidelity Federal Bank, A Federal Savings Bank, and its subsidiaries (the "Bank"
or "Fidelity"), Gateway Investment Services, Inc. ("Gateway") and Bank Plus
Credit Services Corporation ("BPCS") (collectively, the "Company"). The Company
offers a broad range of consumer financial services, including demand and term
deposits and loans to consumers. In addition, through Gateway, a National
Association of Securities Dealers, Inc. ("NASD") registered broker/dealer, the
Bank provides customers with uninsured investment products, including mutual
funds and annuities. Fidelity operates through 38 full-service branches, 37 of
which are located in southern California, principally in Los Angeles and Orange
counties, and one of which is located in Bloomington, Minnesota. All significant
intercompany transactions and balances have been eliminated. Based on
management's process for evaluating financial information, assessing performance
and allocating resources, no separate operating segments were identified as of
December 31, 1998. Certain reclassifications have been made to prior years'
consolidated financial statements to conform to the 1998 presentation.
On July 18, 1997, the Company completed an exchange offer (the "Exchange
Offer") of the Company's Senior Notes for the outstanding shares of
Noncumulative Exchangeable Perpetual Stock, Series A (the "Preferred Stock")
issued by Fidelity in 1995. The Company accepted 2,059,120 shares of Preferred
Stock in exchange for approximately $51.5 million principal amount of Senior
Notes. Holders of approximately 11,000 shares of the Preferred Stock elected not
to participate in the Exchange Offer and these shares are reflected as minority
interest on the statement of financial condition.
In May 1996, the Bank completed a reorganization pursuant to which all of
the outstanding Class A Common Stock of Fidelity was converted on a one-for-one
basis into outstanding common stock of Bank Plus and Bank Plus became the
holding company for Fidelity (the "Reorganization"). Bank Plus currently has no
significant business or operations other than serving as the holding company for
Fidelity, BPCS and Gateway, which prior to the Reorganization was a subsidiary
of the Bank. All references to "Fidelity" prior to the Reorganization include
Gateway.
On February 9, 1996, the Bank's stockholders approved a one-for-four
reverse stock split (the "Reverse Stock Split") of the issued and outstanding
shares of the Bank's Common Stock. All per share data and weighted average
common shares outstanding have been retroactively adjusted to reflect the
Reverse Stock Split.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, federal funds sold and whole loan
investment repurchase agreements. Generally, federal funds are sold for one-day
periods. There were $220.0 million in federal funds outstanding at December 31,
1998 and none at December 31, 1997. There were no whole loan investment
repurchase agreements at December 31, 1998 and $28.0 million outstanding at
December 31, 1997. At December 31, 1998, noninterest-earning cash reserves,
maintained by Fidelity to meet requirements of the Federal Reserve System,
totaled $8.9 million.
F-9
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The Company's securities principally consist of U.S. treasury and agency
securities and mortgage-backed securities ("MBS"). The Company classifies its
securities as held to maturity, trading and available for sale ("AFS"). Held to
maturity securities are carried at amortized cost, while trading and AFS
securities are carried at fair value. Unrealized gains or losses on trading
securities are reflected currently in earnings. Unrealized gains and losses on
AFS securities are reflected as accumulated other comprehensive earnings (loss)
in stockholder's equity, net of any tax effect. Interest income is recognized
using the level yield method and gains or losses on sales are recorded on a
specific identification basis.
MORTGAGE LOANS
Loans are considered impaired when it is deemed probable that all principal
and interest amounts due according to the contracted terms of the loan agreement
will not be collected. The Company may measure impairment by discounting
expected future cash flows at the loan's effective interest rate, or by
reference to an observable market price, or by determining the fair value of the
collateral for a collateral dependent asset. When a determination is made that
foreclosure is probable, the Company will measure impairment based on the fair
value of the collateral.
Interest on loans, including impaired loans, is credited to income as
earned and is accrued only if deemed collectible. Unpaid interest is reversed
when a loan becomes 90 days contractually delinquent or if management determines
it is warranted prior to a loan becoming 90 days delinquent. While a loan is on
nonaccrual status, interest is recognized only as cash is received. Loan
origination fees, certain direct costs of originating loans and discounts and
premiums on purchased loans are deferred, classified with loans receivable on
the statement of financial condition, and are credited or charged to interest
income over the contractual or estimated life of the related loans using the
interest method. When a loan is sold the remaining unamortized origination fees,
origination costs, discounts or premiums are recognized as an adjustment to the
related gain or loss on sale. Other loan fees and charges, including prepayment
fees, late fees and other miscellaneous servicing fees, are recognized in income
when charged.
CREDIT CARD LOANS
Interest on credit card loans is recognized when charged to the customer.
The Company charges application fees and annual fees related to the issuance and
renewal of its credit card products. Credit card application fees, annual fees
and direct origination costs are deferred and amortized into income over twelve
months. Other fees, including late fees, cash advance fees and interchange fees,
are recognized as income when charged to the borrower or received from a
merchant.
Credit card loans are charged-off to the allowance for loan and lease
losses ("ALLL") upon reaching 180 days delinquency or earlier in certain
circumstances. Amounts charged-off include uncollected principal balance,
finance charges, late fees and other fees. The amount of the charge-off is
reduced by the amount of any, unamortized application and annual fees. The
amount of unamortized origination costs associated with charged-off accounts is
charged against credit card fee income.
ALLOWANCES FOR ESTIMATED LOAN LOSSES
The allowances for estimated losses on loans represents the Company's
estimate of identified and unidentified credit losses in the Company's loan
portfolios. These estimates, while based upon historical loss experience and
other relevant data, are ultimately subjective and inherently uncertain. The
Company establishes specific valuation allowances ("SVAs") for estimated losses
F-10
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on loans where a loss has been identified and an ALLL for the inherent risk in
the loan portfolios which has yet to be specifically identified. With the
exception of credit card loans, SVAs are allocated from the ALLL when, in the
Company's judgment, a loan is impaired and the loss is probable and estimable.
When these estimated losses are determined to be permanent, such as when a
mortgage loan is foreclosed and the related property is transferred to REO, the
estimated loss is charged-off. Credit card loans are charged-off when, in the
Company's judgment, the loan is considered uncollectable.
The Company establishes the level of the ALLL utilizing several models and
methodologies which are based upon a number of factors, including historical
loss experience, the level of nonperforming and internally classified loans, the
composition of the loan portfolio, estimated remaining lives of the various
types of loans within the portfolio, prevailing and forecasted economic
conditions and management's judgment. Additions to the ALLL, in the form of
provisions, are reflected in the results of current operations. Allocations of
SVAs and charge-offs of credit cards are deducted from the ALLL and recoveries
of previous allocations of SVAs or amounts previously charged-off are recorded
as additions to the ALLL.
LOAN SERVICING
Fidelity services mortgage loans in its own portfolio and mortgage loans
owned by investors. Fees earned for servicing loans owned by investors are
reported as income when the related loan payments are collected. Loan servicing
costs are charged to expense as incurred. Upon the sale of servicing retained
loans, the Company capitalizes the costs associated with the right to service
mortgage loans based on their relative fair values. The Company determines the
fair value of the servicing rights based on the present value of estimated net
future cash flows related to servicing income. The mortgage servicing rights are
amortized in proportion to and over the period of estimated net future servicing
fee income. The Company periodically evaluates capitalized mortgage servicing
rights for impairment, which represents the excess of unamortized cost over fair
value. Impairment, if identified, is recognized in a valuation allowance for
each pool in the period of impairment. At December 31, 1998, mortgage servicing
rights were $1.6 million and no valuation allowance existed.
REAL ESTATE OWNED
Real estate owned ("REO") is acquired when property collateralizing a loan
is foreclosed upon or otherwise acquired by the Company in satisfaction of the
loan. REO is recorded at the lower of fair value or the recorded investment in
the loan satisfied at the date of foreclosure. Fair value is based on the net
amount that the Company could reasonably expect to receive for the asset in a
current sale between a willing buyer and a willing seller, that is, other than
in a forced or liquidation sale. Inherent in the computation of estimated fair
value are assumptions about the length of time the Company may have to hold the
property before disposition. The holding costs through the expected date of sale
and estimated disposition costs are contemplated in the determination of the
fair value. Adjustments to the carrying value of the assets are made through
SVAs and charge-offs.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed principally on the straight-line
method over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the shorter of the lives of the respective
leases or the useful lives of the improvements.
F-11
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTANGIBLE ASSETS
The excess of cost over the fair value of net assets acquired in connection
with the acquisition of Hancock in 1997, which is included in other assets in
the consolidated statements of financial condition, is being amortized to
operations over fifteen years. The cost of core deposits purchased is being
amortized to interest expense over the average life of the deposits acquired,
generally five to ten years. At December 31, 1998, goodwill totaled $6.0 million
and had a remaining life of 14 years and the cost of core deposits purchased
totaled $8.0 million and had a remaining life of 6 years.
INCOME TAXES
Deferred tax assets and liabilities are determined based on temporary
differences between financial reporting and tax basis of assets and liabilities
and are measured by applying enacted tax rates and laws to taxable years in
which such temporary differences are expected to be recovered or settled. The
affect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has employed various derivative financial instruments to hedge
valuation fluctuations in its trading and AFS securities portfolios. Financial
instruments entered into for trading purposes are carried at fair value, with
realized and unrealized changes in fair values recognized in earnings in the
period in which the changes occur. Financial instruments used to hedge the
fluctuations in fair values of AFS securities are carried at fair value, with
realized and unrealized changes in fair value reflected as accumulated other
comprehensive earnings (loss) in stockholders' equity. Realized gains and losses
on termination of such hedge instruments are amortized into interest income or
expense over the expected remaining life of the hedged asset. Management
monitors the correlation of the changes in fair values between the hedge
instruments and the securities being hedged to ensure the hedge remains highly
effective. If the criteria for hedge accounting is not met, the fair value
adjustments of the derivative instruments are reported in current earnings. As
of December 31, 1998, the Company had no derivative financial instruments
outstanding.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for financial statements for
periods beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires the Company to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement allows derivatives to be designated as hedges only
if certain criteria are met, with the resulting gain or loss on the derivative
either charged to income or reported as a part of other comprehensive income. At
this time, the Company has not determined whether the adoption of SFAS No. 133
will have a material impact on its operations and financial position.
F-12
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise", effective for the first fiscal
quarter beginning after December 15, 1998. SFAS No. 134 amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities," which establishes
accounting and reporting standards for certain activities of mortgage banking
enterprises and other enterprises that conduct operations that are substantially
similar. SFAS No. 134 requires that after the securitization of mortgage loans
held for sale, the resulting MBS and other retained interest should be
classified in accordance with SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities," based on the Company's ability and intent to
sell or hold those investments. The Company does not believe the adoption of
SFAS No. 134 will have a material impact on its operations or financial
position.
NOTE 2--ACQUISITIONS
On July 29, 1997, the Company completed the acquisition of all of the
outstanding common stock of Hancock, a Los Angeles-based financial institution
with five branches. The total consideration paid to Hancock stockholders was
1,058,575 shares of Bank Plus Common Stock valued at $12.0 million. The
acquisition of Hancock was accounted for as a purchase and was reflected in the
consolidated statements of financial condition of the Company as of June 30,
1997. The Company's consolidated statement of operations includes the revenues
and expenses of the acquired business beginning July 1, 1997. As a result of the
acquisition, the Company recorded goodwill of $6.6 million and a core deposit
intangible of $8.6 million.
On September 19, 1997, the Company purchased $48.6 million of deposits from
another financial institution branch located in Westwood, California and
recorded a core deposit intangible of $1.5 million.
F-13
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3--INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
The following table summarizes the debt securities AFS portfolio as of the
dates indicated:
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED ---------------------------------- AGGREGATE
COST GAINS LOSSES NET FAIR VALUE
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1998:
Investment securities:
Commercial paper................................. $ 28,797 $ -- $ -- $ -- $ 28,797
---------- ---------- ---------- ---------- ----------
MBS:
Federal Home Loan Mortgage Corporation ("FHLMC"). 3,843 -- (52) (52) 3,791
Federal National Mortgage Association ("FNMA")... 170,506 232 (752) (520) 169,986
Government National Mortgage Association ("GNMA") 86,422 218 (84) 134 86,556
Participation certificates....................... 23,055 -- -- -- 23,055
Collateralized mortgage obligations ("CMO")...... 90,683 119 (2,130) (2,011) 88,672
Financing note trust............................. 48,084 -- (332) (332) 47,752
Mortgage-backed note............................. 45,212 -- (14) (14) 45,198
---------- ---------- ---------- ---------- ----------
Total MBS...................................... 467,805 569 (3,364) (2,795) 465,010
---------- ---------- ---------- ---------- ----------
Total securities AFS................................ $ 496,602 $ 569 $ (3,364) $ (2,795) $ 493,807
========== ========== ========== ========== ==========
DECEMBER 31, 1997:
Investment securities:
U.S. Treasury and agency securities.............. $ 100,032 $ 880 $ (75) $ 805 $ 100,837
---------- ---------- ---------- ---------- ----------
MBS:
FHLMC............................................ 10,384 11 (120) (109) 10,275
FNMA............................................. 228,893 2,095 (479) 1,616 230,509
GNMA............................................. 221,716 1,092 -- 1,092 222,808
Participation certificates....................... 24,860 -- -- -- 24,860
CMO.............................................. 344,513 194 (1,495) (1,301) 343,212
London Interbank Offered Rate Asset Trust........ 20,940 -- -- -- 20,940
---------- ---------- ---------- ---------- ----------
Total MBS...................................... 851,306 3,392 (2,094) 1,298 852,604
---------- ---------- ---------- ---------- ----------
Total securities AFS................................ $ 951,338 $ 4,272 $ (2,169) 2,103 $ 953,441
========== ========== ========== ==========
Net realized and unrealized losses (1).............. (6,770)
Deferred tax benefits............................... 200
----------
Net amount included in stockholders' equity......... $ (4,467)
==========
- ----------
</TABLE>
(1) Includes net realized and unrealized losses from hedging activities and
unamortized market value adjustments recorded upon the transfer of
securities from AFS to held to maturity.
F-14
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's held to maturity portfolio consists of U. S. Treasury
securities which have been pledged as credit support to a securitization of
loans. The following table summarizes the debt securities held to maturity
portfolios as of the dates indicated:
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED ---------------------------------- AGGREGATE
COST GAINS LOSSES NET FAIR VALUE
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1998:
Investment securities........... $ 1,084 $ 15 $ -- $ 15 $ 1,099
========== ========== ========== ========== ==========
DECEMBER 31, 1997:
Investment securities........... $ 3,189 $ 19 $ -- $ 19 $ 3,208
========== ========== ========== ========== ==========
</TABLE>
The following table summarizes the weighted average yield of debt
securities as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Investment securities:
AFS.......................................................... 5.55% 5.53%
Held to maturity............................................. 6.19 6.00
MBS:
AFS.......................................................... 6.79 7.05
Trading...................................................... -- 6.66
</TABLE>
The following table presents the AFS and held to maturity portfolios at
December 31, 1998 by contractual maturity. Actual maturities on MBS may differ
from contractual maturities due to prepayments.
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED --------------------- AGGREGATE
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AFS:
Investment securities-- within 1 year......... $ 28,797 $ -- $ -- $ 28,797
---------- ---------- ---------- ----------
MBS:
Within 1 year............................... 153,864 -- (881) 152,983
Greater than 10 years....................... 313,941 569 (2,483) 312,027
---------- ---------- ---------- ----------
Total MBS................................. 467,805 569 (3,364) 465,010
---------- ---------- ---------- ----------
Total AFS........................................ $ 496,602 $ 569 $ (3,364) $ 493,807
========== ========== ========== ==========
Held to Maturity:
U. S. Treasury securities-- within 1 year..... $ 1,084 $ 15 $ -- $ 1,099
========== ========== ========== ==========
</TABLE>
F-15
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following gains and losses were realized on debt securities, the costs
of which were computed on a specific identification method, during the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales:
AFS....................................................$ 258,148 $ 277,597 $ 129,969
Trading................................................ 86,481 31,915 24,971
------------ ------------ ------------
Total................................................$ 344,629 $ 309,512 $ 154,940
============ ============ ============
Gains (losses) on securities and trading activities, net:
AFS portfolio:
Gains................................................$ 49 $ 2,483 $ 1,215
Losses............................................... (368) -- (59)
------------ ------------ ------------
Total.............................................. (319) 2,483 1,156
------------ ------------ ------------
Trading portfolio:
Realized (losses) gains, net......................... (541) 187 187
Unrealized losses, net............................... -- -- (7)
------------ ------------ ------------
Total.............................................. (541) 187 180
------------ ------------ ------------
Losses on securities transferred to AFS portfolio...... -- (4,838) --
------------ ------------ ------------
Total.....................................................
$ (860) $ (2,168) $ 1,336
============ ============ ============
</TABLE>
At December 31, 1998 and 1997, interest receivable in the accompanying
statements of financial condition include accrued interest receivable on debt
securities of $3.1 million and $6.7 million, respectively.
In 1997, the Company transferred two securities from the held to maturity
portfolio to the AFS portfolio and recorded a loss of $4.8 million. The transfer
was the result of significant deterioration in the credit worthiness of the
borrowers of the underlying loans collateralizing the securities.
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS
The Company has employed various derivative financial instruments to hedge
valuation fluctuations in its trading and AFS securities portfolios. During
1998, the Company used futures on Treasury Notes to hedge the valuation
fluctuations of its fixed rate MBS portfolio. Based on historical performance,
futures on Treasury Notes provided an expectation of high correlation with the
MBS. Based on the correlation analysis completed for the period ended June 30,
1998, it was determined that high correlation in the fluctuations of the fair
values of the MBS and the hedge instruments had not occurred. As a result, the
Company recorded a loss of $4.0 million, which represented the extent to which
the futures results had not been offset by the effects of price changes on the
MBS. The remaining losses on the hedge program which totaled $5.0 million, were
recorded as adjustments to the cost basis of the securities being hedged and are
being amortized over the remaining life of the MBS as a yield adjustment. At
December 31, 1998, the remaining unamortized loss was $3.3 million. Due to the
volatility of the correlation between futures on Treasury Notes and the cost of
a hedging program in relation to its benefits, the Company terminated this
hedging program in July 1998. As of December 31, 1998, the Company had no
derivative financial instruments outstanding.
F-16
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following derivative financial instruments were outstanding at December
31, 1997:
<TABLE>
<CAPTION>
MATURITY/ AVERAGE
NOTIONAL EXERCISE FAIR UNREALIZED
INSTRUMENT AMOUNT DATE VALUE FAIR VALUE GAIN (LOSS)
----------------------------------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Trading:
Interest rate cap............... $ 71,000 2007 $ 1,050 $ 818 $ (956)
Put option on treasury futures.. 6,500 1998 66 104 21
Commitments to purchase MBS..... 30,000 1998 58 58 58
Commitments to sell MBS......... 15,000 1998 1 1 1
Interest rate swap.............. 5,000 2002 16 (46) (46)
AFS:
Treasury futures ............... 205,900 1998 (2,615) (2,496) (2,496)
</TABLE>
NOTE 5--LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real estate loans:
Single family.................................................... $ 486,864 $ 638,539
Multifamily:
2 to 4 units.................................................. 281,960 322,309
5 to 36 units................................................. 1,220,585 1,343,597
37 units and over............................................. 247,638 308,473
------------- -------------
Total multifamily........................................... 1,750,183 1,974,379
Commercial and industrial........................................ 179,956 204,656
Land 39 1,656
------------- -------------
Total real estate loans..................................... 2,417,042 2,819,230
Credit card loans................................................... 350,078 50,828
Other............................................................... 29,884 12,084
------------- -------------
Total loans, gross.................................................. 2,797,004 2,882,142
------------- -------------
Less:
Undisbursed loan funds........................................... 42 1,710
Unearned (premiums) discounts.................................... (4,227) (2,722)
Deferred loan fees............................................... 29,442 9,039
Allowances for estimated losses.................................. 106,171 50,538
------------- -------------
Total ........................................................ 131,428 58,565
------------- -------------
Total loans, net.................................................... $ 2,665,576 $ 2,823,577
============= =============
</TABLE>
Fidelity's portfolio of mortgage loans serviced for others amounted to
$278.3 million at December 31, 1998 and $308.8 million at December 31, 1997. The
Bank sold the servicing rights to substantially all of the single family and 2-4
unit loans in the Bank's loan portfolio during the second quarter of 1996. The
servicing rights to $938.5 million in loans were transferred and the Company
realized a gain of $7.9 million. Such gains have been accounted for as a
reduction in the carrying value of the loans based on the relative fair values
of the servicing sold and loans retained and is being accreted over the
estimated life of the loans. The related accretion totaled $1.2 million, $2.2
million and $1.5 million during 1998, 1997 and 1996, respectively. At December
31, 1998, the remaining single family and 2 - 4 unit loans serviced by others
totaled $555.3 million and the deferred servicing gain was $3.0 million.
F-17
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fidelity's mortgage loan portfolio includes multifamily, commercial and
industrial loans which depend primarily on operating income to provide debt
service coverage. These loans generally have a greater risk of default than
single family residential loans and, accordingly, earn a higher rate of interest
to compensate in part for the risk. Approximately 99% of these loans are secured
by property within the state of California.
Fidelity's credit card loans, which were primarily marketed to customers
with lower credit quality, are generally unsecured open-end borrowings that have
experienced significantly higher levels of delinquency and defaults than the
Bank's mortgage loan portfolio. At December 31, 1998, $26.1 million of the
credit card loans were secured by real estate. During 1998, Fidelity terminated
programs with marketers of the two largest credit card programs which accounted
for 91% of the outstanding credit card balances at December 31, 1998. In
addition, the marketer of the real estate secured credit card program ceased
originating new accounts in 1998.
The Company has modified the terms of a number of its mortgage loans to
protect its investment by granting concessions to borrowers because of
borrowers' financial difficulties. These modifications take several forms,
including interest only payments for a limited time at current rates, a reduced
loan balance in exchange for a payment of the loan or other terms that the Bank
deems appropriate in the circumstances. Modifications are granted when the
collateral is inadequate or the borrower does not have the ability or
willingness to continue making scheduled payments and management determines that
the modification is the best alternative for the collection of its investment.
Modifications are reported as Troubled Debt Restructurings ("TDRs") as defined
by SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings," and accounted for in accordance with SFAS No. 15 and SFAS No.
114, "Accounting by Creditors for Impairment of a Loan." At December 31, 1998
and 1997, outstanding TDRs totaled $48.0 million and $44.0 million,
respectively.
For the years ended December 31, 1998, 1997 and 1996, interest income of
$4.0 million, $3.4 million and $3.6 million, respectively, was recorded on TDRs.
Total loans on nonaccrual status was $14.4 million and $13.1 million at
December 31, 1998 and 1997, respectively. The reduction in income related to
nonaccrual loans was $1.9 million, $3.9 million and $6.0 million for 1998, 1997
and 1996, respectively.
Of the total deferred loan fees at December 31, 1998, $7.6 million were
related to mortgage loans and $21.8 million were related to credit card loans.
Deferred loan fees on credit card loans represent origination fees and annual
fees charged to the cardholder net of direct origination costs.
F-18
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6--REAL ESTATE OWNED
REO, which is included in other assets, consists of the following at the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real estate acquired through foreclosure........................... $ 9,536 $ 13,416
Allowance for estimated losses..................................... (1,139) (1,123)
------------ ------------
Net........................................................... $ 8,397 $ 12,293
============ ============
</TABLE>
The following summarizes the results of REO operations for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Losses from:
Real estate operations...................................... $ (2,384) $ (5,413) $ (5,688)
Provision for estimated real estate losses.................. (251) (1,060) (3,219)
------------ ------------ ------------
Net loss from real estate operations....................... $ (2,635) $ (6,473) $ (8,907)
============ ============ ============
</TABLE>
NOTE 7--ALLOWANCE FOR ESTIMATED LOAN AND REAL ESTATE OWNED LOSSES
The following summarizes the activity in the allowances for estimated loan
and real estate losses for the periods indicated:
<TABLE>
<CAPTION>
REAL ESTATE
LOANS OWNED TOTAL
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1, 1996............................... $ 89,435 $ 3,492 $ 92,927
Charge-offs........................................... (50,841) (4,630) (55,471)
Recoveries and other.................................. 3,304 -- 3,304
------------ ------------ ------------
Net charge-offs..................................... (47,537) (4,630) (52,167)
Provision for losses.................................. 15,610 3,219 18,829
------------ ------------ ------------
Balance at December 31, 1996............................. 57,508 2,081 59,589
Charge-offs........................................... (41,190) (2,810) (44,000)
Recoveries and other.................................. 8,446 672 9,118
------------ ------------ ------------
Net charge-offs..................................... (32,744) (2,138) (34,882)
Provision for losses.................................. 13,004 1,060 14,064
Allowances related to acquisition..................... 12,770 120 12,890
------------ ------------ ------------
Balance at December 31, 1997............................. 50,538 1,123 51,661
Charge-offs........................................... (25,366) (258) (25,624)
Recoveries and other.................................. 5,062 23 5,085
------------ ------------ ------------
Net charge-offs..................................... (20,304) (235) (20,539)
Provision for losses.................................. 73,032 251 73,283
Transfer to ALLL from cash reserves................... 2,905 -- 2,905
------------ ------------ ------------
Balance at December 31, 1998............................. $ 106,171 $ 1,139 $ 107,310
============ ============ ============
</TABLE>
F-19
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998 and December 31, 1997, the gross recorded investment
in mortgage loans that are considered to be impaired was $42.0 million, and
$40.8 million, respectively. Included in these amounts are impaired mortgage
loans of $22.5 million and $30.1 million at December 31, 1998 and 1997,
respectively, for which SVAs have been established totaling $6.2 million and
$10.5 million, respectively. The average balance of impaired mortgage loans was
$41.4 million and $97.2 million at December 31, 1998 and 1997, respectively. The
amount of interest income recognized on impaired mortgage loans was $2.9
million, $2.1 million and $9.4 million in 1998, 1997 and 1996, respectively.
In the fourth quarter of 1995, the Bank adopted the Accelerated Asset
Resolution Plan (the "Plan"), which was designed to aggressively dispose of,
resolve or otherwise manage a pool of primarily multifamily loans and REO that
at that time were considered by the Bank to have higher risk of future
nonperformance or impairment relative to the remainder of the Bank's multifamily
loan portfolio. As of June 30, 1998, the Plan was terminated based on the
minimal remaining assets and the determination that the resolution of these
assets would be conducted in a similar manner as the Bank's regular portfolio.
As of June 30, 1998, the remaining 30 assets with a book balance, net of SVA and
writedowns, of $9.4 million, comprised of accruing and nonaccruing multifamily
real estate loans totaling approximately $4.8 million and REO properties
totaling approximately $4.6 million. The $1.6 million of unallocated ALLL
remaining as of June 30, 1998 from the original $50.8 million reserves
established for the Plan was included in the Bank's ALLL at June 30, 1998.
The credit enhanced credit card programs require the marketing agent to, as
part of their contractual obligation to reimburse Fidelity for credit losses,
maintain cash deposits with Fidelity. These cash deposits are deducted from the
computed amount of estimated future credit losses in determining the required
levels of ALLL and are considered part of the reserves available to cover future
credit losses. At December 31, 1998 and 1997, cash reserves were $1.9 million
and $4.3 million, respectively. During the year, the Company terminated its
agreement with the marketer of the largest credit enhanced credit card program,
whereby the marketer was relieved of their obligation to reimburse Fidelity for
credit losses and Fidelity received any remaining cash reserves from the
program. As a result, $2.9 million of cash reserves were transferred into
Fidelity's ALLL during 1998.
The amount of the Bank's allowance for loan losses represents management's
estimate of the amount of loan losses likely to be incurred by the Bank during
the next 12 months, based upon various assumptions as to economic and other
conditions. As such, the allowance for loan losses does not represent the amount
of such losses that could be incurred under adverse conditions that management
does not consider to be the most likely to arise. In addition, management's
classification of assets and evaluation of the adequacy of the allowance for
loan losses is an ongoing process. Consequently, there can be no assurance that
material additions to the Bank's allowance for loan losses will not be required
in the future, thereby adversely affecting earnings and the Bank's ability to
maintain or build capital. While management believes that the current allowance
is adequate to absorb the known and inherent risks in the loan portfolio, no
assurances can be given that the allowance is adequate or that economic
conditions which may adversely affect the Bank's market area or other
circumstances will not result in future loan losses, which may not be covered
completely by the current allowance or may require an increased provision which
could have a significant adverse effect on the Bank's financial condition,
results of operations and levels of regulatory capital.
F-20
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8--DEPOSITS
Deposits consist of the following balances at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1998 1997
------------------------ -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
TYPE OF ACCOUNT:
Passbook.................................................. $ 56,836 2.00% $ 67,502 2.00%
Checking and money market checking........................ 380,292 1.24 336,036 1.17
Money market savings...................................... 56,451 3.68 55,885 4.17
----------- -----------
Total transaction accounts.............................. 493,579 1.61 459,423 1.66
----------- -----------
Certificates of deposit ("CDs"):
Less than $100,000...................................... 1,795,000 5.06 1,711,172 5.33
Greater than $100,000................................... 633,952 5.32 721,206 5.61
----------- -----------
Total CDs............................................. 2,428,952 5.12 2,432,378 5.41
----------- -----------
Total deposits............................................ $2,922,531 4.53 $2,891,801 4.82
=========== ===========
</TABLE>
Fidelity had noninterest-bearing checking accounts of $111.5 million and
$99.6 million at December 31, 1998 and 1997, respectively. At December 31, 1998,
CDs were scheduled to mature as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(DOLLARS IN
YEAR OF MATURITY THOUSANDS)
- ----------------
<S> <C>
1999...................................................................... $ 1,661,668
2000...................................................................... 281,416
2001...................................................................... 16,057
2002...................................................................... 16,939
After 2002................................................................ 452,872
-------------
Total.................................................................. $ 2,428,952
=============
</TABLE>
The Company, from time to time, has also utilized brokered deposits as a
short-term means of funding. These deposits are obtained or placed by or through
a deposit broker and are subject to certain regulatory limitations. The Company
had no brokered deposits outstanding at December 31, 1998 and 1997.
F-21
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9--FEDERAL HOME LOAN BANK ADVANCES
FHLB advances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at year-end.......................................... $ 585,000 $ 1,009,960 $ 449,851
Average amount outstanding during the year................... 1,005,388 698,261 296,596
Maximum amount outstanding at any month-end.................. 1,189,960 1,209,960 449,851
Weighted average interest rate during the year............... 5.77% 5.84% 5.43%
Weighted average interest rate at year-end................... 5.69% 5.82% 5.53%
Secured by:
FHLB Stock............................................... $ 65,358 $ 60,498 $ 52,330
Mortgage loans........................................... 413,192 1,315,389 989,138
Investment securities and MBS............................ 367,729 581,445 117,786
------------- ------------- -------------
Total................................................... $ 846,279 $ 1,957,332 $ 1,159,254
============= ============= =============
</TABLE>
The maturities and weighted average interest rates on FHLB advances are
summarized as follows at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AMOUNT RATE
----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
YEAR OF MATURITY
- ----------------
2000........................................................... $ 45,000 6.80
2003........................................................... 540,000 5.60
-----------
Total....................................................... $ 585,000 5.69
===========
</TABLE>
NOTE 10--OTHER BORROWINGS
At December 31, 1998 and 1997, the Company's other borrowings consisted of
Senior Notes of $51.5 million. These Senior Notes bear interest at 12%, payable
quarterly, and mature in 2007. Historically, Bank Plus funds the interest
payments on the Senior Notes through preferred stock and common stock dividends
from Fidelity. Bank Plus holds $51.5 million of Preferred Stock of Fidelity,
which pays quarterly 10% dividends and is not subject to the prior approval of
the Office of Thrift Supervision (the "OTS") unless, among other things, the
Bank's regulatory capital falls below the level to be categorized as adequately
capitalized. The common stock dividends, which are used to fund the difference
between the rate on the Senior Notes and the rate on the preferred stock
dividends, are currently subject to OTS approval. No assurance can be given that
the OTS will approve the common stock dividends in the future, or that the OTS
will approve the preferred stock dividends in the future if the Bank's
regulatory capital falls below the level to be categorized as adequately
capitalized. The February 1999 Senior Note interest payments were funded by the
preferred stock dividend from Fidelity and cash on hand at Bank Plus. In future
periods, Bank Plus may be able to increase its liquidity through dividends from
Gateway or BPCS. No assurance can be given that funds will continue to be
available at Bank Plus to pay future interest payments, or that dividends will
be able to be made by Gateway or BPCS to provide additional liquidity. If in the
event of default by Bank Plus, the holders of not less than 25% in principal
amount of the Senior Notes then outstanding may declare all the Senior Notes to
be immediately due and payable.
F-22
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No short-term borrowings were outstanding during 1998. The following table
summarizes short-term borrowings for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial paper:
Balance at year-end.................................................. $ -- $ 40,000
Average amount outstanding during the year........................... 11,417 93,457
Maximum amount outstanding at any month-end.......................... 40,000 140,000
Weighted average interest rate during the year....................... 6.26% 5.72%
Weighted average interest rate at year end........................... --% 5.36%
Securities sold under agreement to repurchase:
Balance at year-end.................................................. $ -- $ --
Average amount outstanding during the year........................... 2,260 25,382
Maximum amount outstanding at any month-end.......................... 25,500 73,007
Weighted average interest rate during the year....................... 5.35% 5.17%
Federal funds purchased:
Balance at year-end.................................................. $ -- $ --
Average amount outstanding during the year........................... 135 --
Maximum amount outstanding at any month-end.......................... -- --
Weighted average interest rate during the year....................... 5.93% --%
</TABLE>
NOTE 11--BENEFIT PLANS
RETIREMENT INCOME PLAN
In February 1994, the Board of Directors passed a resolution to amend the
retirement income plan by discontinuing participation in the plan by newly hired
employees and freezing the level of service and salaries used to compute the
plan benefit to February 28, 1994 levels. The Bank has funded the retirement
income plan such that the fair value of plan assets exceed the projected benefit
obligation. The defined benefit plan provides for payment of retirement benefits
commencing normally at age 65 in a monthly annuity; however, the option of a
lump sum payment is available upon retirement or in the event of early
termination. Annual contributions to the plan are sufficient to satisfy legal
funding requirements.
The components of net pension costs are as follows for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest cost....................................................... $ 163 $ 158 $ 202
Actual return on plan assets........................................ (246) (207) (426)
Net amortization and deferral....................................... (69) (51) 149
Effect of partial settlements....................................... 120 55 189
----------- ----------- -----------
Net pension costs................................................ $ (32) $ (45) $ 114
========== =========== ===========
</TABLE>
F-23
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The funded status of this plan was as follows as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation (all participants are vested)............. $ (2,397) $ (2,461)
Fair value of plan assets................................................ 3,126 2,839
----------- -----------
Net plan assets over projected benefit obligation.................... 729 378
Minimum liability adjustment............................................. 155 474
----------- -----------
Prepaid pension cost................................................. $ 884 $ 852
=========== ===========
Actuarial assumptions:
Discount rate........................................................ 6.50% 7.00%
Expected long-term rate of return on plan assets..................... 9.00% 9.00%
</TABLE>
401(K) PLAN
The Company has a 401(k) defined contribution plan available to all
employees who have been with the Company for one year and have reached the age
of 21. Employees may generally contribute up to 15% of their salary each year,
and the Company matches 50% up to the first 6% contributed by the employee. The
Company's contribution expense was $0.4 million, $0.1 million and $0.1 million
in the years ended December 31, 1998, 1997 and 1996, respectively.
DIRECTORS' RETIREMENT PLAN
The Directors' Retirement Plan provides for non-employee directors who have
at least three years of Board service, including service on the Board of
Directors prior to the 1994 restructuring and recapitalization.
An eligible director shall, after termination from Board service for any
reason other than cause, be entitled to receive a quarterly payment equal to one
quarter of his/her average annual compensation (including compensation for
service on the Board of Directors of any of the Company's subsidiaries),
including all retainers and meeting fees, received during his/her last three
years of Board service. Such payments shall commence at the beginning of the
first fiscal quarter subsequent to termination and continue for a 3-year period.
If a director's Board membership is terminated for cause, no benefits are
payable under this plan.
If a director's Board membership is terminated within two years following
the effective date of a change in control, then he/she shall be eligible for a
lump sum payment in an amount that is the greater of: (1) 150% times average
annual compensation during the preceding 3-year period, (2) the sum of all
retirement benefits payable under normal retirement provisions described in the
preceding paragraph or (3) $78,000. The Company's accumulated benefit obligation
was $0.9 million at both December 31, 1998 and 1997, and net pension costs were
$0.3 million for both 1998 and 1997.
F-24
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12--INCOME TAXES
Income tax expense/(benefit) was comprised of the following for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense (benefit):
Federal................................................... $ 716 $ 199 $ (1,100)
State..................................................... 37 54 7
----------- ----------- -----------
Total.................................................... 753 253 (1,093)
----------- ----------- -----------
Deferred income tax expense (benefit):
Federal................................................... 3,547 (7,425) --
State..................................................... (430) (928) --
----------- ----------- -----------
Total.................................................... 3,117 (8,353) --
----------- ----------- -----------
Total income tax expense (benefit)............................ $ 3,870 $ (8,100) $ (1,093)
=========== =========== ===========
</TABLE>
Income tax asset/(liability) was comprised of the following at the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current income tax asset:
Federal................................................................$ 432 $ 626
State.................................................................. 382 186
----------- -----------
Total.............................................................. 814 812
----------- -----------
Deferred income tax asset (liability):
Federal................................................................ 51,499 33,621
Valuation allowance--Federal........................................... (47,779) (26,204)
State.................................................................. 12,277 6,068
Valuation allowance--State............................................. (11,053) (5,224)
----------- -----------
Total.............................................................. 4,944 8,261
----------- -----------
Total income tax asset/(liability).........................................$ 5,758 $ 9,073
=========== ===========
</TABLE>
F-25
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax asset/(liability) are as follows at
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FEDERAL:
Deferred tax assets:
Bad debt and loan loss deduction................................... $ 28,587 $ 12,218
Net operating loss carryover....................................... 25,081 38,186
Alternative minimum tax credit carryover........................... 3,624 3,059
Contingent liabilities............................................. 1,427 1,970
Debt modification gain............................................. 1,027 1,189
Sale of servicing income........................................... 1,046 1,184
Depreciation....................................................... 1,139 577
Deferred fees on credit cards...................................... 7,614 --
Receivable from credit card marketer............................... 2,865 --
Unrealized loss on securities AFS.................................. 978 1,633
Other.............................................................. 3,480 2,537
------------ ------------
Gross deferred tax assets............................................ 76,868 62,553
------------ ------------
Deferred tax liabilities:
Loan fees and interest............................................. (5,370) (6,714)
FHLB stock dividends............................................... (16,402) (15,556)
Accrual to cash adjustment on pre-1986 loans....................... (428) (2,508)
Mark to market adjustment.......................................... (978) (1,633)
Other.............................................................. (2,191) (2,521)
------------ ------------
Gross deferred tax liabilities....................................... (25,369) (28,932)
------------ ------------
Net deferred tax assets before valuation allowance 51,499 33,621
Valuation allowance.................................................. (47,779) (26,204)
------------ ------------
Net deferred tax asset............................................... $ 3,720 $ 7,417
============ ============
STATE:
Deferred tax assets:
Bad debt and loan loss deduction................................... $ 11,021 $ 7,867
Net operating loss carryover....................................... 3,269 4,765
Depreciation....................................................... 583 448
Sale of servicing income........................................... 322 486
Deferred fees on credit cards...................................... 2,342 --
Receivable from credit card marketer............................... 881 --
Alternative minimum tax credit carryover........................... 404 312
Contingent liabilities............................................. 439 610
Unrealized loss on securities AFS.................................. 303 506
Other.............................................................. 1,230 761
------------ ------------
Gross deferred tax assets............................................ 20,794 15,755
------------ ------------
Deferred tax liabilities:
Loan fees and interest............................................. (1,620) (2,061)
FHLB stock dividends............................................... (5,044) (4,818)
Mark to market adjustment.......................................... (367) (619)
Accrual to cash adjustment on pre-1986 loans....................... (132) (777)
Core deposit intangibles........................................... (857) (904)
Other.............................................................. (497) (508)
------------ ------------
Gross deferred tax liabilities....................................... (8,517) (9,687)
------------ ------------
Net deferred tax assets before valuation allowance 12,277 6,068
Valuation allowance.................................................. (11,053) (5,224)
------------ ------------
Net deferred tax asset............................................... $ 1,224 $ 844
============ ============
Combined total........................................................... $ 4,944 $ 8,261
============ ============
</TABLE>
F-26
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under SFAS No. 109, "Accounting for Income Taxes", the recognition of a net
deferred tax asset is dependent upon a "more likely than not" expectation of
realization of the deferred tax asset, based upon the analysis of available
evidence. A valuation allowance is required to sufficiently reduce the deferred
tax asset to the amount that is expected to be realized on a "more likely than
not" basis. The analysis of available evidence is performed each quarter
utilizing the "more likely than not" criteria to determine the amount, if any,
of the deferred tax asset to be realized. Adjustments to the valuation allowance
are made accordingly. There can be no assurance that the Company will recognize
additional portions of the deferred tax asset in future periods or that
additional valuation allowances may not be recorded in future periods.
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", certain securities were classified as AFS during
the year. Under SFAS No. 115, adjustments to the fair market value of securities
held as AFS are reflected through an adjustment to stockholders' equity. No
associated deferred tax asset or liability was recorded in stockholder's equity
as of December 31, 1998. As of December 31, 1997, $0.2 million of deferred tax
assets were reflected in stockholders' equity.
A reconciliation from the consolidated statutory federal income tax expense
(benefit) to the consolidated effective income tax expense (benefit) follows for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Expected federal income tax (benefit) expense................$ (18,351) $ 3,075 $ (3,684)
Increases (reductions) in taxes resulting from:
Franchise tax (benefit) expense, net of federal income
tax and valuation allowance............................. (256) (568) 4
Addition (reduction) to valuation allowance.............. 22,230 (9,973) 91
Specified liability loss carryback under Internal
Revenue Code Section 172(f)............................. -- -- (1,100)
Bad debt recapture....................................... -- -- 3,227
Goodwill amortization.................................... 156 77 --
Other.................................................... 91 (711) 369
------------ ------------ ------------
Income tax expense (benefit).................................$ 3,870 $ (8,100) $ (1,093)
============ ============ ============
</TABLE>
Various federal Form 1120Xs "Amended U.S. Corporation Income Tax Return"
were filed in 1996 for years 1986 through 1989, 1991, 1992 and 1994 to reflect
the 10-year loss carryback under Internal Revenue Code ("IRC") Section 172(f)
for qualifying deductions through August 4, 1994. These amended tax returns were
filed with the Bank's former parent company, Citadel. Fidelity recorded $1.1
million of tax benefit in 1996 with respect to these amended tax returns.
The Internal Revenue Service (the "Service") has completed its examination
of the federal income tax returns for 1992, 1993 and tax year ended August 4,
1994 and review of the aforementioned carryback claim. A compromise of all
unagreed issues for these years has been reached and is currently under review
by the Service's Joint Committee on Taxation. The Service is currently beginning
a new examination of the federal income tax returns for the short year ended
December 31, 1994 and the calendar years 1995, 1996 and 1997. The California
Franchise Tax Board (the "FTB") has completed its examination of the California
franchise tax returns for years 1988 through 1991. This examination is currently
in the settlement process awaiting final approval by the FTB. The company does
not expect the results of these audits will have a material adverse effect on
the consolidated financial statements of the Company.
F-27
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IRC Sections 382 and 383 and the Treasury Regulations thereunder generally
provide that following an ownership change of a corporation with a net operating
loss ("NOL"), a net unrealized built-in loss or tax credit carryovers, the
amount of annual post-ownership change taxable income that can be offset by
pre-ownership change NOLs, or recognized built-in losses and the amount of
post-ownership change tax liability that can be offset by pre-ownership change
tax credits cannot exceed a limitation prescribed by IRC Section 382. This
annual limitation generally equals the product of the fair market value of the
equity of the corporation immediately before the ownership change (subject to
various adjustments) and the federal long-term tax-exempt rate prescribed
monthly by the Service.
As a result of the 1994 restructuring and recapitalization, the Bank
underwent an ownership change, ceased to be a member of the Citadel consolidated
group, and became subject to the annual limitations under IRC Section 382. As a
result of the 1995 recapitalization, the Bank again underwent an ownership
change and became subject to the annual limitations under Section IRC 382. The
limitations imposed by the 1995 change of ownership are inclusive of the
limitations imposed by the 1994 change of ownership. The measurement of whether
a change in ownership has occurred is based on changes in the holdings of
significant shareholders and on the period of time in which any changes occur.
The Company has experienced substantial changes of its significant shareholders
in ownership and further changes may create a change in ownership as defined by
IRC Section 382. If this would occur, the Company would become subject to a new
annual limitation under IRC Section 382.
Hancock was merged with and into Fidelity as of June 30, 1997 in a tax-free
reorganization within the meaning of IRC Section 368(a)(1)(A), by reason of the
application of IRC Section 368(a)(2)(D). The total net deferred tax assets of
Hancock and the related valuation allowance are included in the balances of net
deferred taxes starting as of December 31, 1997. In accordance with the
provisions of SFAS No. 109, any subsequent reductions in the valuation allowance
associated with the deferred tax assets of Hancock will be reflected as an
adjustment to any remaining unamortized goodwill with respect to this
acquisition.
As of December 31, 1998, the Bank had an estimated NOL carryover for
federal income tax purposes of $71.7 million expiring in years 2008 through
2011. Of this amount, $59.8 million is subject to annual utilization limitations
as a result of the 1994 and 1995 changes of ownership and Hancock's change of
ownership occurring as part of its 1997 acquisition by the Bank. For California
franchise tax purposes, the Bank had an estimated NOL carryover of $30.2
million. Of the estimated California NOL carryover, $26.6 million relates to the
Bank's operations and expire in years 1999 through 2002, and $3.6 million
relates to Hancock's NOL's expiring in years 2000 through 2009. Of the total
$30.2 million California NOL, $16.3 million is subject to annual utilization
limitations as a result of the Bank's 1995 change of ownership and Hancock's
1997 change of ownership.
Effective for taxable years beginning after 1995, legislation enacted in
1996 has repealed for federal purposes the reserve method of accounting for bad
debts for thrift institutions. While thrifts qualifying as "small banks" may
continue to use the experience method, Fidelity is deemed a "large bank" and is
required to use the specific charge off method. In addition, this enacted
legislation contains certain income recapture provisions, which are discussed
below.
Thrift institutions deemed "large banks" are required to include into
income ratably over 6 years, beginning with the first taxable year beginning
after 1995, the institution's "applicable excess reserves." The applicable
excess reserves are the excess of (1) the balance of the institution's reserves
for losses on loans other than supplemental reserves at the close of its last
taxable year beginning before January 1, 1996, over (2) the adjusted balance of
such reserves as of the close of its last taxable year beginning before January
1, 1988. Fidelity's applicable excess reserves at December 31, 1995 were $14.6
million. This amount is being recognized into taxable income over six years at
F-28
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the rate of $2.4 million per year starting with the taxable year ended December
31, 1996. In addition, $1.5 million in Hancock excess reserves were recorded as
part of its acquisition as of June 30, 1997. This excess reserve amount is to be
recognized into income over a four year period. The remaining applicable excess
reserves at December 31, 1998 were $8.3 million.
The remaining adjusted pre-1988 total reserve balance of $26.3 million at
December 31, 1998 will be recaptured into taxable income in the event Fidelity
(1) ceases to be a "bank" or "thrift," (2) makes distributions to shareholders
in excess of current or accumulated post-1951 earnings and profits, or (3) makes
distributions to shareholders in a partial or complete redemption or
liquidation. Based on current estimates, Fidelity had current earnings and
profits at December 31, 1998 sufficient to cover 1998 distributions to
shareholders. As a result, Fidelity did not trigger any reserve recapture into
taxable income for 1998.
Under the provisions of SFAS No. 109, a deferred tax liability has not been
provided for the remaining adjusted pre-1988 total loan loss reserve balance of
$26.3 million at December 31, 1998. The use of these reserves in a manner that
results in a recapture into taxable income as previously discussed will require
federal taxes to be provided at the then current income tax rate. The use of
these reserves in such a manner is not anticipated.
NOTE 13--COMMITMENTS AND CONTINGENCIES
As of December 31, 1998, significant litigation outstanding against the
Company included:
MMG Direct (MMG), a credit card marketer brought litigation claiming
damages after the Company filed its claim in arbitration against MMG and after
the Company terminated its credit card program with MMG. The Bank believes that
the claims asserted by MMG are without merit and the Bank intends to vigorously
defend itself and to pursue its own claims against MMG.
A purported class action, recently amended, has been filed on behalf of
certain shareholders claiming, among other things, negligent misrepresentation,
common law fraud, statutory fraud and violations of the California Corporations
Code. The complaint has not yet been served on the Company or any of the
individual defendants. The Company believes that the claims are meritless and
intends to vigorously defend itself.
Litigation filed in federal district court raises claims with respect to
the manner in which the Bank originated and serviced certain adjustable rate
mortgage loans. The district court has certified a class in the action. The
parties are currently in settlement negotiations and certain reserves have been
established relating to this litigation.
The legal responsibility and financial exposure with respect to foregoing
claims presently cannot be reasonably ascertained and, accordingly, there is a
risk that the outcome of one or more of these outstanding claims could result in
the payment of amounts which could be material in relation to the financial
condition or results of operations of the Bank.
The Company has a number of other lawsuits and claims pending arising in
the normal course of business. Although there can be no assurance, the Company's
management believes that none of these lawsuits or claims will have a material
adverse effect on the financial condition or business of the Company.
Fidelity enters into agreements to extend credit to customers on an ongoing
basis. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Most commitments are expected to be
drawn upon and, therefore, the total commitment amounts generally represent
future cash requirements. At December 31, 1998, the Company had less than $0.1
million in commitments to fund loans. There was an unused line of credit of
$16.9 million associated with a mortgage warehouse credit agreement. In
addition, the Company has extended lines of credit in the form of credit cards
totaling $431.3 million, of which $81.2 million was unused and available at
December 31, 1998.
F-29
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998, the Company had certain mortgage loans with a
gross principal balance of $78.7 million, of which $65.7 million had been sold
in the form of mortgage pass-through certificates, over various periods of time,
to four investor financial institutions leaving a balance of $13.0 million in
loans retained by the Company. These mortgage pass-through certificates provide
a credit enhancement to the investors in the form of the Company's subordination
of its retained percentage interest to that of the investors. In this regard,
the aggregate of $65.7 million held by investors are deemed Senior Mortgage
Pass-Through Certificates and the $13.0 million in loans held by the Company are
subordinated to the Senior Mortgage Pass-Through Certificates in the event of
borrower default. Full recovery of the $13.0 million is subject to this
contingent liability due to its subordination. In 1993, the Bank repurchased as
an investment a portion of the mortgage pass-through certificates, and at
December 31, 1998, the balance of the repurchased certificate was $23.1 million
and was included in the MBS AFS portfolio and accounted for in accordance with
SFAS No. 115. The other Senior Mortgage Pass-Through Certificates totaling $42.6
million at December 31, 1998 are owned by other investor institutions. The
contingent liability for credit losses on these mortgage pass-through
certificates was $0.9 million and $2.1 million at December 31, 1998 and 1997,
respectively, and is included in other liabilities.
The Company also effected the securitization by FNMA of multifamily
mortgages wherein whole loans were swapped for Triple A rated MBS through FNMA's
Alternative Credit Enhancement Structure ("ACES") program. These MBS were later
sold and the current outstanding balance as of December 31, 1998 of $89.8
million is serviced by the Company, including commitments assumed as a result of
the Hancock acquisition. As part of a credit enhancement to absorb losses
relating to the ACES transaction, the Company has pledged and placed in a trust
account, as of December 31, 1998, $16.4 million, comprised of $12.2 million in
cash and $4.2 million in U.S. Treasury securities and MBS. The Company shall
absorb losses, if any, which may be incurred on the securitized multifamily
loans to the extent of $16.4 million. FNMA is responsible for any losses in
excess of $16.4 million. The corresponding contingent liability for credit
losses was $2.3 million and $4.0 million at December 31, 1998 and 1997,
respectively, and is included in other liabilities.
The Company conducts portions of its operations from leased facilities. All
of the Company's leases are operating leases. At December 31, 1998, aggregate
minimum rental commitments on operating leases with noncancelable terms in
excess of one year were as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(DOLLARS IN
YEAR OF COMMITMENT THOUSANDS )
- ------------------
<S> <C>
1999...................................................................... $ 4,687
2000...................................................................... 4,008
2001...................................................................... 3,847
2002...................................................................... 2,745
2003...................................................................... 1,895
Thereafter................................................................ 6,935
-------------
Total................................................................... $ 24,117
=============
</TABLE>
Operating expense includes rent expense of $4.1 million in 1998, $2.9
million in 1997 and $3.3 million in 1996.
F-30
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14--REGULATORY MATTERS
The OTS capital regulations, as required by the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") include three separate
minimum capital requirements for the savings institution industry--a "tangible
capital requirement," a "leverage limit" and a "risk-based capital requirement."
The Bank's actual and required capital are as follows at the dates
indicated:
<TABLE>
<CAPTION>
TO BE ADEQUATELY
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------ ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Total capital (to risk-weighted
assets)..........................$ 188,746 8.95% $ 168,656 8.00% $ 168,656 8.00%
Core capital (to adjusted tangible
assets).......................... 161,506 4.36 111,028 3.00 148,037 4.00
Tangible capital (to tangible
assets).......................... 161,506 4.36 55,514 1.50 N/A
Tier I capital (to risk-weighted
assets).......................... 161,506 7.66 N/A 84,328 4.00
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------ ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1997:
Total capital (to risk-weighted
assets).......................... 244,719 11.57 168,157 8.00 211,447 10.00
Core capital (to adjusted tangible
assets).......................... 218,296 5.26 124,485 3.00 207,476 5.00
Tangible capital (to tangible
assets).......................... 218,296 5.26 62,243 1.50 N/A
Tier I capital (to risk-weighted
assets).......................... 218,296 10.32 N/A 126,868 6.00
</TABLE>
F-31
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles the Company's capital in accordance with
GAAP to the Bank's tangible, core and risk-based capital at the dates indicated:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Consolidated stockholders' equity................. $ 127,388 $ 127,388 $ 127,388
Adjustments:
Fidelity's Preferred Stock...................... 51,750 51,750 51,750
Bank Plus equity excluding Fidelity............. (6,152) (6,152) (6,152)
------------ ------------ ------------
Fidelity's stockholders' equity................... 172,986 172,986 172,986
Accumulated other comprehensive loss.............. 2,795 2,795 2,795
Adjustments:
Intangible assets............................... (14,268) (14,268) (14,268)
Nonincludable subsidiaries...................... (7) (7) (7)
Excess ALLL..................................... -- -- 27,240
------------ ------------ ------------
Regulatory capital.................................. $ 161,506 $ 161,506 $ 188,746
============ ============ ============
AS OF DECEMBER 31, 1997:
Consolidated stockholders' equity................. $ 181,345 $ 181,345 $ 181,345
Adjustments:
Fidelity's Preferred Stock...................... 51,750 51,750 51,750
Bank Plus equity excluding Fidelity............. (3,063) (3,063) (3,063)
------------ ------------ ------------
Fidelity's stockholders' equity................... 230,032 230,032 230,032
Accumulated other comprehensive loss.............. 4,467 4,467 4,467
Adjustments:
Intangible assets............................... (16,185) (16,185) (16,185)
Nonincludable subsidiaries...................... (18) (18) (18)
Excess ALLL..................................... -- -- 26,505
Equity investments.............................. -- -- (82)
------------ ------------ ------------
Regulatory capital.................................. $ 218,296 $ 218,296 $ 244,719
============ ============ ============
</TABLE>
As of December 31, 1998, the Bank was "adequately capitalized" under the
Prompt Corrective Action ("PCA") regulations adopted by the OTS pursuant to the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). As of
December 31, 1998, the most constraining of the capital ratio measurements was
core capital to adjusted tangible assets which had an excess of $13.5 million
above the minimum level required to be considered adequately capitalized. The
Bank's capital amounts and classification are subject to review by federal
regulators about components, risk-weightings and other factors. There are no
conditions or events since December 31, 1998 that management believes have
changed the institution's category.
An institution whose capital does not meet the amounts required in order to
be adequately capitalized will be treated as undercapitalized. If an
undercapitalized institution's capital ratios are less than 6.0% of total
capital to risk-weighted assets, 3.0% of core capital to risk-weighted assets,
or 3.0% of core capital to adjusted total assets, it will be treated as
significantly undercapitalized. Finally, an institution will be treated as
critically undercapitalized if its ratio of "tangible equity" (core capital plus
cumulative preferred stock minus intangible assets other than supervisory
goodwill and purchased mortgage servicing rights) to adjusted total assets is
equal to or less than 2.0%.
F-32
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An institution's capital category is based on its capital levels as of the
most recent of the following dates (1) the date the institution's most recent
quarterly Thrift Financial Report ("TFR") was required to be filed with the OTS,
(2) the date the institution received from the OTS its most recent final report
of examination or (3) the date the institution received written notice from the
OTS of the institution's capital category. If subsequent to the most recent TFR
or report of examination a material event has occurred that would cause the
institution to be placed in a lower capital category, the institution must
provide written notice to the OTS within 15 days, and the OTS shall determine
whether to change the association's capital category.
MANDATORY SANCTIONS IF THE BANK WERE CATEGORIZED AS UNDERCAPITALIZED
CAPITAL RESTORATION PLAN. An institution that is undercapitalized must
submit a capital restoration plan to the OTS within 45 days after becoming
undercapitalized. The capital restoration plan must specify the steps the
institution will take to become adequately capitalized, the levels of capital
the institution will attain while the plan is in effect, the types and levels of
activities the institution will conduct, and such other information as the OTS
may require. The OTS must act on the capital restoration plan expeditiously and
generally not later than 60 days after the plan is submitted.
The OTS may approve a capital restoration plan only if the OTS determines
that the plan is likely to succeed in restoring the institution's capital and
will not appreciably increase the risks to which the institution is exposed. In
addition, the OTS may approve a capital restoration plan only if the
institution's performance under the plan is guaranteed by every company that
controls the institution, up to the lesser of (a) 5% of the institution's total
assets at the time the institution became undercapitalized or (b) the amount
necessary to bring the institution into compliance with all capital standards as
of the time the institution fails to comply with its capital restoration plan.
Such guarantee must remain in effect until the institution has been adequately
capitalized for four consecutive quarters and the controlling company or
companies must provide the OTS with appropriate assurances of their ability to
perform the guarantee. If the controlling company guarantee is not acceptable,
the OTS may treat the undercapitalized institution as significantly
undercapitalized. There are additional restrictions which are applicable to
significantly undercapitalized institutions which are described below.
LIMITS ON EXPANSION. An institution that is undercapitalized, even if its
capital restoration plan has been approved, may not acquire an interest in any
company, open a new branch office, or engage in a new line of business unless
the OTS determines that such action would further the implementation of the
institution's capital plan or the FDIC approves the action. An undercapitalized
institution also may not increase its average total assets during any quarter
except in accordance with an approved capital restoration plan.
CAPITAL DISTRIBUTIONS. With one exception, an undercapitalized savings
institution generally may not pay any dividends or make other capital
distributions. Under the exception, the OTS may permit, after consultation with
the FDIC, repurchases or redemptions of the institution's shares that are made
in connection with the issuance of additional shares to improve the
institution's financial condition. Undercapitalized institutions also may not
pay management fees to any company or individual that controls the institution.
Similarly, an adequately capitalized institution may not make a capital
distribution or pay a management fee to a controlling person if such payment
would cause the institution to become undercapitalized.
BROKERED DEPOSITS AND BENEFIT PLAN DEPOSITS. An undercapitalized savings
institution cannot accept, renew, or rollover deposits obtained through a
deposit broker, and may not solicit deposits by offering interest rates that are
more than 75 basis points higher than market rates. Savings institutions that
are adequately capitalized but not well capitalized must obtain a waiver from
the FDIC in order to accept, renew, or rollover brokered deposits, and even if a
waiver is granted may not solicit deposits, through a broker or otherwise, by
offering interest rates that exceed market rates by more than 75 basis points.
F-33
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15--EARNINGS PER SHARE
The reconciliation of the numerators and denominators used in basic and
diluted (loss) earnings per share follows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
(Loss) earnings available for common stockholders............$ (56,328) $ 12,653 $ (15,642)
============ ============ ============
Weighted average common shares outstanding:
Basic.................................................... 19,395,337 18,794,887 18,242,887
Effect of dilutive securities-- stock options............ -- 348,152 --
Effect of dilutive securities-- deferred stock awards.... -- 194 --
------------ ------------ ------------
Diluted.................................................. 19,395,337 19,143,233 18,242,887
============ ============ ============
(Loss) earnings per share:
Basic....................................................$ (2.90) $ 0.67 $ (0.86)
Effect of dilutive securities-- stock options............ -- (0.01) --
Effect of dilutive securities-- deferred stock awards.... -- -- --
------------ ------------ ------------
Diluted..................................................$ (2.90) $ 0.66 $ (0.86)
============ ============ ============
</TABLE>
For the years ended December 31, 1998 and 1996, there are no potentially
dilutive common shares included in the calculation of diluted EPS because
including them would have an anti-dilutive effect.
NOTE 16--STOCK OPTION PLANS
STOCK OPTION PLANS
On February 26, 1997, the Board of Directors of the Company adopted a Stock
Option and Equity Incentive Plan (the "Stock Option Plan"). The Stock Option
Plan consists of certain amendments to, and a restatement of, the Bank's 1996
Stock Option Plan. The Stock Option Plan provides (1) the granting of stock
options, restricted stock and deferred stock units (2) deferred stock awards in
lieu of cash compensation otherwise payable to directors and (3) stock options,
restricted stock or deferred stock units in lieu of cash awards for senior
officers. 2,125,000 shares of the Bank's Common Stock are available for grants
under the Stock Option Plan. The Stock Option Plan provides for annual grants of
2,500 stock options to non-employee directors, which vest immediately. The Stock
Option Plan is administered by the Compensation/Stock Options Committee of the
Board of Directors, which is authorized to select award recipients, establish
award terms and conditions, and make other related administrative determinations
in accordance with the provisions of the Stock Option Plan. Unexercised options
granted under the Stock Option Plan expire on the earlier of the tenth
anniversary of the date of grant or 90 days following the effective date of the
recipients termination of employment. In the event of an employees' termination
for cause, all outstanding options are cancelled as of the effective date of
such termination.
In conjunction with a restructuring of senior management, the Board of
Directors approved the following in November 1998: (1) the majority of
outstanding stock options granted, excluding options granted to directors, were
cancelled and replaced by new stock options issued at an exercise price of
$3.81, the closing stock price on November 19, 1998 (2) new and certain
F-34
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continuing members of executive management received grants of stock options, (3)
all new stock options will vest based upon stock price performance (average
closing price of $4.00-10%, $5.00-25%, $6.00-40%, $7.00-55%, $8.00-70%,
$9.00-85%, and $10.00-100%) or 100% vesting upon a change-in-control or after a
7 year period from the date of grant, and (4) the Stock Option Plan was amended
to provide that the annual grant limit per employee has been increased from
100,000 to 750,000 shares. The options that had been granted prior to November
1998 and that were still outstanding at December 31, 1998 vest over a four year
period; 10% on the first anniversary of the date of grant and 30% on each
subsequent anniversary date.
The following is a summary of the Stock Option Plan for the periods
indicated:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OPTION
OF OPTIONS PRICE
------------- --------
<S> <C> <C>
Balance, January 1, 1996............................................ 1,296,500 $ 8.35
Expired........................................................... (14,500) 8.35
Exercised......................................................... (2,800) 8.35
-------------
Balance, December 31, 1996.......................................... 1,279,200 8.35
Granted........................................................... 122,500 10.96
Expired........................................................... (114,450) 8.35
Exercised......................................................... (63,375) 8.35
-------------
Balance, December 31, 1997.......................................... 1,223,875 8.61
Granted prior to November 1998.................................... 740,500 14.01
Granted during and after November 1998............................ 1,342,000 3.81
Cancelled and expired............................................. (1,396,625) 11.11
Exercised......................................................... (23,000) 10.39
-------------
Balance, December 31, 1998.......................................... 1,886,750 5.44
=============
</TABLE>
A summary of the outstanding stock options at December 31, 1998 follows:
WEIGHTED AVERAGE
NUMBER REMAINING
EXERCISE PRICES OF OPTIONS CONTRACTUAL LIFE
----------------------------- ---------- ----------------
$8.35 428,500 6.9
$10.25 20,000 8.3
$14.00 -- 14.50 96,250 9.3
$3.81 1,342,000 9.9
---------
Total........................ 1,886,750
=========
As of March 28, 1999, 135,125 stock options expired due to employee
terminations.
F-35
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of deferred stock awards granted to non-employee
directors in lieu of cash compensation for the periods indicated:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
-----------
<S> <C>
Awards earned in 1997 and
balance, December 31, 1997...................................... 6,982
Awards earned..................................................... 20,564
Stock issued...................................................... (8,272)
-----------
Balance, December 31, 1998.......................................... 19,274
===========
</TABLE>
During 1998, the Company granted 63,853 of restricted stock to senior
officers in lieu of $0.5 million in cash bonuses. These grants vest 33.3% on
January 1, 1999, 33.3% on January 1, 2000 and 33.3% on January 1, 2001. During
1998, 23,837 of these grants were cancelled.
Compensation expense recorded with regards to the deferred stock awards to
non-employee directors and restricted stock awards to senior officers was less
than $0.1 million and $0.5 million in 1998 and 1997, respectively.
The fair value of options granted under the Stock Option Plan for 1998,
1997 and 1996 were estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for 1998 and 1997 and
1996, respectively: no dividend yield, expected stock price volatility of 74%,
60% and 77% for 1998, 1997 and 1996, respectively, based on daily market prices
for the preceding five year period, average risk free interest rate equivalent
to the 10-year Treasury rate on the date of the grant of 4.68%, 5.74% and 5.70%
for 1998, 1997 and 1996, respectively, and an option contract life of 10 years.
The Company applied Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option and purchase plans.
Accordingly, no compensation cost has been recognized for its Stock Option Plan.
Had compensation cost for the Company's Stock Option Plan been determined based
on the fair value at the grant dates for awards under the Stock Option Plan
consistent with the method of SFAS No. 123, the Company's net earnings and EPS
for the years ended December 31, 1998, 1997 and 1996 would have been changed to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net (loss) earnings to common stockholders:
As reported........................................ $ (56,328) $ 12,653 $ (15,642)
Pro forma.......................................... (57,061) 9,182 (16,521)
Basic net (loss) earnings per common share:
As reported........................................ (2.90) 0.67 (0.86)
Pro forma.......................................... (2.94) 0.49 (0.91)
Diluted net (loss) earnings per common share:
As reported........................................ (2.90) 0.66 (0.86)
Pro forma.......................................... (2.94) 0.48 (0.91)
Weighted-average fair value per share of options granted 2.98 9.57 6.87
</TABLE>
F-36
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Not included above are 200,000 stock options issued to a third party in
exchange for consulting services. Included in consulting expense is $0.2 million
for the year ended December 31, 1998 related to the issuance of these options
which had an average option price of $12.66. Associated with the settlement of
obligations related to the termination of an executive officer, the Company
issued 35,556 shares of stock to the executive officer and recorded $0.3 million
of compensation expense.
NOTE 17--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following is the Company's disclosure of the estimated fair value of
financial instruments. The estimated fair value amounts have been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Investment securities AFS............... $ 28,797 $ 28,797 $ 100,837 $ 100,837
Investment securities held to maturity.. 1,084 1,099 3,189 3,208
MBS AFS................................. 465,010 465,010 852,604 852,604
MBS held for trading.................... -- -- 41,050 41,050
Loans receivable........................ 2,665,576 2,707,333 2,823,577 2,818,236
Mortgage servicing rights............... 1,630 5,368 2,056 5,346
Other assets............................ -- -- 922 922
FINANCIAL LIABILITIES:
Deposits................................ 2,922,531 2,939,723 2,891,801 2,899,964
FHLB advances........................... 585,000 596,293 1,009,960 1,012,640
Senior Notes............................ 51,478 67,227 51,478 61,522
OFF-BALANCE-SHEET ASSETS (LIABILITIES):
Commitment to sell MBS.................. -- -- -- 1
Commitment to purchase MBS.............. -- -- -- 58
Interest rate swap...................... -- -- -- (46)
</TABLE>
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
Estimated fair values for investment and MBS are based on quoted market
prices, where available. If quoted market prices are not available, estimated
fair values are based on quoted market prices of comparable instruments.
F-37
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOANS RECEIVABLE
The estimated fair values of mortgage loans are based on an option adjusted
cash flow valuation ("OACFV"). The OACFV includes forward interest rate
simulations and takes into account the credit quality of performing and
nonperforming loans. Such valuations may not be indicative of the value derived
upon a sale of all or part of the portfolio.
The fair value of the Company's credit card loans included in the above
table is equal to the outstanding balances of the credit card balances less any
applicable allowances for loan losses and deferred fees. The credit card
portfolio is relatively unseasoned and was generally marketed to customers with
lower credit quality. In addition, there exists a high level of uncertainty
related to the future performance of the credit card portfolio because of the
high levels of delinquencies and charge-offs. As a result, the Company is not
currently able to compute a fair value of the credit card portfolio, including
any unused credit lines. The fair value of the credit card portfolio may be
significantly less than the carrying amount.
The fair value of loans other than mortgage loans or credit card loans is
equal to the carrying amount of the related loans.
MORTGAGE SERVICING RIGHTS
The estimated fair values of mortgage servicing rights are based on an
OACFV analysis.
OTHER ASSETS
Fair value of trading derivative instruments are based on quoted market
prices.
DEPOSITS
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand. The fair value of fixed rate
CDs is estimated by using an OACFV analysis.
BORROWINGS
The estimated fair value is based on an OACFV model.
OFF-BALANCE SHEET INSTRUMENTS, WHICH INCLUDE INTEREST RATE SWAPS, FLOORS AND
OPTIONS
The estimated fair value for the Company's off-balance sheet instruments
are based on quoted market prices, when available, or an OACFV analysis.
OTHER FINANCIAL INSTRUMENTS
Financial instruments of the Bank as included in the consolidated
statements of financial condition for which fair value approximates the carrying
amount at December 31, 1998 and 1997 include "cash and cash equivalents",
"interest receivable", "investment in FHLB stock" and interest payable.
F-38
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
YEAR QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1998:
Interest income........................... $ 300,347 $ 72,161 $ 78,276 $ 75,235 $ 74,675
Interest expense.......................... 209,204 45,591 54,834 55,113 53,666
----------- ----------- ----------- ----------- -----------
Net interest income..................... 91,143 26,570 23,442 20,122 21,009
Provision for estimated loan losses....... 73,032 15,000 51,782 4,250 2,000
----------- ----------- ----------- ----------- -----------
Net interest income after provision for
estimated loan losses................ 18,111 11,570 (28,340) 15,872 19,009
Noninterest income........................ 34,418 18,551 4,388 6,148 5,331
Operating expense......................... 104,959 29,016 31,962 23,819 20,162
----------- ----------- ----------- ----------- -----------
(Loss) earnings before income taxes and
minority interest in subsidiary......... (52,430) 1,105 (55,914) (1,799) 4,178
Income tax expense (benefit).............. 3,870 -- 3,870 (630) 630
Minority interest in subsidiary........... 28 7 7 7 7
----------- ----------- ----------- ----------- -----------
(Loss) earnings available for common
stockholders............................ $ (56,328) $ 1,098 $ (59,791) $ (1,176) $ 3,541
=========== =========== =========== ========== ===========
(Loss) earnings per share:
Basic................................... $ (2.90) $ 0.06 $ (3.08) $ (0.06) $ 0.18
Diluted................................. $ (2.90) $ 0.06 $ (3.08) $ (0.06) $ 0.18
Weighted average common shares outstanding:
Basic................................... 19,395,337 19,430,896 19,393,357 19,385,946 19,369,326
Diluted................................. 19,395,337 19,500,227 19,393,357 19,385,946 19,817,279
Market prices of common stock:
High ................................... $ 16.13 $ 4.94 $ 12.63 $ 16.13 $ 15.63
Low .................................... $ 2.28 $ 2.28 $ 4.13 $ 12.13 $ 11.63
1997:
Interest income........................... $ 255,007 $ 72,314 $ 65,531 $ 58,455 $ 58,707
Interest expense.......................... 174,009 52,432 45,098 38,129 38,350
----------- ----------- ----------- ----------- -----------
Net interest income..................... 80,998 19,882 20,433 20,326 20,357
Provision for estimated loan losses....... 13,004 251 4,251 4,251 4,251
----------- ----------- ----------- ----------- -----------
Net interest income after provision for
estimated loan losses................ 67,994 19,631 16,182 16,075 16,106
Noninterest income (expense).............. 3,890 (2,206) 2,349 2,049 1,698
Operating expense......................... 63,096 17,238 16,481 15,041 14,336
----------- ----------- ----------- ----------- -----------
Earnings before income tax and minority
interest in subsidiary.................. 8,788 187 2,050 3,083 3,468
Income tax benefit........................ (8,100) (1,600) (1,700) (2,500) (2,300)
Minority interest in subsidiary........... 4,235 7 342 2,333 1,553
----------- ----------- ----------- ----------- -----------
Earnings available for common stockholders $ 12,653 $ 1,780 $ 3,408 $ 3,250 $ 4,215
========== =========== =========== ========== ===========
Earnings per share:
Basic................................... $ 0.67 $ 0.08 $ 0.18 $ 0.18 $ 0.23
Diluted................................. $ 0.66 $ 0.08 $ 0.17 $ 0.18 $ 0.23
Weighted average common shares outstanding:
Basic................................... 18,794,887 19,356,825 19,310,813 18,248,754 18,245,265
Diluted................................. 19,143,233 19,732,348 19,648,242 18,496,194 18,656,085
Market prices of common stock:
High ................................... $ 13.75 $ 13.69 $ 13.25 $ 11.50 $ 13.75
Low .................................... $ 9.63 $ 11.06 $ 10.75 $ 9.63 $ 10.38
</TABLE>
F-39
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19--PARENT COMPANY CONDENSED FINANCIAL INFORMATION
This information should be read in conjunction with the other notes to the
consolidated financial statements.
<TABLE>
BANK PLUS CORPORATION
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents......................................... $ 719 $ 974
Loans receivable.................................................. 445 565
Investment in Preferred Stock of subsidiary....................... 51,478 51,478
Investment in subsidiaries........................................ 129,661 184,079
Other assets...................................................... 251 1,126
------------- -------------
Total Assets $ 182,554 $ 238,222
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Senior Notes.................................................... $ 51,478 $ 51,478
Other liabilities............................................... 893 932
------------- -------------
Total Liabilities 52,371 52,410
Stockholders' equity.............................................. 130,183 185,812
------------- -------------
Total Liabilities and Stockholders' Equity...................... $ 182,554 $ 238,222
============= =============
</TABLE>
F-40
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
BANK PLUS CORPORATION
STATEMENTS OF OPERATIONS
<CAPTION>
YEAR ENDED DECEMBER 31, EIGHT MONTHS ENDED
------------------------------- DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME:
Interest income.................................. $ 32 $ 49 $ 29
Interest expense................................. 6,199 2,782 --
------------- ------------- -------------
Net interest (expense) income....................... (6,167) (2,733) 29
------------- ------------- -------------
OPERATING EXPENSE:
Personnel and benefits........................... 3 -- --
Occupancy 150 257 --
Professional services............................ 187 219 208
Intercompany expense allocation.................. 359 271 143
Write-off of investment.......................... 558 -- --
Other............................................ 49 93 42
------------- ------------- -------------
Total operating expense........................ 1,306 840 393
------------- ------------- -------------
Loss before income taxes............................ (7,473) (3,573) (364)
Income tax expense (benefit)........................ 180 (384) (149)
------------- ------------- -------------
Loss before equity in undistributed (loss)
earnings and minority interest of subsidiaries... (7,653) (3,189) (215)
Equity in undistributed net (loss) earnings
of subsidiaries.................................. (48,647) 20,077 (9,217)
Minority interest in subsidiary..................... (28) (4,235) (4,657)
------------- ------------- -------------
Net (loss) earnings................................. $ (56,328) $ 12,653 $ (14,089)
============= ============= =============
</TABLE>
F-41
<PAGE>
BANK PLUS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
BANK PLUS CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31, EIGHT MONTHS ENDED
------------------------------- DECEMBER 31,
1998 1997 1996
------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings.................................. $ (56,328) $ 12,653 $ (14,089)
Equity in undistributed net loss
(earnings) of subsidiaries......................... 48,647 (20,077) 9,217
Minority interest in subsidiary...................... 28 4,235 4,657
Amortization of exchange offer....................... 22 22 --
Other assets decrease (increase)..................... 234 (417) (707)
Senior Notes interest payable, increase.............. -- 790 --
Other liabilities (decrease) increase................ (39) 12 100
------------- ------------- -------------
Net cash used in operating activities.............. (7,436) (2,782) (822)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in BPCS................................... (4,500) -- --
Loans receivable decrease ( increase)................ 120 144 (709)
------------- ------------- -------------
Net cash (used in) provided by investmentactivities (4,380) 144 (709)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends from subsidiaries.......................... 11,322 2,290 2,300
Proceeds from exercise of stock options.............. 239 530 23
------------- ------------- -------------
Net cash provided by financing activities.......... 11,561 2,820 2,323
------------- ------------- -------------
Net increase in cash and cash equivalents............... (255) 182 792
Cash and cash equivalents at beginning of period........ 974 792 --
------------- ------------- -------------
Cash and cash equivalents at the end of period.......... $ 719 $ 974 $ 792
============= ============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Exchange of Preferred Stock for Senior Notes......... $ -- $ 51,478 $ --
</TABLE>
F-42
<PAGE>
EXHIBIT NO. 3.3
CERTIFICATE OF DESIGNATIONS
OF
SERIES C JUNIOR PARTICIPATING CUMULATIVE
PREFERRED STOCK
(PAR VALUE $.01 PER SHARE)
OF
BANK PLUS CORPORATION
--------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
--------------------
Bank Plus Corporation, a Delaware corporation (the "CORPORATION"),
certifies that pursuant to the authority conferred upon the Board of Directors
of the Company (the "BOARD OF DIRECTORS") by the Certificate of Incorporation of
the Company (the "CERTIFICATE OF INCORPORATION"), and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, as amended (the "GCL"), the Board of Directors, on February 3, 1999,
adopted the following resolution creating a series of its Preferred Stock, par
value $.01 per share:
RESOLVED, that (1) pursuant to the authority conferred upon the Board
of Directors of the Corporation by the Certificate of Incorporation of the
Corporation, the Board of Directors hereby designates 230,000 shares of the
preferred stock, par value $.01 per share, of the Corporation as "Series C
Junior Participating Cumulative Preferred Stock" (the "PREFERRED SHARES"), and
the powers, designations, preferences and relative, participating, optional and
other rights of the Preferred Shares and the qualifications, limitations and
restrictions thereof, be, and they hereby are, as set forth below (the
"CERTIFICATE OF DESIGNATIONS") and (2) in connection therewith, the officers of
the Corporation be, and each of them hereby is, authorized, empowered and
directed on behalf of the Corporation and in its name to execute and file the
Certificate of Designations with the Delaware Secretary of State:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series C Junior Participating Cumulative Preferred Stock" and the
number of shares constituting such series so designated shall be 230,000 (the
"SERIES C PREFERRED STOCK"). Such number of shares may be increased or decreased
by resolution of the Board of Directors; PROVIDED, HOWEVER, that no decrease
shall reduce the number of shares of Series C Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series C Preferred Stock.
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
C Preferred Stock with respect to dividends, the holders of shares of Series C
Preferred Stock, in preference to the holders of shares of Common Stock, par
value $.01 per share (the "COMMON STOCK"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "QUARTERLY
DIVIDEND PAYMENT DATE"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series C Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (i) $.25 per share ($1.00 per annum) or (ii) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series C Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such event the
amount to which the holder of each share of Series C Preferred Stock was
entitled immediately prior to such event under clause (ii) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series C Preferred Stock as provided in paragraph (a) of this Section 2
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); PROVIDED, HOWEVER,
that, in the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $.25 per
share ($1.00 per annum) on the Series C Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series C Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which event dividends on such shares shall begin to accrue from the
date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series C Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
2
<PAGE>
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall cumulate but
shall not bear interest. Dividends paid on the shares of Series C Preferred
Stock in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series C Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series C Preferred
Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each
share of Series C Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series C
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately prior to such event.
(b) Except as otherwise provided herein, in the Corporation's
Certificate of Incorporation, as amended (the "CHARTER"), in any other
certificate of designations creating a series of Preferred Stock or any similar
stock or by law, the holders of shares of Series C Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law,
holders of Series C Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series C Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not authorized or declared, on shares of Series C Preferred Stock outstanding
shall have been paid in full, the Corporation shall not, directly or indirectly:
(i) authorize, declare or pay dividends on, or make any other
distributions with respect to, any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series C
Preferred Stock;
3
<PAGE>
(ii) authorize, declare or pay dividends on, or make any other
distributions with respect to, any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up) with the Series
C Preferred Stock, except dividends paid ratably on the Series C Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series C Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series C Preferred Stock, or any shares of stock ranking on a
parity with the Series C Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration, directly or indirectly, any
shares of stock of the Corporation unless the Corporation could, under paragraph
(a) of this Section 4, purchase or otherwise acquire such shares at such time
and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series C Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Charter, in any other certificate of designations creating a series of Preferred
Stock or any similar stock or as otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made to: (i) the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series C
Preferred Stock unless, prior thereto, the holders of shares of Series C
Preferred Stock shall have received the greater of (A) $100.00 per share ($1.00
per one one-hundredth of a share), plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, or (B) an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share of Common Stock to holders thereof; or (ii) the holders of
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series C Preferred Stock, except
distributions made ratably on the Series C Preferred Stock and all such parity
stock in proportion to the total amounts to which the holders of all such shares
4
<PAGE>
are entitled upon such liquidation, dissolution or winding up. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such event the
aggregate amount to which each holder of a share of Series C Preferred Stock was
entitled immediately prior to such event under clause (i) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER OR OTHER. In the event the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property or otherwise changed, then in any
such event each share of Series C Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such event the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series C Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event, and the denominator of which is the number of shares of Common Stock
outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series C Preferred Stock shall
not be redeemable.
Section 9. RANK. The Series C Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
or classes of the Corporation's Preferred Stock whether issued before or after
the issuance of the Series C Preferred Stock.
Section 10. AMENDMENT. The Charter shall not be amended in any manner
that would materially alter or change the powers, preferences or special rights
of the Series C Preferred Stock, as set forth herein, so as to affect them
adversely without the affirmative vote of the holders of at least two-thirds of
the outstanding shares of Series C Preferred Stock, voting together as a single
class.
5
<PAGE>
IN WITNESS WHEREOF, Bank Plus Corporation has caused this Certificate
of Designations to be executed on its behalf by its Chief Executive Officer,
Mark K. Mason, and attested to by its Secretary, Peter W. Sheil, this 5th day of
February, 1999.
BANK PLUS CORPORATION
By: /s/ Mark K. Mason
-----------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
THE UNDERSIGNED, the Secretary of Bank Plus Corporation, hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Certificate of Designations to be the corporate act of said corporation and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof or
otherwise required to be verified under oath are true in all material respects,
under the penalties of perjury.
By: /s/ Peter W. Sheil
-----------------------------
Name: Peter W. Sheil
Title: Secretary
6
Exhibit No. 10.31
SETTLEMENT AGREEMENT AND GENERAL MUTUAL RELEASE
This Settlement Agreement and Release ("Settlement Agreement") is by
and between American Direct Credit LLC ("ADC"), on the one hand, and Fidelity
Federal Bank, a Federal Savings Bank ("Fidelity"), on the other hand. (ADC and
Fidelity are collectively referred to as the "Parties"). This Settlement
Agreement is entered into as of this ___ day of December, 1998. The Parties
agree and state as follows:
RECITALS
A. On or about March 5, 1997 ADC and Fidelity entered into a contract
entitled "American Direct Credit Bankcard Program Agreement" (the "Agreement").
Under the terms and provisions of the Agreement, ADC was to provide certain
credit card processing functions and to provide for collection on credit card
accounts for credit cards issued by Fidelity to credit card holders who were
solicited by a network of dealers enlisted by ADC to market such credit cards.
ADC agreed, under the terms of the Agreement, to be responsible for one hundred
percent (100%) of all credit card losses in connection with the program. The
Agreement further provided for quarterly adjustments to the contractually
required loss reserves and specified certain procedures for changes in
underwriting standards for credit card issuance.
B. During late summer and early fall of 1998, disputes arose between
ADC and Fidelity in connection with the Agreement. Fidelity asserted that the
reserve levels established under the Agreement pursuant to reports submitted by
ADC were inaccurate and insufficient to cover expected credit losses. In
addition, Fidelity asserted that ADC had not been making timely payments as to
delinquent accounts which, in accordance with the terms and provisions of the
Agreement, ADC was required to purchase after the same became 152 days
<PAGE>
delinquent. ADC denied that reserves were insufficient and inadequate and
further denied that it had any obligation to purchase delinquent accounts at the
time and in the manner asserted by Fidelity.
C. On October 2, 1998 ADC filed suit in the United States District
Court, for the District of Idaho, said suit being entitled "AMERICAN DIRECT
CREDIT LLC, A NEVADA LIMITED LIABILITY COMPANY, PLAINTIFF, V. FIDELITY FEDERAL
BANK, A FEDERAL SAVINGS BANK, DEFENDANT." bearing Case No. CIV 98-0391-BLW) (the
"Action"). In said Action ADC purported to state claims for breach of contract,
unfair competition, unfair trade practices and injunctive relief. Among other
things, ADC asserted that the reserves established under the Agreement were
sufficient and satisfactory, that Fidelity was improperly attempting to
unilaterally change the terms and provisions of the Agreement and the manner in
which the Parties had operated under the Agreement and that Fidelity was acting
for a number of improper reasons and based upon a number of improper motives.
ADC sought a temporary restraining order in connection with the filing of its
Complaint. Reference is made to the Complaint herein and the application for a
temporary restraining order and the same are incorporated by reference herein,
solely for purposes of describing the nature and scope of ADC's claims. The
Action has not been formally served upon Fidelity, although Fidelity has
appeared in and defended the Action.
D. A temporary restraining order was issued by the above-described
Court on October 6, 1998. In general, the temporary restraining order enjoined
Fidelity from implementing a termination of the Agreement premised upon ADC's
asserted insolvency and enjoined any increase in reserve rates. Thereafter, the
Parties conducted discovery and submitted affidavits, declarations, deposition
extracts and briefs in connection with ADC's application to the Court for
issuance of a preliminary injunction. On October 23, 1998 the Court issued a
2
<PAGE>
Memorandum Decision and Order and a Preliminary Injunction, the latter being
conditioned, as to effectiveness, on the posting of a $2 million bond by ADC.
ADC's application for a preliminary injunction and the filings by ADC and
Fidelity in pursuit of and opposition to such application, together with the
Memorandum Decision and Order issued by the Court are incorporated herein by
reference, solely for purposes of further describing the nature and scope of the
claims of the Parties hereto.
E. Following its review of the Memorandum Decision and Order, and the
accompanying preliminary injunction, ADC approached Fidelity in order to
initiate settlement negotiations. Such settlement negotiations proceeded through
October 30, 1998, at which time ADC and Fidelity entered into and executed an
agreement entitled "Settlement Term Sheet." This Settlement Agreement is one of
the documents prepared to implement such settlement.
F. Without admitting any liability whatsoever, and in order to
eliminate the expense and uncertainty of litigation, the Parties desire to enter
into this Settlement Agreement in order to mutually and fully resolve their
differences and the Action consistent with the Settlement Term Sheet.
AGREEMENT
In consideration of the mutual covenants and agreements set forth
below, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties agree as follows:
1. CONSIDERATION
This Settlement Agreement is made in consideration of the reciprocal
promises of the Parties set forth in Amendment No. 1 to American Direct Credit
Bankcard Program Agreement ("Amendment") entered into contemporaneously with
this Settlement Agreement by ADC and Fidelity. In addition, ADC's contractual
3
<PAGE>
undertaking, under the circumstances specified in the Amendment, to pay Fidelity
the sum of $300,000 currently placed up as a cash bond in connection with the
temporary restraining order issued in the above-described Action, forms further
consideration for this Settlement Agreement.
2. EFFECTIVE DATE
Absent a material breach of the Amendment which terminates the
settlement contemplated hereby in accordance with the terms and provisions of
the Amendment, this Settlement Agreement, and the releases contained herein,
shall become effective upon the earlier of 11:59 p.m. December 31, 1998 or the
closing and consummation of an all cash sale of the credit card account and
receivable portfolio owned by Fidelity and created through the credit card
issuance program established by the Agreement (the "Portfolio"), in which latter
event this Settlement Agreement and the releases contained herein shall become
effective simultaneously with the closing and consummation of such sale of the
Portfolio. The executed counterparts of this Settlement Agreement shall be
retained, in trust, by counsel for the respective parties, until the occurrence
of either such event and thereafter shall be immediately delivered by such
counsel to counsel for the opposing Party. In the event of a material breach of
the Agreement, as amended by the Amendment, this Settlement Agreement, at the
option of the non-breaching party, shall terminate and there will be no exchange
of counterpart signed originals of this Settlement Agreement. Upon becoming
effective, this Settlement Agreement, and the releases contained herein, shall
apply to all facts, events, happenings and occurrences which have transpired on
or before December 31, 1998.
3. GENERAL MUTUAL RELEASES
A. Except for the provisions of the Agreement, as modified by the
Amendment, that are to survive a termination of the Agreement pursuant to
4
<PAGE>
Section 13A thereof (as so modified), and except to enforce any provisions of
this Settlement Agreement, Fidelity hereby releases, acquits, waives and forever
discharges ADC, its respective current and former members, and its respective
current and former managers, directors, members, officers and employees, each
solely in their capacities as such, and its successors and predecessors, of and
from any and all known and unknown past, present and future charges, claims,
complaints, actions, causes of action, liabilities, obligations, promises,
agreements, controversies, rights, damages, debts, costs, losses of services,
attorneys' fees, expenses and compensation of any nature whatsoever, through the
date of this Settlement Agreement including but not limited to each and all of
the matters described in Recitals A through D hereof and each and all of the
matters which were asserted or which could have been asserted in the litigation
identified in Recital C hereof.
B. Except for the provisions of the Agreement, as modified by the
Amendment, that are to survive a termination of the Agreement pursuant to
Section 13A thereof (as so modified), and except to enforce any provisions of
this Settlement Agreement, ADC hereby releases, acquits, waives and forever
discharges Fidelity, its respective current and former shareholders, and its
respective current and former directors, members, officers and employees, each
solely in their capacities as such, and its successors and predecessors, of and
from any and all known and unknown past, present and future charges, claims,
complaints, actions, causes of action, liabilities, obligations, promises,
agreements, controversies, rights, damages, debts, costs, losses of services,
attorneys' fees, expenses and compensation of any nature whatsoever, through the
date of this Settlement Agreement including but not limited to each and all of
the matters described in Recitals A through D hereof and each and all of the
5
<PAGE>
matters which were asserted or which could have been asserted in the litigation
identified in Recital C hereof.
C. The foregoing releases extend to all claims and causes of action,
whether claimed or suspected by the Parties hereto, arising on or before the
date hereof. The Parties and each of them, waive each and all of the provisions
of California Civil Code section 1542 which reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
It is expressly understood and agreed by the Parties that the facts
with respect to which this Settlement Agreement is made and given may
hereinafter turn out to be other than or different from the facts now known or
believed to be true, and the Parties hereto each expressly assume a risk of the
facts turning out to be so different and agree that this Settlement Agreement
shall be in all respects effective and not subject to termination or rescission
by reason of any difference in the facts. The Parties further acknowledge and
agree that these waivers of rights under Civil Code section 1542 have been
separately bargained for and are essential and material terms of this Settlement
Agreement.
4. DISMISSAL OF ACTION
Contemporaneously herewith ADC and Fidelity shall execute a Stipulation
Re Dismissal and [Proposed] Order for Dismissal with prejudice of the entire
Action identified in Recital C. The executed original of such document will be
held for presentation to and execution by the Court by counsel for Fidelity
until after this Settlement Agreement, and the included releases, have become
6
<PAGE>
effective, at which time it will be presented to the Court. The Stipulation Re
Dismissal and [Proposed] Order for Dismissal with prejudice of the entire Action
shall not be presented to the Court should this Settlement Agreement terminate.
5. NO ADMISSION OF WRONGDOING OR LIABILITY
This Settlement Agreement is not to be construed as evidence or an
admission of any alleged wrongdoing or liability by any Party to this Settlement
Agreement. Such liability is expressly denied by Fidelity and ADC.
6. ATTORNEYS FEES AND LITIGATION COSTS
A. Each Party shall bear its own costs and attorneys' fees incurred in
connection with the Action and in negotiating and finalizing this Settlement
Agreement.
B. In any litigation between the Parties to declare the rights or to
enforce the provisions in this Settlement Agreement, the Party prevailing in the
litigation, whether at trial, arbitration, or on appeal, shall be awarded its
costs and expenses (including experts) of suit, including, without limitation, a
reasonable sum for attorneys' fees incurred in such litigation. The term
"prevailing party" as used in this Section of this Settlement Agreement shall
not be limited to a prevailing plaintiff Party, but shall also include, without
limitation, any Party who is made a defendant in litigation in which damages or
other relief or both may be sought against such Party and a final judgment or
dismissal or decree is entered in such litigation in favor of such Party
defendant. Attorneys' fees incurred in enforcing any judgment or order rendered
in connection with the interpretation or enforcement of this Settlement
Agreement ("Judgment") are recoverable by the Party in whose favor such Judgment
or award is rendered, as a separate item of damages. The provisions of this
Section are severable from the other provisions of this Settlement Agreement and
shall survive any such Judgment or award, and the provisions of this Section
shall not be deemed merged into any such Judgment or award.
7
<PAGE>
7. MISCELLANEOUS PROVISIONS
A. Each of the Parties warrants and represents that it has not made or
suffered to be made any assignment, subrogation, hypothecation or other
disposition of any claim, right, title, interest, demand, obligation or cause of
action it may possess as against any other party to this Settlement Agreement.
B. Each person signing this Settlement Agreement as the agent,
representative, member, or officer of a business entity hereby warrants and
represents that he is fully authorized to enter into this Settlement Agreement
on behalf of the business entity.
C. This Settlement Agreement, when fully executed, constitutes and is
intended as an "integrated" and final expression and a complete and exclusive
statement of the understanding and agreement between the Parties hereto with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings of the Parties hereto. No
modification, amendment, supplementation, waiver or termination of this
Settlement Agreement shall be binding unless executed in writing by the Party to
be bound thereby.
D. This Settlement Agreement shall be signed in counterparts, each of
which, once they are executed, shall be deemed to be an original and such
counterparts shall constitute one and the same instrument.
E. This Settlement Agreement shall be binding upon and inure to the
benefit of the successor and assigns of each of the Parties.
F. This Settlement Agreement shall in all respects be interpreted,
enforced and governed by and under the internal laws of the State of California.
8
<PAGE>
G. The Parties agree to execute any other and further documents
necessary or appropriate to implement this Settlement Agreement, including but
not limited to any documents which might require revision or modification for
filing with or acceptance by the Court.
IN WITNESS WHEREOF, ADC and Fidelity have caused their duly authorized
representatives to execute and enter into this Settlement Agreement.
AMERICAN DIRECT CREDIT LLC FIDELITY FEDERAL BANK
By: /S/ KENT F. IVANOFF By: /S/ MARK K. MASON
-------------------------------- -------------------------------
Kent F. Ivanoff Mark K. Mason
Its: PRESIDENT Its: CHIEF EXECUTIVE OFFICER
-------------------------------- -------------------------------
9
<PAGE>
APPROVED AS TO FORM:
STOEL RIVES LLP GIBSON, DUNN & CRUTCHER LLP
By: /S/ THOMAS A. BANDUCCI By: /S/ DEAN STERN
------------------------------- ------------------------------
Thomas A. Banducci Dean Stern
Attorneys for Plaintiff Attorneys for Defendant
American Direct Credit LLC Fidelity Federal Bank
10
<PAGE>
Exhibit 10.32
September 19, 1998
Mr. Richard M. Greenwood
President and Chief Executive Officer
Bank Plus Corporation
4565 Colorado Boulevard
Los Angeles CA 90039
Re: SEVERANCE AGREEMENT
Dear Rick:
This will memorialize our agreement, subject to the conditions described below,
on the terms of the severance of your employment by Bank Plus Corporation ("Bank
Plus") and its affiliates, including Fidelity Federal Bank, a FSB ("Fidelity";
together with Bank Plus and their respective subsidiaries, the "Company"), as
well as the termination of the Employment Agreement dated as of August 1, 1997
(the "Employment Agreement"), between you and Fidelity and the related letter
agreement dated August 1, 1997 (the "Bank Plus Agreement") between you and Bank
Plus concerning your employment by Bank Plus and Bank Plus' guarantee of the
obligations of Fidelity under the Employment Agreement.
You agree to resign all positions, whether as an officer, director or employee,
with Bank Plus, Fidelity and their respective affiliates, and you agree to a
termination of the Employment Agreement and the Bank Plus Agreement, all
effective September 21, 1998, on the following terms and subject to the
following conditions:
1. Fidelity would pay you a lump sum cash severance payment of $200,080
(subject to applicable withholding);
2. Fidelity would retain you for a period of 2 years commencing September
21, 1998, to provide consulting services as an independent contractor
to the Company pursuant to a consulting agreement under which you would
make yourself available for not more than ten hours per month, in
exchange for which Fidelity would agree to pay you a bi-weekly
consulting fee of $16,154 during such period, for a total of $840,008;
such consulting agreement would not provide for a non-compete
provision; the full amount of any unpaid balance of the consulting fee
for any remaining term of the consulting agreement will accelerate upon
a change in control, as that term is defined in the Employment
Agreement;
3. Bank Plus would issue to you shares of newly issued, unregistered
common stock having a value of $260,000 based on the closing price on
September 18, 1998, for Bank Plus Common Stock on the Nasdaq National
Market as published in the Wall Street Journal;
<PAGE>
Exhibit 10.33
4. Fidelity would provide you with your current level of health benefits
for two years or such shorter period of time until you obtain other
employment with reasonably comparable health benefits;
5. Your promissory note payable to Bank Plus in the principal amount of
$265,000 would be restructured to commence bearing interest at a
current market rate, will have a five-year maturity, and will be
payable in equal monthly installments of principal and interest
calculated on a 30-year amortization schedule, and the restructured
note will be secured by no less than a second lien on your principal
residence (whether current or future), so long as, at the time the lien
is placed on your principal residence, the aggregate loan-to-value
ratio of such lien and all senior liens is no greater than 90%, unless
you provide at your expense mortgage insurance acceptable to Bank Plus;
6. You would supply Bank Plus and Fidelity and their respective
affiliates, officers, directors, employees, consultants, accountants
and attorneys with a general release of all known and unknown claims;
7. Bank Plus and Fidelity would supply you with a release of all known
claims;
8. Bank Plus and Fidelity would reaffirm your rights to indemnification
under the terms of their respective bylaws and indemnity agreements
with you;
9. Fidelity would reimburse you your counsel fees in conjunction with the
negotiation and documentation of this transaction in an amount not to
exceed $15,000;
10. Fidelity would reimburse you for tax preparation fees in connection
with your 1998 federal and state income taxes up to a maximum amount of
$2,000
11. Fidelity would pay you for your accrued unused vacation days (not to
exceed 280 hours) at the rate of your current base salary;
12. Any press release or written shareholder communication issued by the
Company concerning your resignation would be subject to your prior
review and approval, which approval will not be unreasonably withheld;
13. Neither Fidelity nor Bank Plus would restrict your ability to make
proposals to Bank Plus or Fidelity for the acquisition of assets
related to electronic commerce initiatives;
<PAGE>
Exhibit 10.33
14. Fidelity would deliver to the Office of Thrift Supervision (the "OTS")
a letter to the effect that any investigations previously undertaken by
Fidelity and disclosed to the OTS as the propriety of your conduct in
any particular matter have been satisfactorily resolved; a copy of such
letter will be provided to you;
15. During the term of the consulting agreement contemplated above,
Fidelity would provide you with the same witness fees and on the same
terms as described in Section 9 of the Employment Agreement; and
16. You will remain entitled to your vested benefits under other
agreements, and all other benefits will remain subject to the terms of
their respective governing instruments.
This agreement may be executed by the parties hereto in counterparts.
The terms of this letter are subject to the approval of the Boards of Directors
of both Bank Plus and Fidelity, and, once such approvals are obtained, the terms
of this letter shall become binding obligations of the parties hereto.
Sincerely,
BANK PLUS CORPORATION
By: /S/ GORDON V. SMITH
---------------------------------
Gordon V.Smith,
Chairman of the Board
FIDLEITY FEDERAL BANK, A FSB
By: /S/ MARK K. MASON
---------------------------------
Mark K. Mason,
Executive Vice President and
Chief Financial Officer
The foregoing is accepted and agreed to
this 19th day of September, 1998
/S/ RICHARD M. GREENWOOD
- -------------------------------------
Richard M. Greenwood
<PAGE>
Exhibit 10.33
RELEASE AGREEMENT
-----------------
This Release Agreement ("Agreement"), dated as of September 21, 1998,
is made by and among BANK PLUS CORPORATION, a Delaware corporation ("Bank
Plus"), FIDELITY FEDERAL BANK, A FEDERAL SAVINGS BANK ("Fidelity"; together with
Bank Plus and their respective direct and indirect subsidiaries, the "Company"),
and RICHARD M. GREENWOOD ("Employee").
R E C I T A L S
A. By mutual agreement, Employee's active employment with the Company
will end effective September 21, 1998, pursuant to the terms of a letter
agreement dated September 19, 1998 by and among Bank Plus, Fidelity and Employee
(the "Severance Agreement").
B. Pursuant to Sections 6 and 7 of the Severance Agreement, the Company
and Employee wish to resolve certain claims the parties may have arising out of
or related to Employee's employment by the Company.
C. Pursuant to Section 2 of the Severance Agreement, the parties hereto
have entered into a consulting agreement of even date (the "Consulting
Agreement").
NOW, THEREFORE, in consideration of the foregoing recitals and the
terms and conditions of this Agreement, the parties hereto agree as follows:
1. EMPLOYEE RELEASE. Employee (for himself, his agents, heirs,
successors, assigns, executors and/or administrators) does hereby and forever
release and discharge Bank Plus, Fidelity and their respective affiliated
corporations or entities, as well as the officers, directors, employees,
consultants, accountants, agents and attorneys and representatives of each of
them, past or present, from any and all causes of action, actions, judgments,
liens, debts, contracts, lawsuits, indebtedness, damages, losses, claims,
liabilities, rights, interests and demands of whatsoever kind or character,
known or unknown, suspected to exist or not suspected to exist, anticipated or
not anticipated, contingent or absolute, whether or not heretofore brought
before any state or federal court or before any state or federal agency or other
governmental entity, that Employee has or may have against any released person
or entity, by reason of any and all acts, omissions, events or facts occurring
or existing prior to the date hereof, including, without limitation, all claims
attributable to the employment of Employee, all claims attributable to the
termination of that employment, all claims arising under the Employment
Agreement (as defined in the Severance Agreement), the Bank Plus Agreement (as
defined in the Severance Agreement), or the letter agreement dated as of August
1, 1997 among the parties hereto relating to a change in control of Bank Plus
(the "CIC Agreement"), all claims asserting breach of an actual or implied
contract, and all claims arising under any federal, state or other governmental
statute, regulation or ordinance or common law, such as, for example and without
limitation, Title VII of the Civil Rights Act of 1964 which prohibits
discrimination on the basis of sex, race, color, national origin and religion,
the Civil Rights Act of 1866, the Age Discrimination in Employment Act which
prohibits discrimination on the basis of age over 40, the California Fair
Employment and Housing Act which prohibits discrimination on the basis of race,
religious creed, color, national origin, ancestry, physical disability, mental
disability, medical condition, marital status, age over 40, and sex, the
California Labor Code, and wrongful termination claims; provided, however, that
the foregoing release and discharge shall not apply to those obligations
expressly recited to be performed hereunder, obligations contemplated under the
Severance Agreement, the Consulting Agreement, indemnity agreements between the
Company and Employee, agreements between the Company and Employee pursuant to
Bank Plus' Stock Option and Equity Incentive Plan or Deferred Compensation Plan,
or obligations under the Company's Retirement Income Plan or 401(k) plan.
<PAGE>
In light of the intention of Employee (for himself, his agents, heirs,
successors, assigns, executors and/or administrators) that this release extend
to any and all claims of whatsoever kind or character, known or unknown,
Employee expressly waives any and all rights granted by California Civil Code
Section 1542 (or any other analogous federal or state law or regulation), and
does so understanding and acknowledging the significance and consequence of such
specific waiver of Section 1542. Section 1542 of the Civil Code of the State of
California states as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Thus, notwithstanding the provisions of Section 1542, and for the
purposes of implementing a full and complete release by Employee, Employee
expressly acknowledges that this Agreement is intended to include in its effect,
without limitation, all claims that Employee does not know or suspect to exist
in his favor at the time of execution hereof, and that this Agreement
contemplates the extinguishment of any such claim or claims.
2. COMPANY RELEASE. Each of Bank Plus and Fidelity does hereby and
forever release and discharge Employee, from any and all known causes of action,
actions, judgments, liens, debts, contracts, indebtedness, damages, losses,
claims, liabilities, rights, interests and demands of whatsoever kind or
character, which either Bank Plus or Fidelity has or may have against any
Employee, by reason of any and all acts, omissions, events or facts occurring or
existing prior to the date hereof that are known to Bank Plus or Fidelity,
including, without limitation, all known claims attributable to the employment
of Employee, all known claims attributable to the termination of that
employment, all known claims arising under the Employment Agreement (as defined
in the Severance Agreement), the Bank Plus Agreement (as defined in the
Severance Agreement), or the CIC Agreement, all known claims asserting breach of
an actual or implied contract, and all known claims arising under any federal,
state or other governmental statute, regulation or ordinance or common law;
provided, however, that the foregoing release and discharge shall not apply to
those obligations expressly recited to be performed hereunder, obligations
contemplated under the Severance Agreement, the Consulting Agreement, indemnity
agreements between the Company and Employee, agreements between the Company and
Employee pursuant to Bank Plus' Stock Option and Equity Incentive Plan or
Deferred Compensation Plan, or obligations under the Company's Retirement Income
Plan or 401(k) plan. Reference to known matters in the preceding sentence shall
be deemed to mean matters known to any director or member, as of the date
hereof, of the Executive Management Committee (in each case excluding Employee)
of Bank Plus or Fidelity.
3. INDEMNIFICATION OBLIGATIONS. Notwithstanding the foregoing, each of
Bank Plus and Fidelity hereby reaffirms its indemnification obligations to
Employee under the terms of its bylaws and its indemnity agreement with Employee
in effect on September 21, 1998.
4. NO ADMISSIONS. Nothing contained herein shall be construed as an
admission of any wrongdoing or liability whatsoever by Bank Plus, Fidelity or
Employee.
2
<PAGE>
5. ONE-TIME CASH PAYMENTS. The parties hereto acknowledge that the
Company has delivered to Employee the following payments:
o A check for Employee's salary earned from the last salary payment date
of September 11, 1998, up to and including September 21, 1998, in the
net amount of $6,766.43; and
o A check for Employee's accrued and unused vacation hours, up to and
including September 21, 1998, in the amount of $28,678.72.
Additionally, upon the expiration of the waiting period and
non-revocation of this Agreement by the Employee as described in Section 8
hereof, the Company shall pay to Employee, in full satisfaction of its
obligation under Section 1 of the Severance Agreement, a lump sum cash severance
payment of $200,080 less applicable deductions and withholding, resulting in a
net cash payment to Employee by check of $129,151.64. The foregoing description
of one-time cash payments is not intended to limit the other obligations of the
Company to Employee under the Severance Agreement or the Consulting Agreement.
6. CONFIDENTIALITY. As a member of senior management of the Company,
Employee has occupied a position of trust with respect to business information
of a secret or confidential nature. As a material provision of this Agreement,
Employee agrees to maintain in strictest confidence all confidential information
in trust for the Company, its successors and assigns. Employee agrees to not
misappropriate, disclose, or make available to anyone outside of the Company at
any time any confidential information or anything relating thereto, without the
prior written consent of Bank Plus, which consent may be withheld for any reason
or no reason at all. Employee represents that he has returned all copies of
information relating to the Company's businesses, prospects, or confidential
information (in whatever form, including, without limitation, computer diskettes
and hard drives) except as contemplated by the Consulting Agreement. Employee
will also surrender all other personal property of the Company in his
possession, including, without limitation, access cards and identification
badge.
As used herein, the term "confidential information" shall include,
without limitation, all: discounted cash flow analyses; valuations; cost basis
information regarding Fidelity's REO and other assets; matters involving the
operation of the Company's financial models; personal financial and biographical
information regarding directors, officers, employees and customers of the
Company; communications to and from regulatory agencies (including the Office of
Thrift Supervision, Federal Deposit Insurance Corporation, Securities and
Exchange Commission, Federal Home Loan Bank and any other federal or state
agency having regulatory oversight over Fidelity, Bank Plus, or any of their
respective subsidiary or affiliated entities); customer or trade lists;
financial data; trade secrets; marketing plans; marketing studies; training
manuals; software; strategic plans; formulas; and technical information of any
kind learned by Employee during his employment with the Company. The term
"confidential information" shall not include information that (i) is or becomes
available to the public other than as a result of a disclosure by you, (ii) was
within your knowledge from a source other than the Company or its
representative, or was independently developed by you, prior to its disclosure
to you by or on behalf of the Company, provided that such source is not bound by
a confidentiality agreement with the Company or its representative, or (iii)
becomes available to you on a non-confidential basis from a source other than
the Company, provided that such source is not bound by a confidentiality
agreement with the Company or its representative.
3
<PAGE>
7. ENTIRE AGREEMENT. This Agreement constitutes a single integrated
contract expressing, together with the Severance Agreement and the Consulting
Agreement, the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous oral and written
agreements and discussions with respect to the subject matter hereof. There are
no other agreements, written or oral, express or implied, between the parties
hereto, concerning the subject matter hereof, except as set forth herein and in
the Severance Agreement and the Consulting Agreement. This Agreement may be
amended or modified only by an agreement in writing.
8. WAITING PERIOD AND RIGHT OF REVOCATION. Employee acknowledges that
he is aware that and is hereby advised that he has the right to consider this
Agreement for twenty-one days before signing it, that he was first provided with
the basic terms of this Agreement in writing on September 19, 1998 prior to
receiving the full text of this Agreement and that if he signs this Agreement
prior to the expiration of twenty-one days, he is waiving this right freely and
voluntarily. Employee also acknowledges that he is aware of and is hereby
advised of his right to revoke this Agreement for a period of seven days
following the signing of this Agreement and that it shall not become effective
or enforceable until the revocation period has expired. To revoke this
Agreement, Employee must notify the Company within seven days of signing it.
9. ATTORNEY ADVICE. Employee acknowledges that he is aware of his right
to consult an attorney, that he has been advised to consult with an attorney,
and that he has consulted with an attorney of his choosing prior to signing this
Agreement.
10. UNDERSTANDING OF AGREEMENT. The parties hereto each state that each
has carefully read this Agreement, that each has had sufficient time and
opportunity to consider its terms and to obtain legal advice relating thereto,
that each fully understands its final and binding effect, that the only promises
made to each of the parties to sign this Agreement are those stated above, and
that each of the parties is signing this Agreement voluntarily.
Dated: September 30, 1998 /S/ RICHARD M. GREENWOOD
-----------------------------------
Richard M. Greenwood
Dated: September 30, 1998 BANK PLUS CORPORATION
By /S/ MARK MASON
---------------------------------
Dated: September 30, 1998 FIDELITY FEDERAL BANK, A FSB
By /S/ MARK MASON
---------------------------------
4
<PAGE>
Exhibit 10.34
CONSULTING AGREEMENT
--------------------
This Consulting Agreement (this "Agreement") is made and entered into
as of September 21, 1998, by and between Bank Plus Corporation ("Bank Plus") and
Fidelity Federal Bank, A Federal Savings Bank ("Fidelity") (Bank Plus and
Fidelity together referred to as the "Company"), on the one hand, and Richard M.
Greenwood ("Consultant"), on the other hand, with reference to the following
facts:
RECITALS
--------
A. Consultant has previously served as an officer and a director
of Bank Plus and Fidelity;
B. Consultant, Fidelity and Bank Plus have entered into the
letter agreement dated September 19, 1998 (the "Severance
Agreement"), the terms and conditions of which are
incorporated in this Agreement by reference;
C. Pursuant to the Severance Agreement, the Company has agreed to
retain Consultant to provide consulting services on the terms
and subject to the conditions set forth in this Agreement and
in the Severance Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above stated premises and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. RETENTION OF CONSULTANT. The Company hereby retains Consultant to
provide advice and consulting services to the Company and its affiliates in
accordance with the Severance Agreement (the "Services"). The Services will
include consultation and advice regarding, among other things, (i) employment
and human resources matters, (ii) litigation and dispute resolution matters
relating to the Company's and its affiliates' relationships with affinity
partners, strategic partners, customers and vendors, and (iii) such other
matters within Consultant's expertise as may be reasonably requested from time
to time by the Company. To the extent that any term in this Agreement shall be
deemed or interpreted to be inconsistent with the terms and conditions of the
Severance Agreement, the Severance Agreement shall govern and shall supercede
such inconsistent term in this Agreement.
2. TERM. The term of this Agreement shall commence as of the date
hereof and shall continue for a period of twenty-four (24) months or until a
change in control as defined in Section 4.3 below.
<PAGE>
3. DUTIES OF CONSULTANT. Consultant agrees to provide the Services to
the Company when and as reasonably required by the Company from time to time
during the term hereof, up to a maximum of ten (10) hours per month. In
providing the Services, Consultant will report only to the following officers of
the Company: the Chief Executive Officer, the President, the Chief Financial
Officer, the General Counsel, the Director of the Risk Evaluation Group and the
Director of Human Resources. Any such services shall be performed only in
California, Oregon, Minnesota, Massachusetts, New York and Delaware unless
Consultant agrees to perform Services elsewhere. Reasonable notice shall be
provided to Consultant with respect to the Services to be rendered by him, and
all such Services shall relate to the matters described in Section 1 or matters
reasonably related thereto. The requirement to provide Services of up to 10
hours per month shall be a monthly requirement and shall not be cumulative. For
example, if no Services are required from Consultant during the first month of
this Agreement, the time required during the second month shall be 10 hours and
not 20 hours. In no event shall Consultant's failure to provide requested
Services be deemed to be a breach of this Agreement if Consultant believes in
good faith that performing such requested Services would violate a law or
regulation to which Consultant or the Company is subject.
4. COMPENSATION.
4.1. CONSULTING FEE. In consideration of Consultant's
agreement to provide the Services, the Company shall pay to Consultant a
consulting fee in the amount of $16,154.00 every two weeks. So long as
Consultant is prepared to provide Services under this Agreement and responds to
reasonable requests to do so, the Company shall pay the consulting fee specified
in the preceding sentence. Consultant shall not be obligated to transmit
invoices to the Company hereunder, but such fees shall be paid automatically
every two weeks.
4.2. COMPUTER AND OTHER EQUIPMENT. In order to facilitate the
provision by Consultant of the Services, Consultant may retain and use, at no
cost to Consultant, a desktop computer and a computer printer/facsimile machine
to be provided by the Company. Upon the termination of this Agreement,
Consultant shall be entitled to purchase such equipment from the Company for a
purchase price equal to the fully depreciated book value of such equipment.
4.3. CHANGE IN CONTROL. Upon the occurrence of change in
control (as defined below), the Company shall pay to Consultant, within thirty
(30) days following such change in control, as a lump sum payment, an amount
equal to the aggregate of all consulting fees that would have been payable under
this Section 4 through the remaining term of this Agreement. Upon payment of
such amount, the Company shall have no further obligations under this Agreement.
For purposes of this Agreement, a "change in control" shall be deemed to occur
if (a) any "person" (as such term is defined in Section 3(a)(9) and as used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), excluding Bank Plus, Fidelity or any of Bank Plus' other subsidiaries, a
trustee or any fiduciary holding securities under an employee benefit plan of
Bank Plus, Fidelity or any of Bank Plus' other subsidiaries, an underwriter
temporarily holding securities pursuant to an offering of such securities or a
corporation owned, directly or indirectly, by shareholders of Bank Plus in
substantially the same proportion as their ownership of Bank Plus, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Bank Plus representing 25% or more of
the combined voting power of Bank Plus' then outstanding securities ("Voting
2
<PAGE>
Securities"); or (b) during any period of not more than two years, individuals
who constitute the Board of Directors of Bank Plus (the "Board") as of the
beginning of the period and any new director (other than a director designated
by a person who has entered into an agreement with Bank Plus to effect a
transaction described in clause (a) or (b) of this sentence) whose election by
the Board or nomination for election by Bank Plus' shareholders was approved by
a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at such time or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority
thereof; or (c) the shareholders of Bank Plus approve a merger or consolidation
of Bank Plus with any other corporation, other than a merger or consolidation
which would result in the Voting Securities of Bank Plus outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving entity) at least 60% of
the combined voting power of the Voting Securities of Bank Plus or such
surviving entity outstanding immediately after such merger or consolidation, or
the shareholders of Bank Plus approve a plan of complete liquidation of Bank
Plus or any agreement for the sale or disposition by Bank Plus or all or
substantially all of Bank Plus' assets; or (d) a sale or sales or other
disposition or dispositions by Bank Plus which results in Bank Plus ceasing to
beneficially "own" (within the meaning of Rule 13d-3 under the Exchange Act,
directly or indirectly, more than 50% of the Voting Securities of Fidelity; or
(e) a sale or sales of all or substantially all of the assets of Fidelity, in a
single transaction or series of transactions, other than to a direct or indirect
subsidiary of Bank Plus; or (f) a merger or other combination involving Fidelity
as a result of which Bank Plus ceases to beneficially own, directly or
indirectly, more than 50% of the Voting Securities of Fidelity or the successor
to Fidelity.
4.4. REIMBURSEMENT OF EXPENSES. During the term of this
Agreement, the Company shall pay or reimburse Consultant for all reasonable
travel, telephone and other expenses paid or incurred by Consultant in
connection with the performance of the Services upon presentation of appropriate
documentation of such expenses. In addition, if significant expenses are
anticipated for travel, including airfare and hotel charges, Consultant may
obtain an advance from the Company upon any reasonable request made by
Consultant.
5. TERMINATION OF AGREEMENT. Upon termination of this Agreement,
Consultant will surrender to the Company all documents, records, and work
developed for the Company during the term of this Agreement, and Consultant will
return to the Company any proprietary or confidential information received from
the Company during the term of this Agreement.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Consultant agrees that any
proprietary or confidential information communicated or delivered to Consultant
by the Company or relating to any business affairs of the Company or any of the
Company's customers shall be held in confidence and will not be misappropriated
or disclosed by Consultant except as required by law and regulations of such
state, federal or other governmental regulatory authorities, agencies or
commissions as have jurisdiction over the affairs and businesses of the Company.
Further, Consultant recognizes that since the Company may suffer irreparable
damage from any wrongful misappropriation or disclosure of such proprietary or
confidential information, money damages may be inadequate and the Company shall
be entitled to injunctive relief against such wrongful misappropriation or
disclosure. Such injunctive relief shall be in addition to, and in no way a
limitation of, any and all other remedies the Company may have in law or in
equity for the enforcement of this Agreement.
3
<PAGE>
7. INDEPENDENT CONTRACTOR. It is understood and agreed by the parties
hereto that Consultant is an independent contractor and that neither party is,
nor shall be considered to be, an agent, distributor or representative of the
other. Neither party shall act or represent itself, directly or by implication,
as an agent of the other or in any manner assume or create any obligation on
behalf of, or in the name of, the other. This Agreement is not intended, and
shall not be construed, to create the relationship of agent, servant, employee,
partnership, joint venture or association as between Consultant and the Company.
Consultant further understands that Consultant will not receive Workers'
Compensation benefits for any injuries arising from or in connection with the
furnishing of the Services hereunder. As Consultant is an independent
contractor, the Company is not responsible to withhold, and is not withholding,
any taxes from compensation paid to Consultant. Consultant hereby waives any
claims against the Company for personal injuries of any type and nature, the
alleged creation of an employee/employee relationship, state and federal payroll
withholding, FICA, SDI or any other employee benefit claims in connection with
the provision of the Services.
8. MISCELLANEOUS.
8.1. NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing, served personally on,
delivered by telecopier, or mailed by certified or registered mail to the party
charged with receipt thereof. Notices and other communications served by mail
shall be deemed given hereunder five (5) days after deposit of such notice or
communication in an official post office as certified or registered mail with
postage prepaid and duly addressed to the party to whom such notice or
communication is to be given, in the case of (a) the Company, at: P.O. Box 1631,
Glendale, CA 91209, Attention: Chief Executive Officer, with a copy to the
General Counsel, or in the case of (b) Consultant, at: Richard M. Greenwood,
24216 Park Granada, Calabasas, CA 91302.
8.2. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES;
AMENDMENT. This Agreement constitutes the entire Agreement between the parties
respecting the subject matter of this Agreement and supersedes all prior
understandings and agreements, whether oral or in writing, between the parties
respecting the subject matter of this Agreement. There are no third party
beneficiaries to this Agreement, and this Agreement may be amended at any time
only by a writing, referring to this Agreement, executed by Consultant and the
Company.
8.3. CHOICE OF LAW. This Agreement shall be governed by the
laws of the State of California applicable to contracts entirely performed and
made in California.
8.4. ASSIGNMENT. Neither party shall assign or transfer this
Agreement, or any rights or obligations arising hereunder, without the prior
written consent of the other. A change of control of either party hereto
constitutes an assignment requiring the consent of the other party.
4
<PAGE>
8.5. SEVERABILITY. If any term, covenant, condition or
provision of this Agreement, or the application thereof to any person or
circumstance, shall to any extent be held by a court of competent jurisdiction
to be invalid, void or unenforceable, the remainder of the terms, covenants,
conditions or provisions of this Agreement or the application thereof to any
person or circumstance, shall remain in full force and effect and shall in no
way be affected, impaired or invalidated thereby.
8.6. BINDING EFFECT. Subject to Subsection 8.4 hereof, the
terms and conditions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the successors and assigns of the respective
parties hereto.
8.7. CAPTIONS AND COUNTERPARTS. The captions of the sections
of this Agreement are inserted for convenience only and shall not be deemed to
constitute a part of this Agreement. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same Agreement.
8.8. ATTORNEYS' FEES. In the event of any disputes as to the
rights and obligations of the parties hereto, or the enforcement thereof, the
prevailing party shall be entitled to receive its reasonable attorneys' fees, in
addition to any other remedy to which it may be entitled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BANK PLUS CORPORATION RICHARD M. GREENWOOD
By: /S/ MARK MASON /S/ RICHARD M. GREENWOOD
----------------------------- -----------------------------
Name: Mark Mason
Title: Chief Executive Officer
FIDELITY FEDERAL BANK,
A Federal Savings Bank
By: /S/ MARK MASON
-----------------------------
Name: Mark Mason
Title: Chief Executive Officer
5
<PAGE>
EXHIBIT NO. 10.35
RELEASE AGREEMENT
-----------------
This Release Agreement ("Agreement"), dated as of November 16, 1998, is made by
and among BANK PLUS CORPORATION, a Delaware corporation ("Bank Plus"), FIDELITY
FEDERAL BANK, A FEDERAL SAVINGS BANK ("Fidelity"); BANK PLUS CREDIT SERVICES
CORPORATION, a Delaware corporation ("BPCS"), and W.C. Taylor III. Bank Plus,
Fidelity and BPCS and their respective direct and indirect subsidiaries shall be
known as the "Company".
A. By mutual agreement, Employee's active employment with the
Company will end effective November 30, 1998.
B. The Company and Employee wish to resolve certain claims the
parties may have arisen out of or related to Employee's employment by the
Company.
C. Employee is a party to a letter agreement dated as of August
1, 1997 (the "CIC/Severance Agreement"), an Interoffice memorandum dated March
10, 1998 (the "Relocation Agreement"), an Incentive Stock Option Agreement dated
December 11, 1995 as amended on February 28, 1996 (the "ISO Agreement"), and
Stock Option Agreement dated April 29, 1998 (the "Stock Option Agreement"). (The
CIC/Severance Agreement, Relocation Agreement, ISO Agreement and Stock Option
Agreement shall collectively be known as the "Employee Agreements".)
D. The parties hereto have entered into a consulting agreement of
even date herewith (the "Consulting Agreement").
NOW, THEREFORE, in consideration of the foregoing recitals and the
terms and conditions of this Agreement, the parties hereto agree as follows:
1. EMPLOYEE RELEASE.
a) Employee (for himself, his agents, heirs, successors, assigns,
executors and/or administrators) does hereby and forever
release and discharge Bank Plus, Fidelity, BPCS and their
respective affiliated corporations or entities, as well as the
officers, directors, employees, consultants, accountants,
agents and attorneys and representatives of each of them, past
or present, from any and all causes of action, actions,
judgments, liens, debts, contracts, lawsuits, indebtedness,
damages, losses, claims, liabilities, rights, interests and
demands of whatsoever kind of character, known or unknown,
suspected to exist or not suspected to exist, anticipated or
not anticipated, contingent or absolute, whether or not
heretofore brought before any state or federal court or before
any state or federal agency or other governmental entity, that
Employee has or may have against any released person or
entity, by reason of any and all acts, omissions, events or
facts occurring or existing prior to the date hereof,
including, without limitation, all claims attributable to the
<PAGE>
Release Agreement
Page 2
employment of employee, all claims attributable to the
termination of that employment, all claims arising under the
Employee Agreements (including all costs, expenses and
obligations set forth in or contemplated by the Relocation
Agreement, including but not limited to, those pertaining to
housing related expenses (mortgage payments, utilities, taxes,
furnishings, upkeep and maintenance); club memberships
(country, business and athletic); theatre subscriptions
(symphony, opera and dramatic) and automobile related expenses
(lease payments, insurance, maintenance/upkeep and fuel)), all
claims asserting breach of an actual or implied contract, and
all claims arising under any federal, state or other
governmental statute, regulation or ordinance or common law,
such as for example and without limitation, Title VII of the
Civil Rights Act of 1964 which prohibits discrimination on the
basis of sex, race, color, national origin and religion, the
Civil Rights Act of 1866, the Age Discrimination in Employment
Act which prohibits discrimination on the basis of age over
40, the California Fair Employment and Housing Act which
prohibits discrimination on the basis of race, religious
creed, color, national origin, ancestry, physical disability,
mental disability, medical condition, marital status, age over
40, and sex, the California Labor Code, and wrongful
termination claims; provided, however, that the foregoing
release and discharge shall not apply to those obligations
expressly recited to be performed hereunder, obligations
contemplated under the Consulting Agreement, the indemnity
agreement between the Company and Employee, Deferred
Compensation Plan, or obligations under the Company's
Retirement Income Plan or 401(k) Savings and Investment Plan,
if any.
In light of the intention of Employee (for himself, his
agents, heirs, successors, assigns, executors and/or
administrators) that this release extend to any and all claims
of whatsoever kind or character, known or unknown, Employee
expressly waives any and all rights granted by California
Civil Code Section 1542 (or any other analogous federal or
state law or regulation), and does so understanding and
acknowledging the significance and consequence of such
specific waiver of Section 1542. Section 1542 of the Civil
Code of the State of California states as follows:
A GENERAL RELEASE DOES NOT EXTEND TO
CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Thus, notwithstanding the provisions of Section 1542, and for
the purposes of implementing a full and complete release by
Employee, Employee expressly acknowledges that this Agreement
<PAGE>
Release Agreement
Page 3
is intended to include in its effect, without limitation, all
claims that Employee does not know or suspect to exist in his
favor at the time of execution hereof, and that this Agreement
contemplates the extinguishment of any such claim or claims.
b) Employee expressly waives, releases and relinquishes any and
all rights, options and grants under the ISO Agreement and
Stock Option Agreement including, but not limited to, the
right to exercise stock options prior to, on or after November
30, 1998.
c) Employee agrees that no payment is due him from the Company
pertaining to unpaid vacation pay or accrual.
d) Employee represents and warrants to the Company that he has
not sold, assigned, hypothecated, pledged or otherwise
transferred or attempted to transfer any claim or right set
forth in this Agreement.
2. COMPANY RELEASE. Each of the Bank Plus, Fidelity and BPCS does
hereby and forever release and discharge Employee, from any and all known causes
of action, actions, judgments, liens, debts, contracts, indebtedness, damages,
losses, claims liabilities, rights, interests and demands of whatsoever kind of
character, which either Bank Plus, Fidelity or BPCS has or may have against any
Employee by reason of any and all acts, omissions, events or facts occurring or
existing prior to the date hereof that are known to Bank Plus, Fidelity or BPCS,
including, without limitation, all known claims attributable to the employment
of employee, all known claims attributable to the termination of that
employment, all known claims asserting breach of an actual or implied contract,
and all known claims arising under any federal, state or other governmental
statute, regulation or ordinance or common law; provided, however, that the
foregoing release and discharge shall not apply to those obligations expressly
recited to be performed hereunder obligations contemplated under the Consulting
Agreement, indemnity agreement between the Company and Employee, Deferred
Compensation Plan, or obligations under the Company's Retirement Income Plan or
401(k), Savings and Investment Plan. Reference to known matters in the preceding
sentence shall be deemed to mean matters known to any director or member, as of
August 26, 1998, of the Executive Management Committee (in each case excluding
Employee) of Bank Plus or Fidelity. The releases set forth in this Section 2
shall not pertain in any nature or degree to any credit card, mortgage,
automobile loan, home equity loan, instant reserve account (overdraft
protection) or other credit or loan relationship, transaction or agreement under
which the Company, or any of the entities which comprise same, is the
creditor/obligee and Employee is the debtor/obligor.
3. INDEMNIFICATION OBLIGATIONS. Notwithstanding the foregoing,
each of Bank Plus and Fidelity hereby reaffirms its indemnification obligations
to Employee under the terms of its bylaws and its indemnity agreement with
Employee in effect on August 26, 1998.
<PAGE>
Release Agreement
Page 4
4. NO ADMISSIONS. Nothing contained herein shall be construed as
an admission of any wrongdoing or liability whatsoever by Bank Plus, Fidelity or
Employee.
5. ONETIME CASH PAYMENTS. On or after November 30, 1998, Company
will mail to employee the following payments:
- A check for Employee's salary earned and unpaid from the
last salary payment date of November 20, 1998, up to and
including November 30, 1998, less applicable deductions
and withholding, resulting in the net amount of $3,298.59.
- A check for $11,433.34, to cover Employee's COBRA payments
for Employee's medical, dental and vision insurance
coverages received through the Company for twelve months
from December 1, 1998 through and including November 30,
1999, after which date Employee shall be solely
responsible for any further COBRA related costs. Employee
shall be solely responsible for timely applying for COBRA
benefits through the Company and for making all payments
required thereunder on and after December 1, 1998.
Additionally, upon the expiration of the waiting period and
non-revocation of this Agreement by the Employee as described in Section 8
hereof, the Company shall pay to Employee, in consideration of the releases set
forth in Section 1 hereof and any and all rights, claims and agreements under
the Employee Agreements, a lump sum payment of $56,000.00, representing
reimbursement of disputed relocation and other expenses. The foregoing
description of onetime cash payments is not intended to limit the obligations of
the Company to employee under the Consulting Agreement.
6. CONFIDENTIALITY. As a member of senior management of the
Company, employee has occupied a position of trust with respect to business
information of a secret or confidential nature. As a material provision of this
Agreement, Employee agrees to maintain in strictest confidence all confidential
information in trust for the Company, its successors and assigns, employee
agrees to not misappropriate, disclose, or make available to anyone outside of
the Company at any time any confidential information or anything relating
thereto, without the prior written consent of Bank Plus, which consent may be
withheld for any reason or no reason at all. Employee will forthwith return all
copies of information relating to the Company's businesses, prospects, or
confidential information (in whatever form, including, without limitation,
computer diskettes and hard drives). Employee will also forthwith surrender all
other personal property of the Company in his possession, including, without
limitation, access cards, identification badge, computer(s) (including, but not
limited to laptop and desktop computers, monitors, keyboards, printers,
peripherals, and other computer related equipment), computer password(s),
computer software and cellular telephone(s).
<PAGE>
Release Agreement
Page 5
As used herein, the term "confidential information" shall
include, without limitation, all discounted cash flow analyses; valuations; cost
basis information regarding Fidelity's REO and other assets; matters involving
the operation of the Company's financial models; personal financial and
biographical information regarding directors, officers, employees, and customers
of the Company; communications to and from regulatory agencies (including the
Office of Thrift Supervision, Federal Deposit Insurance Corporation, Securities
and Exchange Commission, Federal Home Loan Bank and any and other federal or
state agency having regulatory oversight over Fidelity, Bank Plus, or any of
their respective subsidiary or affiliated entities; customer or trade lists;
financial data; trade secrets; marketing plans; marketing studies; training
manuals; software; strategic plans; formulas; and technical information of any
kind learned by Employee during his employment with the Company. The term
"confidential information" shall not include information that (i) is or becomes
available to the public other than as a result of a disclosure by you, (ii) was
within your knowledge from a source other than the Company or its
representative, or was independently developed by you, prior to its disclosure
to you by or on behalf of the Company, provided that such source is not bound by
a confidentiality agreement with the Company or its representative, or (iii)
becomes available to you on a non-confidential basis from a source other than
the Company, provided that such source is not bound by a confidentiality
agreement with the Company or its representative.
7. ENTIRE AGREEMENT. This Agreement constitutes a single
integrated contract expressing, together with the Consulting Agreement, the
entire agreement of the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous oral and written agreements and
discussions with respect to the subject matter hereof. There are no other
agreements, written or oral, express or implied, between the parties hereto,
concerning the subject matter hereof, except as set forth herein and in the
Consulting Agreement. This Agreement may be amended or modified only by an
agreement in writing.
8. WAITING PERIOD AND RIGHT OF REVOCATION. Employee
acknowledges that he is aware that and is hereby advised that he has the right
to consider this Agreement for twenty-one days before signing it, and that if he
signs this Agreement prior to the expiration of twenty-one days, he is waiving
this right freely and voluntarily. Employee also acknowledges that he is aware
of and is hereby advised of his right to revoke this Agreement for a period of
seven days following the signing of this Agreement and that it shall not become
effective or enforceable until the revocation period has expired. To revoke this
Agreement, Employee must notify the Company within seven days of signing it.
9. ATTORNEY ADVICE. Employee acknowledges that he is aware of
his right to consult an attorney, that he has been advised to consult with an
attorney, and that he has consulted with an attorney of his choosing prior to
signing this Agreement.
10. UNDERSTANDING OF AGREEMENT. The parties hereto each state
that each has carefully read this Agreement, that each has had sufficient time
and opportunity to consider its terms and to obtain legal advice relating
<PAGE>
Release Agreement
Page 6
thereto, that each fully understands its final and binding effect, that the only
promises made to each of the parties to sign this Agreement are those stated
above, and that each of the parties is signing this Agreement voluntarily.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
DATED: DECEMBER 2, 1998 BY /S/ W.C. TAYLOR III
-----------------------------
W. C. TAYLOR III
DATED: DECEMBER 7, 1998 BANK PLUS CORPORATION
BY /S/ MARK K. MASON
-----------------------------
DATED: DECEMBER 7, 1998 FIDELITY FEDERAL BANK,
A FEDERAL SAVINGS BANK
BY /S/ MARK K. MASON
-----------------------------
DATED: DECEMBER 7, 1998 BANK PLUS CREDIT SERVICES CORPORATION
BY /S/ MARK K. MASON
-----------------------------
APPROVED AS TO FORM AND CONTENT:
BERGER, KAHN, SHAFTON, MOSS,
FIGLER, SIMON & GLADSTONE
DATED: DECEMBER 4, 1998 BY /S/ JOHN R. MOSS
-----------------------------
JOHN R. MOSS
ATTORNEY FOR W.C.TAYLOR III
6
<PAGE>
Release Agreement
Page 7
DATED: DECEMBER 7, 1998 BY MICHAEL G. WICK
-----------------------------
MICHAEL G. WICK
ATTORNEY FOR THE COMPANY
<PAGE>
EXHIBIT NO. 10.36
CONSULTING AGREEMENT
--------------------
This Consulting Agreement ("Agreement") is made and entered into as of
November 16, 1998, by and between Bank Plus Corporation ("Bank Plus") and
Fidelity Federal Bank, A Federal Savings Bank ("Fidelity") and Bank Plus Credit
Services Corporation ("BPCS"). (Bank Plus, Fidelity and BPCS together are
referred to as the "Company"), on the one hand, and W. C. Taylor III
("Consultant"), on the other hand, with reference to the following facts:
RECITALS
--------
A. Consultant has previously served as an officer of Fidelity and BPCS;
B. Consultant, Bank Plus and BPCS have entered into a Release Agreement
dated November 16, 1998 (the "Release Agreement");
C. The Company has agreed to retain Consultant to provide consulting
services on the terms and subject to the conditions set forth in
this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above stated premises and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. RETENTION OF CONSULTANT. The Company hereby retains Consultant to
provide advice and consulting services to the Company and its affiliates (the
"Services"). The Services will include consultation and advice regarding, among
other things, (i) employment and human resources matters, (ii) litigation and
dispute resolution matters relating to the Company's and its affiliates'
relationships with affinity partners, strategic partners, customers and vendors,
and (iii) such other matters within Consultant's expertise as may be reasonably
requested from time to time by the Company.
2. TERM. The term of this Agreement shall commence as of the date
hereof and shall continue for a period of twelve (12) months, from December 1,
1998 to and including November 30, 1999, or until a change in control as defined
in Section 4.2 below.
3. DUTIES OF CONSULTANT. Consultant agrees to provide the Services to
the Company when and as reasonably required by the Company from time to time
during the term hereof, up to a maximum of forty (40) hours per calendar month.
In providing the Services, Consultant will report only to the following officers
of the Company: the Chief Executive Officer, the President, the Chief Financial
Officer, the General Counsel, the Director of the Risk Evaluation Group and the
Director of Human Resources. Any such services shall be performed only in
<PAGE>
California, Oregon, Minnesota, Massachusetts, New York, Delaware and such other
states in which the Company has or is doing business. Reasonable notice shall be
provided to Consultant with respect to the Services to be rendered by him, and
all such Services shall relate to the matters described in Section 1 or matters
reasonably related thereto. The requirement to provide Services of up to 40
hours per calendar month shall be a monthly requirement and shall not be
cumulative. All travel time door-to-door and all telephone and /or meeting time
shall be included in the 40-hour monthly requirement. For example, if no
Services are required from Consultant during the first month of this Agreement,
the time required during the second month shall be 40 hours and not 80 hours. In
no event shall Consultant's failure to provide requested Services be deemed to
be a breach of this Agreement if Consultant believes in good faith that
performing such requested Services would violate a law or regulation to which
Consultant or the Company is subject.
4. COMPENSATION.
4.1. CONSULTING FEE. In consideration of Consultant's agreement to
provide the Services, the Company shall pay to Consultant a consulting fee in
the amount of $5,538.46 every two weeks. So long as Consultant is prepared to
provide Services under this Agreement and responds to reasonable requests to do
so, the Company shall pay the consulting fee specified in the preceding
sentence. Consultant shall not be obligated to transmit invoices to the Company
hereunder, but such fees shall be paid by check automatically mailed to
Consultant every two weeks.
4.2. CHANGE IN CONTROL. Upon the occurrence of change in control (as
defined below), the Company shall pay to Consultant, within thirty (30) days
following such change in control, as a lump sum payment, an amount equal to the
aggregate of all consulting fees that would have been payable under this Section
4 through the remaining term of this Agreement. Upon payment of such amount, the
neither the Company or Consultant shall have any further obligations under this
Agreement. For purposes of this Agreement, a "change in control" shall be deemed
to occur if (a) any "person" (as such term is defined in Section 3(a)(9) and as
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), excluding Bank Plus, Fidelity or any of Bank Plus' other
subsidiaries, a trustee or any fiduciary holding securities under an employee
benefit plan of Bank Plus, Fidelity or any of Bank Plus' other subsidiaries, an
underwriter temporarily holding securities pursuant to an offering of such
securities or a corporation owned, directly or indirectly, by shareholders of
Bank Plus in substantially the same proportion as their ownership of Bank Plus,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of Bank Plus representing
25% or more of the combined voting power of Bank Plus' then outstanding
securities ("Voting Securities"); or (b) during any period of not more than two
years, individuals who constitute the Board of Directors of Bank Plus (the
"Board") as of the beginning of the period and any new director (other than a
director designated by a person who has entered into an agreement with Bank Plus
to effect a transaction described in clause (a) or (b) of this sentence) whose
election by the Board or nomination for election by Bank Plus' shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at such time or whose election or nomination
for election was previously so approved, cease for any reason to constitute a
majority thereof; or (c) the shareholders of Bank Plus approve a merger or
2
<PAGE>
consolidation of Bank Plus with any other corporation, other than a merger or
consolidation which would result in the Voting Securities of Bank Plus
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 60% of the combined voting power of the Voting
Securities of Bank Plus or such surviving entity outstanding immediately after
such merger or consolidation, or the shareholders of Bank Plus approve a plan of
complete liquidation of Bank Plus or any agreement for the sale or disposition
by Bank Plus or all or substantially all of Bank Plus' assets; or (d) a sale or
sales or other disposition or dispositions by Bank Plus which results in Bank
Plus ceasing to beneficially "own" (within the meaning of Rule 13d-3 under the
Exchange Act, directly or indirectly, more than 50% of the Voting Securities of
Fidelity; or (e) a sale or sales of all or substantially all of the assets of
Fidelity, in a single transaction or series of transactions, other than to a
direct or indirect subsidiary of Bank Plus; or (f) a merger or other combination
involving Fidelity as a result of which Bank Plus ceases to beneficially own,
directly or indirectly, more than 50% of the Voting Securities of Fidelity or
the successor to Fidelity.
4.3. REIMBURSEMENT OF EXPENSES. During the term of this Agreement,
the Company shall pay or reimburse Consultant for all reasonable travel,
telephone and other necessary expenses (in accordance with Company's current
expense policy) incurred by Consultant in connection with the performance of the
Services upon presentation of adequate and appropriate documentation of such
expenses.
5. TERMINATION OF AGREEMENT. Upon termination of this Agreement,
Consultant will surrender to the Company all documents, records, and work
developed for the Company during the term of this Agreement, and Consultant will
return to the Company any proprietary or confidential information received from
the Company during the term of this Agreement.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Consultant agrees that any
proprietary or confidential information communicated or delivered to Consultant
by the Company or relating to any business affairs of the Company or any of the
Company's customers shall be held in confidence and will not be misappropriated
or disclosed by Consultant except as required by law and regulations of such
state, federal or other governmental regulatory authorities, agencies or
commissions as have jurisdiction over the affairs and businesses of the Company.
Further, Consultant recognizes that since the Company may suffer irreparable
damage from any wrongful misappropriation or disclosure of such proprietary or
confidential information, money damages may be inadequate and the Company shall
be entitled to injunctive relief against such wrongful misappropriation or
disclosure. Such injunctive relief shall be in addition to, and in no way a
limitation of, any and all other remedies the Company may have in law or in
equity for the enforcement of this Agreement.
7. INDEPENDENT CONTRACTOR. It is understood and agreed by the parties
hereto that Consultant is an independent contractor and that neither party is,
nor shall be considered to be, an agent, distributor or representative of the
other. Neither party shall act or represent itself, directly or by implication,
as an agent of the other or in any manner assume or create any obligation on
behalf of, or in the name of, the other. This Agreement is not intended, and
shall not be construed, to create the relationship of agent, servant, employee,
partnership, joint venture or association as between Consultant and the Company.
3
<PAGE>
Consultant further understands that Consultant will not receive Workers'
Compensation benefits for any injuries arising from or in connection with the
furnishing of the Services hereunder. As Consultant is an independent
contractor, the Company is not responsible to withhold, and is not withholding,
any taxes from compensation paid to Consultant. Consultant hereby waives any
claims against the Company for the alleged creation of an employer/employee
relationship, state and federal payroll withholding, FICA, SDI or any other
employee benefit claims in connection with the provision of the Services.
8. MISCELLANEOUS.
8.1. NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing, served personally on,
delivered by telecopier, or mailed by certified or registered mail to the party
charged with receipt thereof. Notices and other communications served by mail
shall be deemed given hereunder five (5) days after deposit of such notice or
communication in an official post office as certified or registered mail with
postage prepaid and duly addressed to the party to whom such notice or
communication is to be given, in the case of (a) the Company, at: P.O. Box 1631,
Glendale, CA 91209, Attention: Chief Executive Officer, with a copy to the
General Counsel, or in the case of (b) Consultant, at: 2850 SW Cedar Hills
Boulevard, #50, Beaverton, Oregon 97005. Provided, however, that the standard of
"reasonable notice" shall apply to instances in which the Company requests
Services from Consultant.
8.2. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; AMENDMENT. This
Agreement constitutes the entire agreement between the parties respecting the
subject matter of this Agreement and supersedes all prior understandings and
agreements, whether oral or in writing, between the parties respecting the
subject matter of this Agreement. There are no third party beneficiaries to this
Agreement, and this Agreement may be amended at any time only by a writing,
referring to this Agreement, executed by Consultant and the Company.
8.3. CHOICE OF LAW. This Agreement shall be governed by the
laws of the State of California applicable to contracts entirely performed and
made in California.
8.4. ASSIGNMENT. Neither party shall assign or transfer this
Agreement, or any rights or obligations arising hereunder, without the prior
written consent of the other. A change of control of either party hereto
constitutes an assignment requiring the consent of the other party.
8.5. SEVERABILITY. If any term, covenant, condition or provision of
this Agreement, or the application thereof to any person or circumstance, shall
to any extent be held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, covenants, conditions or
provisions of this Agreement or the application thereof to any person or
circumstance, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby.
4
<PAGE>
8.6. BINDING EFFECT. Subject to Subsection 8.4 hereof, the terms and
conditions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and assigns of the respective parties
hereto.
8.7. CAPTIONS AND COUNTERPARTS. The captions of the sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part of this Agreement. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same Agreement.
8.8. ATTORNEYS' FEES. In the event of any disputes as to the rights
and obligations of the parties hereto, or the enforcement thereof, the
prevailing party shall be entitled to receive its reasonable attorneys' fees, in
addition to any other remedy to which it may be entitled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BANK PLUS CORPORATION W. C. TAYLOR III
By: /S/ MARK K. MASON /S/ W.C. TAYLOR III
------------------------------ -----------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
FIDELITY FEDERAL BANK,
A FEDERAL SAVINGS BANK
By: /S/ MARK K. MASON
------------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
BANK PLUS CREDIT SERVICES CORPORATION
By: /S/ MARK K. MASON
------------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
5
<PAGE>
EXHIBIT NO. 10.37
RELEASE AGREEMENT
-----------------
This Release Agreement ("Agreement"), dated as of January 19, 1999, is made by
and among BANK PLUS CORPORATION, a Delaware corporation ("Bank Plus"), FIDELITY
FEDERAL BANK, A FEDERAL SAVINGS BANK ("Fidelity"), GATEWAY INVESTMENT SERVICES,
INC., a California corporation ("GATEWAY"), and Robert P. Condon ("Employee").
Bank Plus, Fidelity and Gateway and their respective direct and indirect
subsidiaries shall be known as the "Company".
A. By mutual agreement, Employee's active employment with the Company
will end effective January 19, 1999 (the "Termination Date").
B. The Company and Employee wish to resolve certain claims the parties
may have arising out of or related to Employee's employment by the Company.
C. Employee is a party to a series of letter agreements dated as of
August 1, 1997, August 9, 1995, and November 22, 1994 (the "CIC/Severance
Agreements"), an Incentive Stock Option Agreement dated December 11, 1995 as
amended on February 28, 1996 (the "ISO Agreement"), a Stock Option Agreement
dated April 29, 1998 (the "Stock Option Agreement"), and a Restricted Stock
Award Agreement dated March 12, 1998 (the "Restricted Stock Agreement"). (The
CIC/Severance Agreements, ISO Agreement, Stock Option Agreement and the
Restricted Stock Agreement shall collectively be known as the "Employee
Agreements".)
D. Employee and Fidelity are parties to an indemnity agreement dated as
of June 20, 1995 (the "Indemnity Agreement"). Employee is or may be a
participant in the Company's deferred compensation plan (the "Deferred
Compensation Plan"), the Company's retirement income plan (the "Retirement
Income Plan"), and the Company's 401(k) Savings and Investment Plan (the "401(k)
Plan").
E. The parties hereto have entered into a Consulting and Profit Sharing
Agreement of even date herewith (the "Consulting and Profit Sharing Agreement").
NOW, THEREFORE, in consideration of the foregoing recitals and the
terms and conditions of this Agreement, the parties hereto agree as follows:
1. EMPLOYEE RELEASE.
a) Employee (for himself, his agents, heirs, successors, assigns,
executors and/or administrators) does hereby and forever release and
discharge Bank Plus, Fidelity, Gateway and their respective
affiliated corporations or entities, as well as the officers,
<PAGE>
Release Agreement
Page 2
directors, employees, consultants, accountants, agents and attorneys
and representatives of each of them, past or present, from any and
all causes of action, actions, judgments, liens, debts, contracts,
lawsuits, indebtedness, damages, losses, claims, liabilities,
rights, interests and demands of whatsoever kind of character, known
or unknown, suspected to exist or not suspected to exist,
anticipated or not anticipated, contingent or absolute, whether or
not heretofore brought before any state or federal court or before
any state or federal agency or other governmental entity, that
Employee has or may have against any released person or entity, by
reason of any and all acts, omissions, events or facts occurring or
existing prior to the date hereof, including, without limitation,
all claims attributable to the employment of Employee, all claims
attributable to the termination of that employment, all claims
arising under the Employee Agreements, all claims asserting breach
of an actual or implied contract, and all claims arising under any
federal, state or other governmental statute, regulation or
ordinance or common law, such as for example and without limitation,
Title VII of the Civil Rights Act of 1964 which prohibits
discrimination on the basis of sex, race, color, national origin and
religion, the Civil Rights Act of 1866, the Age Discrimination in
Employment Act which prohibits discrimination on the basis of age
over 40, the California Fair Employment and Housing Act which
prohibits discrimination on the basis of race, religious creed,
color, national origin, ancestry, physical disability, mental
disability, medical condition, marital status, age over 40, and sex,
the California Labor Code, and wrongful termination claims;
provided, however, that the foregoing release and discharge shall
not apply to those obligations expressly recited to be performed
hereunder, obligations contemplated under the Consulting and Profit
Sharing Agreement or obligations (if any) under the Indemnity
Agreement, Deferred Compensation Plan, the Retirement Income Plan,
or the 401(k) Plan.
In light of the intention of Employee (for himself, his agents,
heirs, successors, assigns, executors and/or administrators) that
this release extend to any and all claims of whatsoever kind or
character, known or unknown, Employee expressly waives any and all
rights granted by California Civil Code Section 1542 (or any other
analogous federal or state law or regulation), and does so
understanding and acknowledging the significance and consequence of
such specific waiver of Section 1542. Section 1542 of the Civil Code
of the State of California states as follows:
<PAGE>
Release Agreement
Page 3
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Thus, notwithstanding the provisions of Section 1542, and for the
purposes of implementing a full and complete release by Employee,
Employee expressly acknowledges that this Agreement is intended to
include in its effect, without limitation, all claims that Employee
does not know or suspect to exist in his favor at the time of
execution hereof, and that this Agreement contemplates the
extinguishment of any such claim or claims.
b) Employee expressly waives, releases and relinquishes any and
all rights, options and grants under the ISO Agreement and Stock
Option Agreement including, but not limited to, the right to
exercise stock options prior to or on or after the Termination Date;
provided, however, that Employee shall retain the 5,315 vested
shares of Bank Plus restricted common stock that have previously
been issued to Employee under the Restricted Stock Agreement, and
Bank Plus shall waive the restrictions on the 10,629 unvested shares
of such restricted stock. Such shares are subject to any elections
previously made by Employee under the Deferred Compensation Plan.
c) Fidelity shall pay to Employee, on or promptly after the Termination
Date, all accrued and unused vacation hours as of that date at the
rate of Employee's current base salary, not to exceed 200 hours,
less all applicable state and federal taxes and mandatory and
authorized deductions.
d) Employee represents and warrants to the Company that he has not
sold, assigned, hypothecated, pledged or otherwise transferred or
attempted to transfer any claim or right set forth in this
Agreement.
2. COMPANY RELEASE. Each of Bank Plus, Fidelity and Gateway does hereby
and forever release and discharge Employee, from any and all known causes of
action, actions, judgments, liens, debts, contracts, indebtedness, damages,
losses, claims liabilities, rights, interests and demands of whatsoever kind of
character, which either Bank Plus, Fidelity or Gateway has or may have against
Employee by reason of any and all acts, omissions, events or facts occurring or
existing prior to the Termination Date that are actually known to Bank Plus,
Fidelity or Gateway, including, without limitation, all known claims
<PAGE>
Release Agreement
Page 4
attributable to the employment of Employee, all known claims attributable to the
termination of that employment, all known claims asserting breach of an actual
or implied contract, and all known claims arising under any federal, state or
other governmental statute, regulation or ordinance or common law; provided,
however, that the foregoing release and discharge shall not apply to those
obligations expressly recited to be performed hereunder, obligations
contemplated under the Consulting and Profit Sharing Agreement, and obligations,
if any, under the Indemnity Agreement, Deferred Compensation Plan, Retirement
Income Plan and 401(k) Plan. Reference to known matters in the preceding
sentence shall be deemed to mean matters actually known to any director or
member, as of the Termination Date, of the Management Committee (in each case
excluding Employee) of Bank Plus or Fidelity. The releases set forth in this
Section 2 shall not pertain in any nature or degree to any credit card,
mortgage, automobile loan, home equity loan, instant reserve account (overdraft
protection) or other credit or loan relationship, transaction or agreement under
which the Company, or any of the entities which comprise same, is the
creditor/obligee and Employee is the debtor/obligor.
3. INDEMNIFICATION OBLIGATIONS. Notwithstanding the foregoing, each of
Bank Plus, Fidelity and Gateway hereby reaffirms its indemnification obligations
to Employee under the terms of its bylaws and the Indemnity Agreement.
4. NO ADMISSIONS. Nothing contained herein shall be construed as an
admission of any wrongdoing or liability whatsoever by Bank Plus, Fidelity,
Gateway or Employee.
5. CONFIDENTIALITY. As a member of senior management of the Company,
Employee has occupied a position of trust with respect to business information
of a secret or confidential nature. As a material provision of this Agreement,
Employee agrees to maintain in strictest confidence all confidential information
in trust for the Company, its successors and assigns, and Employee agrees to not
misappropriate, disclose, or make available to anyone outside of the Company at
any time any confidential information or anything relating thereto, without the
prior written consent of Bank Plus, which consent may be withheld for any reason
or no reason at all. Employee will forthwith return all copies of information
relating to the Company's businesses, prospects, or confidential information (in
whatever form, including, without limitation, computer diskettes and hard
drives). Employee will also forthwith surrender all other personal property of
the Company in his possession, including, without limitation, access cards,
identification badge, computer(s) (including, but not limited to laptop and
desktop computers, monitors, keyboards, printers, peripherals, and other
computer related equipment), computer password(s), computer software and
cellular telephone(s).
<PAGE>
Release Agreement
Page 5
As used herein, the term "confidential information" shall include,
without limitation, all discounted cash flow analyses; valuations; cost basis
information regarding the Company's assets; matters involving the operation of
the Company's financial models; personal financial and biographical information
regarding directors, officers, employees, and customers of the Company;
communications to and from regulatory agencies (including the Office of Thrift
Supervision, Federal Deposit Insurance Corporation, Securities and Exchange
Commission, Federal Home Loan Bank and any and other federal or state agency
having regulatory oversight over Fidelity, Bank Plus, Gateway or any of their
respective subsidiary or affiliated entities; customer or trade lists; financial
data; trade secrets; marketing plans; marketing studies; training manuals;
software; strategic plans; formulas; and technical information of any kind
learned by Employee during his employment with the Company. The term
"confidential information" shall not include information that (i) is or becomes
available to the public other than as a result of a disclosure by you, (ii) was
within your knowledge from a source other than the Company or its
representative, or was independently developed by you, prior to its disclosure
to you by or on behalf of the Company, provided that such source is not bound by
a confidentiality agreement with the Company or its representative, or (iii)
becomes available to you on a non-confidential basis from a source other than
the Company, provided that such source is not bound by a confidentiality
agreement with the Company or its representative.
6. ENTIRE AGREEMENT. This Agreement constitutes a single integrated
contract expressing the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous oral and
written agreements and discussions with respect to the subject matter hereof.
There are no other agreements, written or oral, express or implied, between the
parties hereto, concerning the subject matter hereof, except as set forth herein
and in the Consulting Agreement. This Agreement may be amended or modified only
by an agreement in writing.
7. WAITING PERIOD AND RIGHT OF REVOCATION. Employee acknowledges that
he is aware that and is hereby advised that he has the right to consider this
Agreement for twenty-one days before signing it, and that if he signs this
Agreement prior to the expiration of twenty-one days, he is waiving this right
freely and voluntarily. Employee also acknowledges that he is aware of and is
hereby advised of his right to revoke this Agreement for a period of seven days
following the signing of this Agreement and that it shall not become effective
or enforceable until the revocation period has expired. To revoke this
Agreement, Employee must notify the Company within seven days of signing it.
8. ATTORNEY ADVICE. Employee acknowledges that he is aware of his right
to consult an attorney, and that he has been advised to consult with an
attorney.
<PAGE>
Release Agreement
Page 6
9. UNDERSTANDING OF AGREEMENT. The parties hereto each state that each
has carefully read this Agreement, that each has had sufficient time and
opportunity to consider its terms and to obtain legal advice relating thereto,
that each fully understands its final and binding effect, that the only promises
made to each of the parties to sign this Agreement are those stated above, and
that each of the parties is signing this Agreement voluntarily.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
BANK PLUS CORPORATION ROBERT P. CONDON
By: /S/ MARK K. MASON /S/ ROBERT P. CONDON
------------------------------ -----------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
FIDELITY FEDERAL BANK,
A FEDERAL SAVINGS BANK
By: /S/ MARK K. MASON
------------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
GATEWAY INVESTMENT SERVICES, INC.
By: /S/ THOMAS G. NORWOOD
------------------------------
Name: Thomas G. Norwood
Title: President
<PAGE>
EXHIBIT NO. 10.38
CONSULTING AND PROFIT SHARING AGREEMENT
---------------------------------------
This Consulting and Profit Sharing Agreement ("Agreement") is made and
entered into as of January 19, 1999, by and between Bank Plus Corporation ("Bank
Plus") and Fidelity Federal Bank, A Federal Savings Bank ("Fidelity" or the
"Bank") and Gateway Investment Services, Inc. ("Gateway") (Bank Plus, Fidelity
and Gateway together are referred to as the "Company"), on the one hand, and
Robert P. Condon ("Consultant"), on the other hand, with reference to the
following facts:
RECITALS
--------
A. Consultant has previously served as an employee, director and
officer of the Company, which service is terminating concurrently
herewith by mutual agreement (except as provided herein);
B. Consultant and the Company have entered into a Release Agreement of
even date herewith (the "Release Agreement");
C. Concurrently herewith, Gateway is entering into an agreement (the
"LLC Agreement") with The Variable Annuity Life Insurance Company
("VALIC") to form a limited liability company (the "LLC") which
will be named American General Gateway Services, LLC. The members
of the LLC will be Gateway and VALIC. The LLC will acquire a
portion of Gateway's current business. Consultant expects to serve
as General Manager of the LLC concurrently with the term of this
Agreement; and
D. The Company has agreed to retain Consultant and Consultant has
agreed to provide consulting services on the terms and subject to
the conditions set forth in this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above stated premises and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. RETENTION OF CONSULTANT. The Company hereby retains Consultant to
provide advice and consulting services to the Company and its affiliates (the
"Services"). The Services will include consultation and advice regarding, among
other things, (i) employment and human resources matters, (ii) litigation and
dispute resolution matters relating to the Company's and its affiliates'
relationships with affinity partners, strategic partners, customers and vendors,
(iii) Gateway's assets, operations, business plans and opportunities, and (iv)
such other matters within Consultant's expertise as may be reasonably requested
from time to time by the Company. In addition, for so long as Company may
request, Consultant shall serve as an outside director on the Bank Plus and
Gateway boards of directors.
2. TERM. The term of this Agreement shall commence as of the day after
termination of Consultant's employment with the Company, and shall continue for
a period of twelve (12) months, or until a change in control as defined in
Section 4.2 below. Expiration of the term hereof shall relieve Consultant of his
<PAGE>
obligation to provide Services hereunder, but shall not in any other respect
terminate the obligations of the parties hereunder.
3. DUTIES OF CONSULTANT. Consultant agrees to provide the Services to
the Company when and as reasonably required by the Company from time to time
during the term hereof, up to a maximum of forty (40) hours per calendar month.
In providing the Services, Consultant will report only to the following officers
of the Company: the Chief Executive Officer, the President, the Chief Financial
Officer, the General Counsel, and the Director of Human Resources. Reasonable
notice shall be provided to Consultant with respect to the Services to be
rendered by him, and all such Services shall relate to the matters described in
Section 1 or matters reasonably related thereto. The requirement to provide
Services of up to 40 hours per calendar month shall be a monthly requirement and
shall not be cumulative. All travel time door-to-door and all telephone and/or
meeting time shall be included in the 40-hour monthly requirement. For example,
if no Services are required from Consultant during the first month of this
Agreement, the time required during the second month shall be 40 hours and not
80 hours. In no event shall Consultant's failure to provide requested Services
be deemed to be a breach of this Agreement if Consultant believes in good faith
that performing such requested Services would violate a law or regulation to
which Consultant or the Company is subject.
4. COMPENSATION.
4.1. PROFIT SHARING. In consideration of Consultant's agreement to
provide the Services, Gateway shall pay to Consultant an amount equal to one
hundred percent (100%) of the cash distributions made by the LLC to Gateway
pursuant to the LLC Agreement in respect of Gateway's membership interest in the
LLC, until such time as the LLC has distributed to Gateway and Gateway has paid
to Consultant the sum of Two Hundred Eighty Eight Thousand and 00/100 Dollars
($288,000.00) (the "Maximum Amount). Cash distributions shall not include
payments made by the LLC to Gateway under the Services Agreement dated as of
January 15, 1999 or under any agreement other than the LLC Agreement. The
Maximum Amount shall not bear interest or be revised or adjusted due to the
passage of time. In the event that the Maximum Amount is paid before the end of
the term hereof, Consultant shall continue to provide the Services hereunder
until the end of the term. If at the end of the term hereof Gateway has paid
less than Maximum Amount to Consultant, Consultant's obligations to provide the
Services hereunder shall expire, but Gateway shall remain obligated to pay the
remaining amount to Consultant as, if and when distributions are made by the LLC
to Gateway. Consultant acknowledges that there is no assurance that the Maximum
Amount or any amount whatsoever will be distributed by the LLC to Gateway.
Consultant acknowledges that Gateway may have fiduciary duties to the LLC while
Gateway's duties to Consultant will be merely contractual; accordingly,
Consultant acknowledges that, to the extent (if any) that Gateway has a right as
a member of the LLC to control or influence the timing and amounts of
distributions, Gateway may exercise that right in accordance with its own
interests and its duties (if any) to the LLC without regard to Gateway's
contractual duties hereunder to Consultant. Consultant acknowledges and assumes
the risk that the LLC may never make distributions to Gateway or that the amount
of such distributions may be less than the reasonable value of Consultant's
Services. Consultant acknowledges that he will have no claim against Gateway for
compensation for Services except as provided in this Section; and Consultant
acknowledges that he shall have no claim against the LLC or against Bank Plus,
Fidelity, or any of their subsidiaries or affiliates (other than Gateway as
2
<PAGE>
provided herein) for compensation for Services even if those Services are
rendered at the request of such entities or inure to the benefit of such
entities.
4.2 EFFECT OF CONSULTANT'S DEATH. In the event of Consultant's death
prior to the end of the term, Consultant's heirs shall be relieved from any
obligations to provide the Services, but Consultant's estate and heirs shall
nonetheless remain entitled to receive the profit sharing contemplated by
Paragraph 4.1 above, as, if and when distributions are paid by the LLC to
Gateway, until the Maximum Amount has been paid to Consultant and/or his estate
and heirs.
4.3 BOARD MEMBERSHIP. To the extent that the Company requests
Consultant to serve on the Bank Plus and Gateway boards of directors and that
Bank Plus or Gateway, as the case may be, pays director's fees or other
compensation to its outside directors for serving on its board of directors,
Consultant shall be entitled to director's fees and other compensation on the
same basis as other outside directors. However, nothing herein shall be
construed to require the Company to approve or Bank Plus or Gateway to pay
director's fees or other compensation to outside directors.
4.4. CHANGE IN CONTROL. Upon the occurrence of change in control (as
defined below), Gateway shall pay to Consultant (or his estate or heirs), within
thirty (30) days following such change in control, as a lump sum payment, an
amount equal to the Maximum Amount less any profit sharing already paid pursuant
to Paragraphs 4.1 and 4.2. Upon payment of such amount, the Company shall have
no further obligations under this Agreement and Consultant's obligation to
provide Services shall expire.
4.5 DEFINITION OF CHANGE IN CONTROL. For purposes of this Agreement,
a "change in control" shall be deemed to occur if (a) any "person" (as such term
is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the
Company, the Bank or any of the Company's other subsidiaries, a trustee or any
fiduciary holding securities under an employee benefit plan of the Company, the
Bank or any of the Company's other subsidiaries, an underwriter temporarily
holding securities pursuant to an offering of such securities or a corporation
owned, directly or indirectly, by shareholders of the Company in substantially
the same proportion as their ownership of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities
ordinarily having the right to vote at elections of directors ("Voting
Securities"); or (b) during any period of two (2) consecutive years, individuals
who, at the beginning of such period, constituted the board of directors of the
Company or the Bank (together with any new directors whose election or
appointment to such board of directors or whose nomination for election by the
stockholders of Company or the Bank was approved by a vote of two-thirds (2/3)
of the directors of such board then still in office who were either directors on
such board at the beginning of such period or whose election, appointment or
nomination for election to such board was previously so approved, but excluding
any director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (a) or (b) of this sentence)
cease for any reason to constitute a majority of the board of directors of
Company or the Bank then in office; (c) a merger or consolidation of the Company
with any other Person (as defined below) closes, other than a merger or
consolidation that results in Voting Securities of the Company outstanding
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<PAGE>
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) more than fifty percent (50%) of the combined voting power of the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the Company closes the sale or disposition by
the Company of all or substantially all of the Company's assets; (d) the Company
closes a sale or sales or other disposition or dispositions that results in the
Company ceasing to beneficially "own" (within the meaning of Rule 13d-3 under
the Exchange Act), directly or indirectly, more than fifty percent (50%) of the
Voting Securities of the Bank; or (e) the Bank closes a sale or sales of all or
substantially all of the assets of the Bank, in a single transaction or series
of transactions, other than to a direct or indirect subsidiary of the Company;
or (f) a merger or other combination of the Bank with any other Person closes,
as a result of which the Company ceases to beneficially own, directly or
indirectly, more than fifty percent (50%) of the Voting Securities of the Bank
or the surviving entity in such merger or consolidation. For purposes of this
Agreement, the term "PERSON" shall mean and include any individual, corporation,
partnership, group, association or other "person", as such term is used in
Section 14(d) of the Exchange Act, other than the Company, the Bank, any other
subsidiary of the Company or any employee benefit plan(s) sponsored by the
Company, the Bank or any other subsidiary of the Company.
4.6. REIMBURSEMENT OF EXPENSES; PARKING. During the term of this
Agreement, Gateway shall pay or reimburse Consultant for all reasonable travel,
telephone and other necessary expenses (in accordance with Company's then
current expense policy) incurred by Consultant in connection with the
performance of the Services upon presentation of adequate and appropriate
documentation of such expenses. Consultant shall be entitled to free parking on
an unreserved basis at the Company's corporate headquarters but shall not have
the use of the reserved parking space he had as an employee.
5. TERMINATION OF AGREEMENT. Upon termination of this Agreement,
Consultant will surrender to the Company all documents, records, and work
developed for the Company during the term of this Agreement, and Consultant will
return to the Company any proprietary or confidential information received from
the Company during the term of this Agreement.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Consultant agrees that any
proprietary or confidential information communicated or delivered to Consultant
by the Company or relating to any business affairs of the Company or any of the
Company's customers shall be held in confidence and will not be misappropriated
or disclosed by Consultant except as required by law and regulations of such
state, federal or other governmental regulatory authorities, agencies or
commissions as have jurisdiction over the affairs and businesses of the Company.
Further, Consultant recognizes that since the Company may suffer irreparable
damage from any wrongful misappropriation or disclosure of such proprietary or
confidential information, money damages may be inadequate and the Company shall
be entitled to injunctive relief against such wrongful misappropriation or
disclosure. Such injunctive relief shall be in addition to, and in no way a
limitation of, any and all other remedies the Company may have in law or in
equity for the enforcement of this Agreement.
7. INDEPENDENT CONTRACTOR. It is understood and agreed by the parties
hereto that Consultant is an independent contractor and that neither party is,
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nor shall be considered to be, an agent, distributor, partner, or representative
of the other. Neither party shall act or represent itself, directly or by
implication, as an agent or partner of the other or in any manner assume or
create any obligation on behalf of, or in the name of, the other.
Notwithstanding the profit sharing contemplated herein, this Agreement is not
intended, and shall not be construed, to create the relationship of agent,
servant, employee, partnership, joint venture or association as between
Consultant and the Company, nor shall it confer on Consultant any rights in the
LLC. The LLC shall have no obligations to Consultant, and the obligations of the
Company to Consultant shall be contractual rather than fiduciary. Consultant is
not an intended beneficiary of the LLC Agreement or of any other agreements the
Company now has or may have with VALIC or other third parties. Consultant
further understands that Consultant will not receive Workers' Compensation
benefits for any injuries arising from or in connection with the furnishing of
the Services hereunder. As Consultant is an independent contractor, the Company
is not responsible to withhold, and is not withholding, any taxes from
compensation or profit sharing paid to Consultant. Consultant hereby waives any
claims against the Company for the alleged creation of an employer/employee
relationship, state and federal payroll withholding, FICA, SDI or any other
employee benefit claims in connection with the provision of the Services.
8. DISCLOSURE TO VALIC. Consultant agrees that Company may disclose the
terms of this Agreement to VALIC. Company acknowledges that, in the event of any
conflict between the interests of Company and the interests of the LLC,
Consultant's first duty shall be to the LLC, since the relationship between
Consultant and Company is contractual rather than fiduciary. However, Consultant
shall notify Company in writing at any time that Consultant perceives or has
reason to suspect a conflict or possible conflict of interest which could in any
way relate to the Services contemplated hereunder.
9. MISCELLANEOUS.
9.1. NOTICES. All notices and other communications required or
permitted under this Agreement shall be in writing, served personally on,
delivered by e-mail or telecopier, or mailed by certified or registered mail to
the party charged with receipt thereof. Notices and other communications
delivered personally or by e-mail or telecopier shall be deemed delivered when
actually received. Notices and other communications served by mail shall be
deemed given hereunder five (5) days after deposit of such notice or
communication in an official post office as certified or registered mail with
postage prepaid and duly addressed to the party to whom such notice or
communication is to be given, in the case of (a) the Company, at: P.O. Box 1631,
Glendale, CA 91209, Attention: Chief Executive Officer, with a copy to the
General Counsel, or in the case of (b) Consultant, at: 30002 Via Rivera, Rancho
Palos Verdes, California 90274.
9.2. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; AMENDMENT. This
Agreement constitutes the entire agreement between the parties respecting the
subject matter of this Agreement and supersedes all prior understandings and
agreements, whether oral or in writing, between the parties respecting the
subject matter of this Agreement. There are no third party beneficiaries to this
Agreement, and this Agreement may be amended at any time only by a writing,
referring to this Agreement, executed by Consultant and the Company.
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9.3. CHOICE OF LAW. This Agreement shall be governed by the laws of
the State of California applicable to contracts entirely performed and made in
California.
9.4. ASSIGNMENT. Neither party shall assign or transfer this
Agreement, or any rights or obligations arising hereunder, without the prior
written consent of the other. A change of control of either party hereto
constitutes an assignment requiring the consent of the other party.
9.5. BINDING EFFECT. Subject to Subsection 9.4 hereof, the terms and
conditions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and assigns of the respective parties
hereto.
9.6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
9.7. ATTORNEYS' FEES. In the event of any disputes as to the rights
and obligations of the parties hereto, or the enforcement thereof, the
prevailing party shall be entitled to receive its reasonable attorneys' fees, in
addition to any other remedy to which it may be entitled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BANK PLUS CORPORATION ROBERT P. CONDON
By: /S/ MARK K. MASON /S/ ROBERT P. CONDON
------------------------------ -----------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
FIDELITY FEDERAL BANK,
A FEDERAL SAVINGS BANK
By: /S/ MARK K. MASON
------------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
GATEWAY INVESTMENT SERVICES, INC.
By: /S/ THOMAS G. NORWOOD
------------------------------
Name: Thomas G. Norwood
Title: President
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EXHIBIT NO. 10.39
November 23, 1998
Mr. Stephen J. Austin
Executive Vice President and
Director of Risk Evaluation Group
4565 Colorado Boulevard
Los Angeles, California 90039
Re: SEVERANCE AGREEMENT
Dear Steve:
This will memorialize our agreement, subject to the conditions described below,
on the terms of the severance of your employment by Bank Plus Corporation ("Bank
Plus") and its affiliates, including Fidelity Federal Bank, FSB ("Fidelity,"
together with Bank Plus and their respective subsidiaries, the "Company"), as
well as the termination of the Employment Agreement dated as of August 1, 1997
(the "Employment Agreement"), between you and Fidelity.
You agree to resign all positions, whether as an officer, director or employee,
with Bank Plus, Fidelity and their respective affiliates, all effective March
31, 1999, on the following terms and subject to the following conditions:
1. Fidelity would retain you for a period of 1 year commencing April
1,1999 to provide consulting services as an independent contractor to
the Company pursuant to a consulting agreement under which you would
make yourself available for not more than forty hours per month, in
exchange for which Fidelity would agree to pay you a bi-weekly
consulting fee of $6,807.70 during such period, for a total of
$177,000.20; such consulting agreement would not provide for a
non-compete provision; the full amount of any unpaid balance of the
consulting fee for any remaining term of the consulting agreement will
accelerate upon a change in control, as that term is defined in the
Employment Agreement;
2. Fidelity would provide you with health benefits for one year (the
Company would pay for the cost of coverage under COBRA, less the amount
you are currently paying for medical and dental coverage under the
Company's plans) or such shorter period of time until you obtain other
employment with reasonably comparable health benefits;
<PAGE>
Stephen J. Austin
November 23, 1998
Page 2
3. You would supply Bank Plus and Fidelity and their respective
affiliates, officers, directors, employees, consultants, accountants
and attorneys with a general release of all known and unknown claims;
4. Bank Plus and Fidelity would supply you with a release of all known
claims and claims which in the exercise of reasonable diligence should
have been known by Fidelity;
5. Bank Plus and Fidelity would reaffirm your rights to indemnification
under the terms of their respective bylaws and indemnity agreements
with you;
6. Fidelity would pay you for all accrued and unused vacation hours as of
March 31, 1999 at the rate of your current base salary, not to exceed
200 hours;
7. Subject to Compensation Committee approval, the restrictions on your
2,896 shares of restricted stock in the Bank Plus Corporation Stock
Option and Equity Incentive Plan will lapse and you would become 100%
vested as of April 1, 1999; however, all stock options will be
immediately released to the Company effective November 23, 1998;
8. You will remain entitled to your vested benefits under the Deferred
Compensation Plan and 401(k) Savings and Investment Plan; all other
employment related agreements, except as expressly provided for herein,
shall be of no force and effect after November 23, 1998; and
9. From the present until March 31, 1999, you agree to make yourself
reasonably available and your job responsibilities will include:
a. Completion of the documentation for all of the corrective
actions and responses to the report of examination from
the recent OTS safety and soundness examination.
b. Consistent with my recommended realignment and
reorganization of senior management, supporting and
working to effect an orderly reassignment and transition
of the departments and executives that report to you,
including the transition of the internal audit function
and the reassignment of the compliance department, credit
policy, credit administration, security, appraisal and
insurance.
c. Management and completion of the internal audit
co-sourcing partner project and the items specified in
your memorandum of November 20, 1998 to Christina
Sutherland (a copy of which attached hereto).
<PAGE>
Stephen J. Austin
November 23, 1998
Page 3
This agreement may be executed by the parties hereto in counterparts. After your
execution of this agreement, we will proceed with the finalization of the
consulting and release agreements.
Sincerely,
BANK PLUS CORPORATION
FIDELITY FEDERAL BANK, A FSB
By: /S/ MARK K. MASON
---------------------------------
Mark K. Mason,
Chief Executive Officer
The foregoing is accepted and agreed to
this 24th day of November, 1998
/S/ STEPHEN J. AUSTIN
- ---------------------------------
Stephen J. Austin
<PAGE>
EXHIBIT NO. 10.40
As of October 28, 1998
Mark K. Mason
Fidelity Federal Bank,
A Federal Savings Bank
4565 Colorado Boulevard
Los Angeles, California 90039
Dear Mr. Mason:
Bank Plus Corporation (the "COMPANY") and its principal subsidiary,
Fidelity Federal Bank, A Federal Savings Bank (the "BANK"), consider the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In order to attract and retain capable management personnel, the Company
considers it important to offer employment contracts such as this to specify
employment terms and to provide for job security. In this connection, the
Company and the Bank recognize that, as is the case with many publicly held
corporations, the possibility of severance or a change in control may arise and
that such possibility, and the uncertainty and questions which it may raise
among management of the Bank, may hinder the Bank's efforts to recruit qualified
management personnel and result in the departure or distraction of management
personnel, in each case to the detriment of the Company and the Bank and the
Company's shareholders. Accordingly, the Board of Directors of the Company (the
"BOARD") and the board of directors of the Bank have determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of management of the Bank to their assigned duties through
the use of employment contracts. In particular, the Board believes it important,
should the Company or its shareholders receive a proposal for transfer of
control of the Company or the Bank, that you be able to assess and advise the
Board whether such proposal would be in the best interests of the Company and
its shareholders and to take such other action regarding such proposal as the
Board might determine to be appropriate, without being influenced by the
uncertainties of your own situation.
In order to induce you to accept employment with the Company and the
Bank, this letter agreement among the Company, the Bank and Mark K. Mason
("YOU" or "EMPLOYEE") sets forth the terms of your employment by the Company and
the Bank.
<PAGE>
1. SPECIFIC POSITIONS; DUTIES AND RESPONSIBILITIES.
-----------------------------------------------
(a) The Company and you agree that, subject to the provisions of this
Agreement, the Company will employ Employee and Employee will serve the Company
as Chief Executive Officer of the Company and the Bank.
(b) You agree to devote substantially all of your time, energy and
ability to the business of the Company and the Bank. Without the prior approval
of the Company Board, which will not be unreasonably withheld, you shall not
serve as a director, consultant or trustee of other for-profit corporations or
businesses or invest more than one million dollars ($1,000,000.00) in any
corporation or business that competes with the Company or any of its affiliates.
Subject to the foregoing, Employee may (i) invest in real estate for his own
account, (ii) become a partner or a shareholder in any privately-held
corporation, partnership or other venture not in competition with the business
of the Company or any of its affiliates and (iii) become a partner or a
shareholder with an equity interest of not more than five percent (5%) in any
corporation, partnership or other venture whose equity securities are publicly
traded.
(c) Employee hereby represents and warrants to the Company and the Bank
that there exists no contractual relationship between Employee and either First
Alliance Corporation, First Alliance Mortgage Company or Brian Chisick that
would be violated by this Agreement or the transactions contemplated hereby or
that would impair or conflict with Employee's ability to perform pursuant to the
terms of, or to pursue the businesses contemplated by, this Agreement. Employee
has provided to the Company and the Bank proof of United States citizenship as
required by the Immigration Reform Act of 1988.
2. COMPENSATION.
------------
During the term of this Agreement, in consideration of all of
Employee's services to the Company and the Bank as contemplated by this
Agreement, the Bank or the Company, as specified below, shall provide to
Employee the following compensation:
(a) BASE COMPENSATION AND BONUS.
(i) The Bank shall pay Employee a base salary at the rate of three
hundred thousand dollars ($300,000.00) per year, subject to annual review for
possible increases at the discretion of the Board (as in effect from time to
time, the "BASE SALARY"). Such salary shall be payable in bi-weekly
installments. Amounts payable shall be reduced by withholding and other
authorized deductions.
(ii) The Bank shall pay Employee a bonus following the year 1998 in
respect of such year in the amount of one hundred thirty-four thousand, eight
hundred and eight dollars ($134,808.00). In respect of subsequent years,
subject to the requirements of executive incentive compensation plans of the
Company and the Bank as may be in effect from time to time, Employee will be
eligible for a target bonus from the Bank of a minimum of seventy-five percent
(75%) and a maximum of one hundred fifty percent (150%) of Base Salary.
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(b) STOCK OPTIONS.
(i) The Company shall grant, with an effective grant date of
November 19, 1998, to Employee, subject to the vesting provisions described in a
stock option agreement, options to acquire five hundred and eighty thousand
(580,000) shares of the Company's common stock, par value $.01 per share
("COMMON STOCK"), at an exercise price of $3.8125 per share (the closing price
per share of Common Stock on the Nasdaq National Market ("NASDAQ") on November
19, 1998). All such options granted under this Section 2(b) are referred to in
this Agreement as the "OPTIONS." Each Option shall represent the right to
acquire one (1) share of Common Stock.
(ii) All Options shall be issued under the Company's employee stock
option plan (the "STOCK PLAN") and will be embodied in the Company's standard
stock option agreement, subject to the provisions of this Agreement.
(c) GENERAL BENEFITS.
Employee shall also be entitled to all rights and benefits for
which Employee is otherwise eligible under any bonus, incentive, participation,
stock option, restricted stock or extra compensation plan, pension plan, profit
sharing plan, or any life, medical, dental, disability, accident or other
insurance plan or policy or other employee plan or benefit that Company or its
subsidiaries or affiliates may provide for Employee or (provided Employee is
eligible to participate therein) for employees of the Company generally, as from
time to time in effect, during the term of this Agreement (collectively,
"PLANS"). Employee shall also be entitled to participate in an additional
medical plan that provides up to twenty-five thousand dollars ($25,000.00) per
year for benefits not covered by the Bank's general medical plan.
(d) VACATION.
Employee shall accrue paid vacation time at the rate of one
hundred sixty (160) hours per year commencing from May 18, 1998; PROVIDED,
HOWEVER, that Employee shall not earn any additional vacation days in any year
in which Employee at any time has two hundred (200) or more hours of accrued but
unused vacation time.
3. RIGHT TO TERMINATE; AGREEMENT TO PROVIDE SERVICES.
-------------------------------------------------
You agree that during any period wherein you are employed by the
Company or the Bank that you will render faithful and competent services as may
be expected of an employee in the same or in a reasonably comparable position.
Nothing in this Agreement shall be construed as an assurance of continued
employment and the Company, the Bank or you may terminate your employment at any
time, subject to the Bank's providing the benefits hereinafter specified in
accordance with the terms hereof. For purposes of this Agreement, the
termination of Employee's employment by Company shall also constitute
termination of Employee's employment by the Bank, and vice versa.
3
<PAGE>
4. TERM OF AGREEMENT.
-----------------
(a) This Agreement shall commence on October 28, 1998 and shall
continue in effect until October 27, 2001; PROVIDED, HOWEVER, that commencing on
October 27, 2001 and each October 27 thereafter, the term of this Agreement
shall be extended for one additional year unless at least ninety (90) days prior
to such October 27 date, the Company, the Bank (after explicit review by their
respective Boards) or you shall have given notice that this Agreement shall not
be extended; PROVIDED, FURTHER, HOWEVER, that, notwithstanding the delivery of
any such notice, this Agreement shall continue in effect for a period of
thirty-six (36) months after a change in control of the Company or the Bank, as
defined in Section 5 hereof, if such change in control shall have occurred
during the term of this Agreement, or as it may be extended by the first proviso
set forth above.
(b) Notwithstanding anything in this Section 4 to the contrary:
(i) this Agreement shall terminate if you or the Bank terminate
your employment prior to a change in control, subject to the Bank's obligations
to you under Sections 6 through 8 hereof, or if you terminate your employment
without Good Reason after a change in control;
(ii) the obligations of the Bank hereunder shall terminate for so
long as you are suspended and/or temporarily prohibited from participating in
the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss. 1818(e)(3) and
(g)(1)) as of the date of service of such notice unless stayed by appropriate
proceedings; PROVIDED that if the charges in the notice are dismissed, the Bank
may in its discretion (A) pay you all or part of any payments within the terms
of this Agreement withheld while its obligations under this Agreement was
suspended and (B) reinstate (in whole or in part) any of its obligations which
were suspended;
(iii) the obligations of the Bank hereunder shall terminate if you
are removed and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. ss. 1818(e)(4) or (g)(1));
(iv) this Agreement shall terminate if the Bank is in default (as
defined in Section 3(x)(1) of the Federal Deposit Insurance Act); or
(v) all obligations under this Agreement shall be terminated,
except to the extent it is determined that continuation of this Agreement is
necessary for the continuous operation of the Bank:
(A) by the Director of the Office of Thrift Supervision (the
"DIRECTOR") or his or her designee, at the time the Federal Deposit Insurance
Corporation or the Resolution Trust Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the Federal Deposit Insurance Act; or
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<PAGE>
(B) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
Director to be in an unsafe or unsound condition;
PROVIDED, HOWEVER, that vested rights held by the Bank or you shall not be
affected by such termination.
5. DEFINITIONS.
-----------
(a) CHANGE IN CONTROL. A "CHANGE IN CONTROL" shall be deemed to occur
if (a) any "person" (as such term is defined in Section 3(a)(9) and as used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), excluding the Company, the Bank or any of the Company's other
subsidiaries, a trustee or any fiduciary holding securities under an employee
benefit plan of the Company, the Bank or any of the Company's other
subsidiaries, an underwriter temporarily holding securities pursuant to an
offering of such securities or a corporation owned, directly or indirectly, by
shareholders of the Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities ordinarily having the
right to vote at elections of directors ("VOTING SECURITIES"); or (b) during any
period of two (2) consecutive years, individuals who, at the beginning of such
period, constituted the board of directors of the Company or the Bank (together
with any new directors whose election or appointment to such board of directors
or whose nomination for election by the stockholders of Company or the Bank was
approved by a vote of two-thirds (2/3) of the directors of such board then still
in office who were either directors on such board at the beginning of such
period or whose election, appointment or nomination for election to such board
was previously so approved, but excluding any director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clause (a) or (b) of this sentence) cease for any reason to
constitute a majority of the board of directors of Company or the Bank then in
office; (c) a merger or consolidation of the Company with any other Person (as
defined below) closes, other than a merger or consolidation that results in
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the Company closes the sale or disposition by the Company of all or
substantially all of the Company's assets; (d) the Company closes a sale or
sales or other disposition or dispositions that results in the Company ceasing
to beneficially "own" (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, more than fifty percent (50%) of the Voting Securities
of the Bank; or (e) the Bank closes a sale or sales of all or substantially all
of the assets of the Bank, in a single transaction or series of transactions,
other than to a direct or indirect subsidiary of the Company; or (f) a merger or
other combination of the Bank with any other Person closes, as a result of which
the Company ceases to beneficially own, directly or indirectly, more than fifty
percent (50%) of the Voting Securities of the Bank or the surviving entity in
such merger or consolidation. For purposes of this Agreement, the term "PERSON"
5
<PAGE>
shall mean and include any individual, corporation, partnership, group,
association or other "person", as such term is used in Section 14(d) of the
Exchange Act, other than the Company, the Bank, any other subsidiary of the
Company or any Plan. Notwithstanding any provision in this Agreement to the
contrary, neither the appointment of the FDIC as a receiver of the Bank or a
change in composition of the Board of Directors by directive of the OTS or FDIC
shall constitute a "change-in-control" under this Agreement.
(b) DISABILITY. Termination by the Company or the Bank of your
employment based on "DISABILITY" shall mean termination because of your absence
from your duties with the Company or the Bank on a full time basis for one
hundred eighty (180) consecutive days as a result of your incapacity due to
physical or mental illness, unless within fifteen (15) days after Notice of
Termination (as defined below) is given to you following such absence you shall
have returned to the full time performance of your duties.
(c) RETIREMENT. Termination by you or by the Company or the Bank of
your employment based on "RETIREMENT" shall mean termination on or after your
attainment of age sixty-five (65).
(d) CAUSE. Termination by the Company or the Bank of your employment
for "CAUSE" shall mean termination upon (i) the willful and continued failure by
you to perform substantially your duties with the Company or the Bank (other
than any such failure resulting from your incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to you by the
Board or the board of directors of the Bank or the executive committee thereof,
which specifically identifies the manner in which such body believes that you
have not substantially performed your duties, or (ii) your gross negligence,
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order, or
material breach of any provision of this Agreement. For purposes of this Section
6(d), no act, or failure to act, on your part shall be considered "willful"
unless done, or omitted to be done, by you without reasonable belief that your
action or omission was in, or not opposed to, the best interests of the Company
and the Bank. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or the board of directors of the Bank or
based upon the advice of counsel for the Company or the Bank shall be
conclusively presumed to be done, or omitted to be done, by you in the best
interests of the Bank. It is also expressly understood that your attention to
matters not directly related to the business of the Bank shall not provide a
basis for termination for Cause so long as the Board or the board of directors
of the Bank has approved, after full disclosure of all material facts, your
engagement in such activities.
(e) GOOD REASON. Termination by you of your employment for "GOOD
REASON" shall mean termination based on:
(i) a material adverse change in your status or position(s) as an
executive officer of the Company or the Bank, including, without limitation, any
material adverse change in your status or position as a result of a substantial
diminution in your duties or responsibilities (other than, if applicable, any
such change directly attributable to the fact that the Company is no longer
publicly owned) or the assignment to you of any duties or responsibilities that
6
<PAGE>
are substantially inconsistent with such status or position(s), or any removal
of you from or any failure to reappoint or reelect you to such position(s)
(except in connection with the termination of your employment for Cause,
Disability or Retirement or as a result of your death or by you other than for
Good Reason);
(ii) a reduction by the Bank in your Base Salary;
(iii) the failure by the Company or the Bank to continue in effect
any Plan other than as a result of the normal expiration of any such Plan, or
the taking of any action, or the failure to act, by the Company or the Bank that
would adversely affect your continued participation in any of such Plans on at
least as favorable a basis to you or that would materially reduce your benefits
in the future under any of such Plans or deprive you of any material benefit
enjoyed by you, in each case unless such loss of plan, adverse effect or loss of
material benefits were experienced by all other executives of the Company and
the Bank;
(iv) the failure by the Bank to provide and credit you with the
number of paid vacation days to which you are then entitled in accordance with
its normal vacation policy;
(v) the requirement by the Bank that you be based at a different
office that is (i) greater than thirty-five (35) miles from where your
then-current office is located and (ii) that is farther from your then-current
principal place of residence than your then-current office, except for required
travel on the business of the Company or the Bank to an extent substantially
consistent with the business travel obligations that you undertook as of the
date of this Agreement; or
(vi) the failure by the Company and the Bank to obtain from any
Successor (as defined below) the assent to this Agreement contemplated by
Section 9.
(f) NOTICE OF TERMINATION. A "NOTICE OF TERMINATION" shall mean a
notice of termination of your employment that shall indicate the specific
termination provision in this Agreement relied upon.
(g) DATE OF TERMINATION. "DATE OF TERMINATION" shall mean (i) if your
employment is to be terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period), (ii) if your employment is to be terminated by the Company or the Bank
for Cause or by you for any reason, the date specified in the Notice of
Termination, or (iii) if your employment is to be terminated by the Company or
the Bank for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than forty-five (45) days
after the date on which a Notice of Termination is given, unless an earlier date
has been expressly agreed to by you in writing either in advance of, or after,
receiving such Notice of Termination. In the case of termination by the Company
or the Bank of your employment for Cause, if you have not previously expressly
agreed in writing to the termination, then within thirty (30) days after receipt
by you of the Notice of Termination with respect thereto, you may notify the
Bank that a dispute exists concerning the termination, in which event the Date
7
<PAGE>
of Termination shall be the date set either by mutual written agreement of the
parties or by the arbitrators in a proceeding as provided in Section 16 hereof.
6. TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL.
------------------------------------------------------
The Company, the Bank or you may terminate your employment at any time
prior to a change in control, subject to the Bank's providing the benefits
hereinafter specified. To be effective, any purported termination of your
employment by the Company, the Bank or you must be communicated by written
Notice of Termination to the other parties hereto.
(a) TERMINATION FOR CAUSE, WITHOUT GOOD REASON OR UPON DEATH,
DISABILITY OR RETIREMENT.
If the Company or the Bank terminates your employment for Cause or
Disability, you terminate your employment other than for Good Reason, or in the
event of your Retirement or death, the Bank shall be liable to you for (i)
earned but unpaid salary, (ii) any unpaid annual bonus that was earned in the
Bank's fiscal years prior to the fiscal year in which your employment
terminates, (iii) unreimbursed business expenses or other allowances that are
incurred through the date your employment terminates, and (iv) your vested
benefits under the Plans and (v) no other compensation. For purposes of the
preceding sentence, expense or allowances are incurred as of the date such
expenses are payable by you or the Bank.
(b) TERMINATION OTHER THAN FOR CAUSE OR TERMINATION FOR GOOD REASON.
If the Company or the Bank terminates your employment other than
for Cause or Disability or you terminate employment for Good Reason, the Bank
shall be liable for the payments and benefits described in Section 6(a) above
and shall provide you with the additional payments and benefits described below:
(i) BASE SALARY. The Bank shall continue to pay you for two (2)
years following the Date of Termination the higher of (A) your Base Salary as of
the Date of Termination or (B) your Base Salary as of the date of this
Agreement.
(ii) ANNUAL BONUS. Within thirty (30) days following the Date of
Termination, the Bank shall make a lump-sum cash payment to you in an amount
equal to two (2) times the average of the annual bonus (bonuses for partial
years of employment to be annualized) to which you were entitled for the Bank's
two (2) fiscal years ended prior to the Date of Termination (or, if you have not
been employed hereunder sufficiently long to have earned such two (2) bonuses,
two (2) times the amount of the bonus (annualized) paid or to be paid in respect
of year 1998 pursuant to Section 2(a)(ii)).
(iii) BENEFIT PLANS. The Bank shall maintain in full force and
effect, for the continued benefit of you and your dependents for a period
terminating on the earlier of (A) two (2) years following the Date of
Termination, (B) the commencement date of equivalent benefits from a new
employer or (C) your attainment of age sixty-five (65), all insured and
8
<PAGE>
self-insured employee health and welfare benefit plans in which you were
entitled to participate immediately prior to the Date of Termination, provided
that your continued participation is possible under the general terms and
provisions of such plans (and any applicable funding media) and you continue to
pay an amount equal to your regular contribution under such plans for such
participation. If, as of the third anniversary of the Date of Termination, you
have not reached your sixty-fifth (65th) birthday and you have not previously
received or are not then receiving equivalent benefits from a new employer, the
Bank shall arrange, at its sole cost and expense, to enable you to convert your
and your dependents' coverage under such plans to individual policies or
programs upon the same terms as employees of the Bank may apply for such
conversions. In the event that your participation in any plan is barred, the
Bank shall, at its sole cost and expense, arrange to have issued for the benefit
of you and your dependents individual policies of insurance providing benefits
substantially similar (on an after-tax basis) to those that you otherwise would
have been entitled to receive under such plans pursuant to this Section or, if
such insurance is not available at a reasonable cost to the Bank, the Bank shall
provide you and your dependents with equivalent benefits (on an after-tax
basis). You shall not be required to pay any premiums or other charges in an
amount greater than the amount you would have paid in order to participate in
such plans.
(iv) EQUITY AWARDS. The restrictions on any stock options,
restricted stock or other equity awards under the Company's Stock Option and
Equity Incentive Plan or any other equity incentive plan shall lapse and all
such awards shall become 100% vested.
7. TERMINATION FOLLOWING A CHANGE IN CONTROL.
-----------------------------------------
If any of the events described in Section 5 constituting a change in
control shall have occurred, you shall be entitled to the payments and benefits
provided in Section 8 hereof. If your employment hereunder is terminated other
than for Cause by the Company or the Bank prior to a change in control and such
termination (i) was at the request of a third party who has taken steps
reasonably calculated to effect a change in control and who effectuates a change
in control or (ii) otherwise occurred in connection with, or in anticipation of,
a change in control that actually occurs, then for all purposes of this
Agreement, the date of a change in control with respect to you shall mean the
date immediately prior to the date of such termination of your employment.
8. COMPENSATION UPON A CHANGE IN CONTROL; OTHER AGREEMENTS.
-------------------------------------------------------
(a) Subject to Sections 11 and 12, if, within thirty-six (36) months
after a change in control, as defined in Section 5, shall have occurred, your
employment by the Bank shall be terminated (i) by the Company or the Bank other
than for Cause, Disability or Retirement or (ii) by you for Good Reason, then
the Bank shall pay to you, no later than the fifth (5th) business day
thereafter, without regard to any contrary provisions of any Plan (other than
any deferral election pursuant to the Company's Deferred Compensation Plan) an
amount in cash equal to two and ninety-nine hundredths (2.99) times the sum of
(i) your annual Base Salary as in effect immediately prior to the change in
control, plus (ii) the average of the annual bonus (bonuses for partial years of
employment to be annualized) to which you were entitled for the Bank's three (3)
fiscal years ended prior to the change in control (or, if you have not been
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<PAGE>
employed hereunder sufficiently long to have earned such three (3) bonuses, the
average of annualized bonuses to which you were entitled during your employment
tenure hereunder, or, if you have not received any bonuses, the amount of the
bonus (annualized) to be paid in respect of year 1998 pursuant to Section
2(a)(ii)), plus (iii) an amount equal to the matching contribution you would
have received under the Bank's 401(k) plan if you had made the maximum
contribution under such plan during the year in which the Date of Termination
occurs. All amounts and benefits to which you are entitled under this Section 8
shall be reduced by the amount of any payments and benefits you receive under
Section 6.
(b) Further, if, within thirty-six (36) months after a change in
control shall have occurred, your employment by the Bank shall be terminated (i)
by the Company or the Bank other than for Cause, Disability or Retirement or
(ii) by you for Good Reason, then the Bank shall maintain in full force and
effect, for the continued benefit of you and your dependents for a period
terminating upon the earliest of (x) the expiration of thirty-six (36) months
after the Date of Termination, (y) the commencement date of equivalent benefits
from a new employer or (z) your attainment of age sixty-five (65), all insured
and self-insured employee health and welfare benefit Plans in which you were
entitled to participate immediately prior to the Date of Termination, provided
that your continued participation is possible under the general terms and
provisions of such Plans (and any applicable funding media) and you continue to
pay an amount equal to your regular contribution under such Plans for such
participation. If, after the expiration of thirty-six (36) months after the Date
of Termination, you have not reached your sixty-fifth (65th) birthday and you
have not previously received or are not then receiving equivalent benefits from
a new employer, the Bank shall arrange, at its sole cost and expense, to enable
you to convert your and your dependents' coverage under such Plans to individual
policies or programs upon the same terms as those for which employees of the
Bank may apply upon such conversions. In the event that your participation in
any such Plan is barred, the Bank shall, at its sole cost and expense, arrange
to have issued for the benefit of you and your dependents individual policies of
insurance providing benefits substantially similar (on an after-tax basis) to
those that you otherwise would have been entitled to receive under such Plans
pursuant to this Section 8(b) or, if such insurance is not available at a
reasonable cost to the Bank, the Bank shall provide you and your dependents with
equivalent benefits (on an after-tax basis). You shall not be required to pay
any premiums or other charges in an amount greater than that which you would
have paid in order to participate in such Plans.
(c) Except as specifically provided in Section 8(b), the amount of any
payment provided for in this Section 8 shall not be reduced, offset or subject
to recovery by the Company or the Bank by reason of any compensation earned by
you as the result of employment by another employer after the Date of
Termination, or otherwise.
(d) If, within thirty-six (36) months following a change in control,
the Company or the Bank purports to terminate your employment for Cause and you
contest the existence of Cause, then, during the pendency of any such dispute,
the Bank will continue to pay you your full compensation in effect just prior to
the time the Notice of Termination is given and until the dispute is resolved in
accordance with Section 16.
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<PAGE>
(e) In the event that you become entitled to the payments provided by
Section 8(a) (the "AGREEMENT PAYMENTS"), if any of the Agreement Payments will
be subject to the tax (the "EXCISE TAX") imposed by Section 4999 of the Internal
Revenue Code (the "CODE") (or any similar tax that may hereafter be imposed),
the Company shall pay to you at the time specified in Section 8(f) an additional
amount (the "GROSS-UP PAYMENT") such that the net amount retained by you, after
deduction of any Excise Tax on the Total Payments (as defined below) and any
federal, state and local income and employment tax and Excise Tax upon the
Gross-up Payment provided for by this Section 8(e) but before deduction for any
federal, state or local income and employment tax on the Agreement Payments,
shall be equal to the sum of (i) the Total Payments plus (ii) an amount equal to
the product of any deductions disallowed because of the inclusion of the
Gross-up Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made. Notwithstanding anything to the contrary
contained herein, the maximum Excise Tax rate used to calculate the Gross-up
Payment shall be 25%.
For purposes of determining whether any of the Agreement Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by you in connection with a
change in control of the Company or the Bank or your termination of employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, the Bank, any person whose actions result in a
change in control or any person affiliated with the Company or such person)
(which, together with the Agreement Payments, shall constitute the "TOTAL
PAYMENTS") shall be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless the Company's public accounting firm as of the date
immediately prior to the change in control (the "ACCOUNTING FIRM") determines
that such other payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to
the Excise Tax, (ii) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (x) the total amount
of the Total Payments or (y) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (i), above),
and (iii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Accounting Firm in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. The Accounting Firm shall provide
detailed supporting calculations to the Bank and you within fifteen (15)
business days of the receipt of notice from the Bank or you that there has been
an Agreement Payment, or such earlier time as is requested by the Bank. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the change in control, you may appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Bank and the Bank shall enter into any agreement
requested by the Accounting Firm in connection with the performance of its
services hereunder.
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<PAGE>
For purposes of determining the amount of the Gross-up Payment, you
shall be deemed to (i) pay federal income taxes at the highest marginal rate of
federal income taxation for the calendar year in which the Gross-up Payment is
to be made, (ii) pay the applicable state and local income and employment taxes
at the highest marginal rate of taxation for the calendar year in which the
Gross-up Payment is to be made, net of the maximum reduction in federal income
taxes that could be obtained from deduction of such state and local taxes
(determined without regard to limitations on deductions based upon the amount of
your adjusted gross income), and (iii) have otherwise allowable deductions for
federal income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in your adjusted gross income. In the event
that the Excise Tax is subsequently determined to be less than the amount taken
into account hereunder at the time the Gross-up Payment is made, you shall repay
to the Bank at the time that the amount of such reduction in Excise Tax is
finally determined the portion of the Gross-up Payment attributable to such
reduction (plus the portion of the Gross-up Payment attributable to the Excise
Tax and federal and state and local income tax imposed on the portion of the
Gross-up Payment being repaid by you if such repayment results in a reduction in
Excise Tax and/or a federal and state and local income tax deduction), plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the Gross-up Payment
is made (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-up Payment), the Bank shall make
an additional Gross-up Payment in respect of such excess (plus any interest
payable with respect to such excess at the rate provided in Section
1274(b)(2)(B) of the Code) at the time that the amount of such excess is finally
determined. To the extent permitted by law, any payment you make to the Bank
pursuant to this Section 8(e) will be treated as a reduction in gross wages for
purposes of payroll tax and income tax reporting to the extent the related
overpayment to you by the Bank was treated as wages for such purposes.
(f) The Gross-up Payment or portion thereof provided for in Section
8(e) shall be paid not later than the thirtieth (30th) day following payment of
any amounts under Section 8(a); PROVIDED, HOWEVER, that if the amount of such
Gross-up Payment or portion thereof cannot be finally determined on or before
such day, the Bank shall pay to you on such day an estimate, as determined in
good faith by the Bank, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined, but in no event later than the forty-fifth (45th) day after payment
of any amounts under Section 8(a). In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Bank to you, payable on the fifth (5th)
day after demand by the Bank (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). To the extent permitted by law, any payment
(other than payment of interest) you make to the Bank pursuant to this Section
8(f) will be treated as a reduction in gross wages for purposes of payroll tax
and income tax reporting to the extent the related overpayment to you by the
Bank was treated as wages for such purposes.
(g) The provisions of Sections 7 and 8 shall only apply in respect of
the first change in control event that occurs after the date of this Agreement,
and in no event shall benefits be paid for any subsequent change in control.
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9. SUCCESSORS; BINDING AGREEMENT.
-----------------------------
(a) The Company and the Bank will seek, by written request at least
five (5) business days prior to the time a Person becomes a Successor (as
defined below), to have such Person by agreement in form and substance
satisfactory to you, assent to the fulfillment of the Bank's obligations under
this Agreement. Failure of such Person to furnish such assent by the later of
(i) three (3) business days prior to the time such Person becomes Successor or
(ii) two (2) business days after such Person receives a written request to so
assent shall constitute Good Reason for termination by you of your employment if
a change in control occurs or has occurred. For purposes of this Agreement,
"SUCCESSOR" shall mean any Person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Bank's business
directly, by merger or consolidation, or indirectly, by purchase of the Voting
Securities of the Company or the Bank or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
be no such designee, to your estate.
(c) For purposes of this Agreement, the "Bank" and the "Company" shall
include any corporation or other entity that is the surviving or continuing
entity in respect of any merger, consolidation or form of business combination
in which the Bank or the Company, respectively, ceases to exist.
10. FEES, EXPENSES AND INTEREST; MITIGATION.
---------------------------------------
(a) If the Company or the Bank terminates your employment within
thirty-six (36) months after a change in control, then the Bank shall reimburse
you, on a current basis, for all reasonable legal fees and related expenses
incurred by you in connection with the Agreement or in any related arbitration
proceeding, including, without limitation, (i) all such fees and expenses, if
any, incurred in contesting or disputing any termination of your employment or
(ii) your seeking to obtain or enforce any right or benefit provided by this
Agreement, in each case, regardless of whether or not your claim is upheld in
arbitration; PROVIDED, HOWEVER, you shall be required to repay any such amounts
to the Bank to the extent that an arbitrator issues a final decision setting
forth the determination that the position taken by you was without merit,
frivolous or advanced by you in bad faith. In addition to the fees and expenses
provided herein, you shall also be paid interest on any disputed amount
ultimately paid to you at the prime rate announced by the Bank from time to time
from the date payment should have been made until paid in full.
(b) You shall not be required to mitigate the amount of any payment the
Company or the Bank becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise. Except as specifically
provided in Sections 6(b)(iii) and 8(b), the amount of any payment and benefit
provided for in Sections 6 and 8 shall not be reduced, offset or subject to
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recovery by the Company or the Bank by reason of any compensation earned by you
as the result of employment by another employer or otherwise.
11. TAXES.
-----
All payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment taxes.
12. OTHER LIMITATIONS ON PAYMENTS.
-----------------------------
Any payments made to you pursuant to this Agreement, or otherwise, are
subject to and conditioned upon their compliance with 12 U.S.C. ss.1828(k) and
any regulations promulgated thereunder.
13. NOTICE.
------
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed, in the
case of the Company or the Bank, to the address set forth on the first page of
this Agreement or, in the case of the undersigned employee, to the address set
forth below his signature, provided that all notices to the Bank shall be
directed to the attention of the Company and President of the Bank, with a copy
to the Secretary of the Bank, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
14. MISCELLANEOUS.
-------------
No provision of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in a writing signed
by you and the Chief Executive Officer or President of the Company and of the
Bank. No waiver by either party hereto at any time of any breach by the other
party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California applied without regard to conflict of
laws principles.
15. VALIDITY; REPRESENTATION BY COUNSEL; INTERPRETATION.
---------------------------------------------------
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect. Each party hereto
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acknowledges that it or he has been represented by counsel in connection with
this Agreement and the matters contemplated by this Agreement. Accordingly, any
rule of law, including but not limited to Section 1654 of the California Civil
Code, or any legal decision that would require interpretation of any claimed
ambiguities in this Agreement against the party that drafted it has no
application and is expressly waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the intent of the parties.
16. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in the County of Los
Angeles, State of California by one arbitrator in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; PROVIDED, HOWEVER, that
you shall be entitled to seek specific performance in such arbitration of your
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement. The
Bank shall bear all costs and expenses (including, without limitation,
reasonable legal fees and expenses) arising in connection with any arbitration
proceeding pursuant to this Section 16; PROVIDED, HOWEVER, that you shall bear
such costs and expenses to the extent that an arbitrator issues a final decision
setting forth the determination that the position taken by you was without
merit, frivolous or advanced by you in bad faith.
17. EMPLOYEE'S POST-EMPLOYMENT COMMITMENT.
-------------------------------------
You agree that subsequent to your period of employment with the Bank,
you will not at any time communicate or disclose to any unauthorized person,
without the written consent of the Bank, any proprietary processes of the
Company or of the Bank or any other subsidiary of the Company or other
confidential information concerning their business, affairs, products, suppliers
or customers which, if disclosed, would have a material adverse effect upon the
business or operations of the Company, the Bank and the other subsidiaries,
taken as a whole; it being understood, however, that the obligations of this
Section 17 shall not apply to the extent that the aforesaid matters (a) are
disclosed in circumstances where you are legally required to do so or (b) become
generally known to and available for use by the public otherwise than by your
wrongful act or omission. The provisions of this Section 17 do not apply to the
OTS or other federal banking agencies.
18. WITNESS FEES.
------------
If, at any time after the termination of this Agreement, Employee is
requested by the Company or any affiliate of the Company, or is required, to
testify or to provide evidence or otherwise to perform services in relation to
litigation or similar proceedings (civil, administrative, arbitral or otherwise)
in which the Company or any affiliate of the Company, but not Employee, is a
named party or is otherwise involved,
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(a) Employee shall be paid by the Company (i) with respect to each day
that Employee appears as a witness or is deposed, at the rate of one thousand
dollars ($1,000.00) per day, and (ii) with respect to each day that Employee is
involved in the preparation therefor, at the rate of five hundred dollars
($500.00) per day, and
(b) Employee shall be reimbursed by the Company for reasonable travel
and accommodation expenses if such services are required to be performed outside
of the city of Employee's domicile.
19. RELATED AGREEMENTS.
------------------
To the extent that any provision of any other agreement between the
Company, the Bank or any of the other subsidiaries of the Company and you shall
limit, qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other agreement shall
be deemed to have been superseded, and to be of no force or effect, as if such
other agreement had been formally amended to the extent necessary to accomplish
such purpose.
20. COUNTERPARTS.
------------
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
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If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Bank the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
FIDELITY FEDERAL BANK,
A FEDERAL SAVINGS BANK
By:
-------------------------------------------
Name: James E. Stutz
Title: President and Chief Operating Officer
BANK PLUS CORPORATION
By:
-------------------------------------------
Name: Gordon V. Smith
Title: Chairman
ACCEPTED AND AGREED TO:
- ----------------------------------------------
Mark K. Mason
Address:
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
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The payment of all obligations and liabilities of Fidelity Federal
Bank, A Federal Savings Bank, under this Agreement is specifically guaranteed by
Bank Plus Corporation.
BANK PLUS CORPORATION
By:
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Name: Gordon V. Smith
Title: Chairman
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EXHIBIT NO. 10.41
As of November 19, 1998
Godfrey B. Evans
Fidelity Federal Bank,
A Federal Savings Bank
4565 Colorado Boulevard
Los Angeles, California 90039
Dear Mr. Evans:
Bank Plus Corporation (the "COMPANY") and its principal subsidiary,
Fidelity Federal Bank, A Federal Savings Bank (the "BANK"), consider the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In order to attract and retain capable management personnel, the Company
considers it important to offer employment contracts such as this to specify
employment terms and to provide for job security. In this connection, the
Company and the Bank recognize that, as is the case with many publicly held
corporations, the possibility of severance or a change in control may arise and
that such possibility, and the uncertainty and questions which it may raise
among management of the Bank, may hinder the Bank's efforts to recruit qualified
management personnel and result in the departure or distraction of management
personnel, in each case to the detriment of the Company and the Bank and the
Company's shareholders. Accordingly, the Board of Directors of the Company (the
"BOARD") and the board of directors of the Bank have determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of management of the Bank to their assigned duties through
the use of employment contracts. In particular, the Board believes it important,
should the Company or its shareholders receive a proposal for transfer of
control of the Company or the Bank, that you be able to assess and advise the
Board whether such proposal would be in the best interests of the Company and
its shareholders and to take such other action regarding such proposal as the
Board might determine to be appropriate, without being influenced by the
uncertainties of your own situation.
In order to induce you to accept employment with the Company and the
Bank, this letter agreement among the Company, the Bank and Godfrey B. Evans
("YOU" or "EMPLOYEE") sets forth the terms of your employment by the Company and
the Bank.
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1. SPECIFIC POSITIONS; DUTIES AND RESPONSIBILITIES.
-----------------------------------------------
(a) The Company and you agree that, subject to the provisions of this
Agreement, the Company will employ Employee and Employee will serve the Company
as Chief Administrative Officer, Executive Vice President and General Counsel of
the Company and the Bank.
(b) You agree to devote substantially all of your time, energy and
ability to the business of the Company and the Bank. Without the prior approval
of the Company Board, which will not be unreasonably withheld, you shall not
serve as a director, consultant or trustee of other for-profit corporations or
businesses or invest more than one million dollars ($1,000,000.00) in any
corporation or business that competes with the Company or any of its affiliates.
Subject to the foregoing, Employee may (i) invest in real estate for his own
account, (ii) become a partner or a shareholder in any privately-held
corporation, partnership or other venture not in competition with the business
of the Company or any of its affiliates and (iii) become a partner or a
shareholder with an equity interest of not more than five percent (5%) in any
corporation, partnership or other venture whose equity securities are publicly
traded.
(c) Employee has provided to the Company and the Bank proof of United
States citizenship as required by the Immigration Reform Act of 1988.
2. COMPENSATION.
------------
During the term of this Agreement, in consideration of all of
Employee's services to the Company and the Bank as contemplated by this
Agreement, the Bank or the Company, as specified below, shall provide to
Employee the following compensation:
(a) BASE COMPENSATION AND BONUS.
(i) The Bank shall pay Employee a base salary at the rate of two
hundred thirty thousand dollars ($230,000.00) per year, subject to annual review
for possible increases at the discretion of the Board (as in effect from time to
time, the "BASE SALARY"). Such salary shall be payable in bi-weekly
installments. Amounts payable shall be reduced by withholding and other
authorized deductions.
(ii) Subject to the requirements of executive incentive
compensation plans of the Company and the Bank as may be in effect from time to
time, Employee will be eligible for a target bonus from the Bank of a minimum of
fifty percent (50%) and a maximum of one hundred percent (100%) of Base Salary.
(b) STOCK OPTIONS.
(i) The Company shall grant, with an effective grant date of
November 19, 1998, to Employee, subject to the vesting provisions described in a
stock option agreement, options to acquire two hundred fifty thousand (250,000)
shares of the Company's common stock, par value $.01 per share ("COMMON STOCK"),
at an exercise price of $3.8125 per share (the closing price per share of Common
Stock on the Nasdaq National Market ("NASDAQ") on November 19, 1998). All such
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options granted under this Section 2(b) are referred to in this Agreement as the
"OPTIONS." Each Option shall represent the right to acquire one (1) share of
Common Stock.
(ii) All Options shall be issued under the Company's employee stock
option plan (the "STOCK PLAN") and will be embodied in the Company's standard
stock option agreement, subject to the provisions of this Agreement.
(c) GENERAL BENEFITS.
Employee shall also be entitled to all rights and benefits for
which Employee is otherwise eligible under any bonus, incentive, participation,
stock option, restricted stock or extra compensation plan, pension plan, profit
sharing plan, or any life, medical, dental, disability, accident or other
insurance plan or policy or other employee plan or benefit that Company or its
subsidiaries or affiliates may provide for Employee or (provided Employee is
eligible to participate therein) for employees of the Company generally, as from
time to time in effect, during the term of this Agreement (collectively,
"PLANS").
(d) VACATION.
Employee shall accrue paid vacation time at the rate of one hundred
sixty (160) hours per year commencing from November 19, 1998; PROVIDED, HOWEVER,
that Employee shall not earn any additional vacation days in any year in which
Employee at any time has two hundred (200) or more hours of accrued but unused
vacation time.
3. RIGHT TO TERMINATE; AGREEMENT TO PROVIDE SERVICES.
--------------------------------------------------
You agree that during any period wherein you are employed by the
Company or the Bank that you will render faithful and competent services as may
be expected of an employee in the same or in a reasonably comparable position.
Nothing in this Agreement shall be construed as an assurance of continued
employment and the Company, the Bank or you may terminate your employment at any
time, subject to the Bank's providing the benefits hereinafter specified in
accordance with the terms hereof. For purposes of this Agreement, the
termination of Employee's employment by Company shall also constitute
termination of Employee's employment by the Bank, and vice versa.
4. TERM OF AGREEMENT.
-----------------
(a) This Agreement shall commence on November 19, 1998 and shall
continue in effect until November 19, 2001; PROVIDED, HOWEVER, that commencing
on November 19, 2001 and each November 19 thereafter, the term of this Agreement
shall be extended for one additional year unless at least ninety (90) days prior
to such November 19 date, the Company, the Bank (after explicit review by their
respective Boards) or you shall have given notice that this Agreement shall not
be extended; PROVIDED, FURTHER, HOWEVER, that, notwithstanding the delivery of
any such notice, this Agreement shall continue in effect for a period of
twenty-four (24) months after a change in control of the Company or the Bank, as
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defined in Section 5 hereof, if such change in control shall have occurred
during the term of this Agreement, or as it may be extended by the first proviso
set forth above.
(b) Notwithstanding anything in this Section 4 to the contrary:
(i) this Agreement shall terminate if you or the Bank terminate
your employment prior to a change in control, subject to the Bank's obligations
to you under Sections 6 through 8 hereof, or if you terminate your employment
without Good Reason after a change in control;
(ii) the obligations of the Bank hereunder shall terminate for so
long as you are suspended and/or temporarily prohibited from participating in
the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss. 1818(e)(3) and
(g)(1)) as of the date of service of such notice unless stayed by appropriate
proceedings; PROVIDED that if the charges in the notice are dismissed, the Bank
may in its discretion (A) pay you all or part of any payments within the terms
of this Agreement withheld while its obligations under this Agreement was
suspended and (B) reinstate (in whole or in part) any of its obligations which
were suspended;
(iii) the obligations of the Bank hereunder shall terminate if you
are removed and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. ss. 1818(e)(4) or (g)(1));
(iv) this Agreement shall terminate if the Bank is in default (as
defined in Section 3(x)(1) of the Federal Deposit Insurance Act); or
(v) all obligations under this Agreement shall be terminated,
except to the extent it is determined that continuation of this Agreement is
necessary for the continuous operation of the Bank:
(A) by the Director of the Office of Thrift Supervision (the
"DIRECTOR") or his or her designee, at the time the Federal Deposit Insurance
Corporation or the Resolution Trust Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the Federal Deposit Insurance Act; or
(B) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
Director to be in an unsafe or unsound condition;
PROVIDED, HOWEVER, that vested rights held by the Bank or you shall not be
affected by such termination.
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5. DEFINITIONS.
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(a) CHANGE IN CONTROL. A "CHANGE IN CONTROL" shall be deemed to occur
if (a) any "person" (as such term is defined in Section 3(a)(9) and as used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), excluding the Company, the Bank or any of the Company's other
subsidiaries, a trustee or any fiduciary holding securities under an employee
benefit plan of the Company, the Bank or any of the Company's other
subsidiaries, an underwriter temporarily holding securities pursuant to an
offering of such securities or a corporation owned, directly or indirectly, by
shareholders of the Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities ordinarily having the
right to vote at elections of directors ("VOTING SECURITIES"); or (b) during any
period of two (2) consecutive years, individuals who, at the beginning of such
period, constituted the board of directors of the Company or the Bank (together
with any new directors whose election or appointment to such board of directors
or whose nomination for election by the stockholders of Company or the Bank was
approved by a vote of two-thirds (2/3) of the directors of such board then still
in office who were either directors on such board at the beginning of such
period or whose election, appointment or nomination for election to such board
was previously so approved, but excluding any director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clause (a) or (b) of this sentence) cease for any reason to
constitute a majority of the board of directors of Company or the Bank then in
office; (c) a merger or consolidation of the Company with any other Person (as
defined below) closes, other than a merger or consolidation that results in
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the Company closes the sale or disposition by the Company of all or
substantially all of the Company's assets; (d) the Company closes a sale or
sales or other disposition or dispositions that results in the Company ceasing
to beneficially "own" (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, more than fifty percent (50%) of the Voting Securities
of the Bank; or (e) the Bank closes a sale or sales of all or substantially all
of the assets of the Bank, in a single transaction or series of transactions,
other than to a direct or indirect subsidiary of the Company; or (f) a merger or
other combination of the Bank with any other Person closes, as a result of which
the Company ceases to beneficially own, directly or indirectly, more than fifty
percent (50%) of the Voting Securities of the Bank or the surviving entity in
such merger or consolidation. For purposes of this Agreement, the term "PERSON"
shall mean and include any individual, corporation, partnership, group,
association or other "person", as such term is used in Section 14(d) of the
Exchange Act, other than the Company, the Bank, any other subsidiary of the
Company or any Plan. Notwithstanding any provision in this Agreement to the
contrary, neither the appointment of the FDIC as a receiver of the Bank or a
change in composition of the Board of Directors by directive of the OTS or FDIC
shall constitute a "change-in-control" under this Agreement.
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(b) DISABILITY. Termination by the Company or the Bank of your
employment based on "DISABILITY" shall mean termination because of your absence
from your duties with the Company or the Bank on a full time basis for one
hundred eighty (180) consecutive days as a result of your incapacity due to
physical or mental illness, unless within fifteen (15) days after Notice of
Termination (as defined below) is given to you following such absence you shall
have returned to the full time performance of your duties.
(c) RETIREMENT. Termination by you or by the Company or the Bank of
your employment based on "RETIREMENT" shall mean termination on or after your
attainment of age sixty-five (65).
(d) CAUSE. Termination by the Company or the Bank of your employment
for "CAUSE" shall mean termination upon (i) the willful and continued failure by
you to perform substantially your duties with the Company or the Bank (other
than any such failure resulting from your incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to you by the
Board or the board of directors of the Bank or the executive committee thereof,
which specifically identifies the manner in which such body believes that you
have not substantially performed your duties, or (ii) your gross negligence,
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order, or
material breach of any provision of this Agreement. For purposes of this Section
6(d), no act, or failure to act, on your part shall be considered "willful"
unless done, or omitted to be done, by you without reasonable belief that your
action or omission was in, or not opposed to, the best interests of the Company
and the Bank. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or the board of directors of the Bank or
based upon the advice of counsel for the Company or the Bank shall be
conclusively presumed to be done, or omitted to be done, by you in the best
interests of the Bank. It is also expressly understood that your attention to
matters not directly related to the business of the Bank shall not provide a
basis for termination for Cause so long as the Board or the board of directors
of the Bank has approved, after full disclosure of all material facts, your
engagement in such activities.
(e) GOOD REASON. Termination by you of your employment for "GOOD
REASON" shall mean termination based on:
(i) a material adverse change in your status or position(s) as an
executive officer of the Company or the Bank, including, without limitation, any
material adverse change in your status or position as a result of a substantial
diminution in your duties or responsibilities (other than, if applicable, any
such change directly attributable to the fact that the Company is no longer
publicly owned) or the assignment to you of any duties or responsibilities that
are substantially inconsistent with such status or position(s), or any removal
of you from or any failure to reappoint or reelect you to such position(s)
(except in connection with the termination of your employment for Cause,
Disability or Retirement or as a result of your death or by you other than for
Good Reason);
(ii) a reduction by the Bank in your Base Salary;
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(iii) the failure by the Company or the Bank to continue in effect
any Plan other than as a result of the normal expiration of any such Plan, or
the taking of any action, or the failure to act, by the Company or the Bank that
would adversely affect your continued participation in any of such Plans on at
least as favorable a basis to you or that would materially reduce your benefits
in the future under any of such Plans or deprive you of any material benefit
enjoyed by you, in each case unless such loss of plan, adverse effect or loss of
material benefits were experienced by all other executives of the Company and
the Bank;
(iv) the failure by the Bank to provide and credit you with the
number of paid vacation days to which you are then entitled in accordance with
its normal vacation policy;
(v) the requirement by the Bank that you be based at a different
office that is (i) greater than thirty-five (35) miles from where your
then-current office is located and (ii) that is farther from your then-current
principal place of residence than your then-current office, except for required
travel on the business of the Company or the Bank to an extent substantially
consistent with the business travel obligations that you undertook as of the
date of this Agreement; or
(vi) the failure by the Company and the Bank to obtain from any
Successor (as defined below) the assent to this Agreement contemplated by
Section 9.
(f) NOTICE OF TERMINATION. A "NOTICE OF TERMINATION" shall mean a
notice of termination of your employment that shall indicate the specific
termination provision in this Agreement relied upon.
(g) DATE OF TERMINATION. "DATE OF TERMINATION" shall mean (i) if your
employment is to be terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period), (ii) if your employment is to be terminated by the Company or the Bank
for Cause or by you for any reason, the date specified in the Notice of
Termination, or (iii) if your employment is to be terminated by the Company or
the Bank for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than forty-five (45) days
after the date on which a Notice of Termination is given, unless an earlier date
has been expressly agreed to by you in writing either in advance of, or after,
receiving such Notice of Termination. In the case of termination by the Company
or the Bank of your employment for Cause, if you have not previously expressly
agreed in writing to the termination, then within thirty (30) days after receipt
by you of the Notice of Termination with respect thereto, you may notify the
Bank that a dispute exists concerning the termination, in which event the Date
of Termination shall be the date set either by mutual written agreement of the
parties or by the arbitrators in a proceeding as provided in Section 16 hereof.
6. TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL.
------------------------------------------------------
The Company, the Bank or you may terminate your employment at any time
prior to a change in control, subject to the Bank's providing the benefits
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hereinafter specified. To be effective, any purported termination of your
employment by the Company, the Bank or you must be communicated by written
Notice of Termination to the other parties hereto.
(a) TERMINATION FOR CAUSE, WITHOUT GOOD REASON OR UPON DEATH,
DISABILITY OR RETIREMENT.
If the Company or the Bank terminates your employment for Cause or
Disability, you terminate your employment other than for Good Reason, or in the
event of your Retirement or death, the Bank shall be liable to you for (i)
earned but unpaid salary, (ii) any unpaid annual bonus that was earned in the
Bank's fiscal years prior to the fiscal year in which your employment
terminates, (iii) unreimbursed business expenses or other allowances that are
incurred through the date your employment terminates, and (iv) your vested
benefits under the Plans and (v) no other compensation. For purposes of the
preceding sentence, expense or allowances are incurred as of the date such
expenses are payable by you or the Bank.
(b) TERMINATION OTHER THAN FOR CAUSE OR TERMINATION FOR GOOD REASON.
If the Company or the Bank terminates your employment other than
for Cause or Disability or you terminate employment for Good Reason, the Bank
shall be liable for the payments and benefits described in Section 6(a) above
and shall provide you with the additional payments and benefits described below:
(i) BASE SALARY. The Bank shall continue to pay you for two (2)
years following the Date of Termination the higher of (A) your Base Salary as of
the Date of Termination or (B) your Base Salary as of the date of this
Agreement.
(ii) ANNUAL BONUS. Within thirty (30) days following the Date of
Termination, the Bank shall make a lump-sum cash payment to you in an amount
equal to two (2) times the average of the annual bonus (bonuses for partial
years of employment to be annualized) to which you were entitled for the Bank's
two (2) fiscal years ended prior to the Date of Termination (or, if you have not
been employed hereunder sufficiently long to have earned such two (2) bonuses,
two (2) times the amount of the bonus (annualized) paid or to be paid in respect
of year 1998 pursuant to Section 2(a)(ii)).
(iii) BENEFIT PLANS. The Bank shall maintain in full force and
effect, for the continued benefit of you and your dependents for a period
terminating on the earlier of (A) two (2) years following the Date of
Termination, (B) the commencement date of equivalent benefits from a new
employer or (C) your attainment of age sixty-five (65), all insured and
self-insured employee health and welfare benefit plans in which you were
entitled to participate immediately prior to the Date of Termination, provided
that your continued participation is possible under the general terms and
provisions of such plans (and any applicable funding media) and you continue to
pay an amount equal to your regular contribution under such plans for such
participation. If, as of the third anniversary of the Date of Termination, you
have not reached your sixty-fifth (65th) birthday and you have not previously
received or are not then receiving equivalent benefits from a new employer, the
Bank shall arrange, at its sole cost and expense, to enable you to convert your
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and your dependents' coverage under such plans to individual policies or
programs upon the same terms as employees of the Bank may apply for such
conversions. In the event that your participation in any plan is barred, the
Bank shall, at its sole cost and expense, arrange to have issued for the benefit
of you and your dependents individual policies of insurance providing benefits
substantially similar (on an after-tax basis) to those that you otherwise would
have been entitled to receive under such plans pursuant to this Section or, if
such insurance is not available at a reasonable cost to the Bank, the Bank shall
provide you and your dependents with equivalent benefits (on an after-tax
basis). You shall not be required to pay any premiums or other charges in an
amount greater than the amount you would have paid in order to participate in
such plans.
(iv) EQUITY AWARDS. The restrictions on any stock options,
restricted stock or other equity awards under the Company's Stock Option and
Equity Incentive Plan or any other equity incentive plan shall lapse and all
such awards shall become 100% vested.
7. TERMINATION FOLLOWING A CHANGE IN CONTROL.
-----------------------------------------
If any of the events described in Section 5 constituting a change in
control shall have occurred, you shall be entitled to the payments and benefits
provided in Section 8 hereof. If your employment hereunder is terminated other
than for Cause by the Company or the Bank prior to a change in control and such
termination (i) was at the request of a third party who has taken steps
reasonably calculated to effect a change in control and who effectuates a change
in control or (ii) otherwise occurred in connection with, or in anticipation of,
a change in control that actually occurs, then for all purposes of this
Agreement, the date of a change in control with respect to you shall mean the
date immediately prior to the date of such termination of your employment.
8. COMPENSATION UPON A CHANGE IN CONTROL; OTHER AGREEMENTS.
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(a) Subject to Sections 11 and 12, if, within twenty-four (24) months
after a change in control, as defined in Section 5, shall have occurred, your
employment by the Bank shall be terminated (i) by the Company or the Bank other
than for Cause, Disability or Retirement or (ii) by you for Good Reason, then
the Bank shall pay to you, no later than the fifth (5th) business day
thereafter, without regard to any contrary provisions of any Plan (other than
any deferral election pursuant to the Company's Deferred Compensation Plan) an
amount in cash equal to two (2) times the sum of (i) your annual Base Salary as
in effect immediately prior to the change in control, plus (ii) the average of
the annual bonus (bonuses for partial years of employment to be annualized) to
which you were entitled for the Bank's three (3) fiscal years ended prior to the
change in control, plus (iii) an amount equal to the matching contribution you
would have received under the Bank's 401(k) plan if you had made the maximum
contribution under such plan during the year in which the Date of Termination
occurs. All amounts and benefits to which you are entitled under this Section 8
shall be reduced by the amount of any payments and benefits you receive under
Section 6.
(b) Further, if, within twenty-four (24) months after a change in
control shall have occurred, your employment by the Bank shall be terminated (i)
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by the Company or the Bank other than for Cause, Disability or Retirement or
(ii) by you for Good Reason, then the Bank shall maintain in full force and
effect, for the continued benefit of you and your dependents for a period
terminating upon the earliest of (x) the expiration of twenty-four (24) months
after the Date of Termination, (y) the commencement date of equivalent benefits
from a new employer or (z) your attainment of age sixty-five (65), all insured
and self-insured employee health and welfare benefit Plans in which you were
entitled to participate immediately prior to the Date of Termination, provided
that your continued participation is possible under the general terms and
provisions of such Plans (and any applicable funding media) and you continue to
pay an amount equal to your regular contribution under such Plans for such
participation. If, after the expiration of twenty-four (24) months after the
Date of Termination, you have not reached your sixty-fifth (65th) birthday and
you have not previously received or are not then receiving equivalent benefits
from a new employer, the Bank shall arrange, at its sole cost and expense, to
enable you to convert your and your dependents' coverage under such Plans to
individual policies or programs upon the same terms as those for which employees
of the Bank may apply upon such conversions. In the event that your
participation in any such Plan is barred, the Bank shall, at its sole cost and
expense, arrange to have issued for the benefit of you and your dependents
individual policies of insurance providing benefits substantially similar (on an
after-tax basis) to those that you otherwise would have been entitled to receive
under such Plans pursuant to this Section 8(b) or, if such insurance is not
available at a reasonable cost to the Bank, the Bank shall provide you and your
dependents with equivalent benefits (on an after-tax basis). You shall not be
required to pay any premiums or other charges in an amount greater than that
which you would have paid in order to participate in such Plans.
(c) Except as specifically provided in Section 8(b), the amount of any
payment provided for in this Section 8 shall not be reduced, offset or subject
to recovery by the Company or the Bank by reason of any compensation earned by
you as the result of employment by another employer after the Date of
Termination, or otherwise.
(d) If, within twenty-four (24) months following a change in control,
the Company or the Bank purports to terminate your employment for Cause and you
contest the existence of Cause, then, during the pendency of any such dispute,
the Bank will continue to pay you your full compensation in effect just prior to
the time the Notice of Termination is given and until the dispute is resolved in
accordance with Section 16.
(e) In the event that you become entitled to the payments provided by
Section 8(a) (the "AGREEMENT PAYMENTS"), if any of the Agreement Payments will
be subject to the tax (the "EXCISE TAX") imposed by Section 4999 of the Internal
Revenue Code (the "CODE") (or any similar tax that may hereafter be imposed),
the Company shall pay to you at the time specified in Section 8(f) an additional
amount (the "GROSS-UP PAYMENT") such that the net amount retained by you, after
deduction of any Excise Tax on the Total Payments (as defined below) and any
federal, state and local income and employment tax and Excise Tax upon the
Gross-up Payment provided for by this Section 8(e) but before deduction for any
federal, state or local income and employment tax on the Agreement Payments,
shall be equal to the sum of (i) the Total Payments plus (ii) an amount equal to
the product of any deductions disallowed because of the inclusion of the
Gross-up Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in which the
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Gross-up Payment is to be made. Notwithstanding anything to the contrary
contained herein, the maximum Excise Tax rate used to calculate the Gross-up
Payment shall be 25%.
For purposes of determining whether any of the Agreement Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by you in connection with a
change in control of the Company or the Bank or your termination of employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, the Bank, any person whose actions result in a
change in control or any person affiliated with the Company or such person)
(which, together with the Agreement Payments, shall constitute the "TOTAL
PAYMENTS") shall be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless the Company's public accounting firm as of the date
immediately prior to the change in control (the "ACCOUNTING FIRM") determines
that such other payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to
the Excise Tax, (ii) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (x) the total amount
of the Total Payments or (y) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (i), above),
and (iii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Accounting Firm in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. The Accounting Firm shall provide
detailed supporting calculations to the Bank and you within fifteen (15)
business days of the receipt of notice from the Bank or you that there has been
an Agreement Payment, or such earlier time as is requested by the Bank. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the change in control, you may appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Bank and the Bank shall enter into any agreement
requested by the Accounting Firm in connection with the performance of its
services hereunder.
For purposes of determining the amount of the Gross-up Payment, you
shall be deemed to (i) pay federal income taxes at the highest marginal rate of
federal income taxation for the calendar year in which the Gross-up Payment is
to be made, (ii) pay the applicable state and local income and employment taxes
at the highest marginal rate of taxation for the calendar year in which the
Gross-up Payment is to be made, net of the maximum reduction in federal income
taxes that could be obtained from deduction of such state and local taxes
(determined without regard to limitations on deductions based upon the amount of
your adjusted gross income), and (iii) have otherwise allowable deductions for
federal income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in your adjusted gross income. In the event
that the Excise Tax is subsequently determined to be less than the amount taken
into account hereunder at the time the Gross-up Payment is made, you shall repay
to the Bank at the time that the amount of such reduction in Excise Tax is
finally determined the portion of the Gross-up Payment attributable to such
reduction (plus the portion of the Gross-up Payment attributable to the Excise
Tax and federal and state and local income tax imposed on the portion of the
11
<PAGE>
Gross-up Payment being repaid by you if such repayment results in a reduction in
Excise Tax and/or a federal and state and local income tax deduction), plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the Gross-up Payment
is made (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-up Payment), the Bank shall make
an additional Gross-up Payment in respect of such excess (plus any interest
payable with respect to such excess at the rate provided in Section
1274(b)(2)(B) of the Code) at the time that the amount of such excess is finally
determined. To the extent permitted by law, any payment you make to the Bank
pursuant to this Section 8(e) will be treated as a reduction in gross wages for
purposes of payroll tax and income tax reporting to the extent the related
overpayment to you by the Bank was treated as wages for such purposes.
(f) The Gross-up Payment or portion thereof provided for in Section
8(e) shall be paid not later than the thirtieth (30th) day following payment of
any amounts under Section 8(a); PROVIDED, HOWEVER, that if the amount of such
Gross-up Payment or portion thereof cannot be finally determined on or before
such day, the Bank shall pay to you on such day an estimate, as determined in
good faith by the Bank, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined, but in no event later than the forty-fifth (45th) day after payment
of any amounts under Section 8(a). In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Bank to you, payable on the fifth (5th)
day after demand by the Bank (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). To the extent permitted by law, any payment
(other than payment of interest) you make to the Bank pursuant to this Section
8(f) will be treated as a reduction in gross wages for purposes of payroll tax
and income tax reporting to the extent the related overpayment to you by the
Bank was treated as wages for such purposes.
(g) The provisions of Sections 7 and 8 shall only apply in respect of
the first change in control event that occurs after the date of this Agreement,
and in no event shall benefits be paid for any subsequent change in control.
9. SUCCESSORS; BINDING AGREEMENT.
-----------------------------
(a) The Company and the Bank will seek, by written request at least
five (5) business days prior to the time a Person becomes a Successor (as
defined below), to have such Person by agreement in form and substance
satisfactory to you, assent to the fulfillment of the Bank's obligations under
this Agreement. Failure of such Person to furnish such assent by the later of
(i) three (3) business days prior to the time such Person becomes Successor or
(ii) two (2) business days after such Person receives a written request to so
assent shall constitute Good Reason for termination by you of your employment if
a change in control occurs or has occurred. For purposes of this Agreement,
"SUCCESSOR" shall mean any Person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Bank's business
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<PAGE>
directly, by merger or consolidation, or indirectly, by purchase of the Voting
Securities of the Company or the Bank or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
be no such designee, to your estate.
(c) For purposes of this Agreement, the "Bank" and the "Company" shall
include any corporation or other entity that is the surviving or continuing
entity in respect of any merger, consolidation or form of business combination
in which the Bank or the Company, respectively, ceases to exist.
10. FEES, EXPENSES AND INTEREST; MITIGATION.
---------------------------------------
(a) If the Company or the Bank terminates your employment within
twenty-four (24) months after a change in control, then the Bank shall reimburse
you, on a current basis, for all reasonable legal fees and related expenses
incurred by you in connection with the Agreement or in any related arbitration
proceeding, including, without limitation, (i) all such fees and expenses, if
any, incurred in contesting or disputing any termination of your employment or
(ii) your seeking to obtain or enforce any right or benefit provided by this
Agreement, in each case, regardless of whether or not your claim is upheld in
arbitration; PROVIDED, HOWEVER, you shall be required to repay any such amounts
to the Bank to the extent that an arbitrator issues a final decision setting
forth the determination that the position taken by you was without merit,
frivolous or advanced by you in bad faith. In addition to the fees and expenses
provided herein, you shall also be paid interest on any disputed amount
ultimately paid to you at the prime rate announced by the Bank from time to time
from the date payment should have been made until paid in full.
(b) You shall not be required to mitigate the amount of any payment the
Company or the Bank becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise. Except as specifically
provided in Sections 6(b)(iii) and 8(b), the amount of any payment and benefit
provided for in Sections 6 and 8 shall not be reduced, offset or subject to
recovery by the Company or the Bank by reason of any compensation earned by you
as the result of employment by another employer or otherwise.
11. TAXES.
-----
All payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment taxes.
13
<PAGE>
12. OTHER LIMITATIONS ON PAYMENTS.
-----------------------------
Any payments made to you pursuant to this Agreement, or otherwise, are
subject to and conditioned upon their compliance with 12 U.S.C. ss.1828(k) and
any regulations promulgated thereunder.
13. NOTICE.
------
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed, in the
case of the Company or the Bank, to the address set forth on the first page of
this Agreement or, in the case of the undersigned employee, to the address set
forth below his signature, provided that all notices to the Bank shall be
directed to the attention of the Company and President of the Bank, with a copy
to the Secretary of the Bank, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
14. MISCELLANEOUS.
-------------
No provision of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in a writing signed
by you and the Chief Executive Officer or President of the Company and of the
Bank. No waiver by either party hereto at any time of any breach by the other
party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California applied without regard to conflict of
laws principles.
15. VALIDITY; REPRESENTATION BY COUNSEL; INTERPRETATION.
---------------------------------------------------
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect. Each party hereto
acknowledges that it or he has been represented by counsel in connection with
this Agreement and the matters contemplated by this Agreement. Accordingly, any
rule of law, including but not limited to Section 1654 of the California Civil
Code, or any legal decision that would require interpretation of any claimed
ambiguities in this Agreement against the party that drafted it has no
application and is expressly waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the intent of the parties.
14
<PAGE>
16. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in the County of Los
Angeles, State of California by one arbitrator in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; PROVIDED, HOWEVER, that
you shall be entitled to seek specific performance in such arbitration of your
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement. The
Bank shall bear all costs and expenses (including, without limitation,
reasonable legal fees and expenses) arising in connection with any arbitration
proceeding pursuant to this Section 16; PROVIDED, HOWEVER, that you shall bear
such costs and expenses to the extent that an arbitrator issues a final decision
setting forth the determination that the position taken by you was without
merit, frivolous or advanced by you in bad faith.
17. EMPLOYEE'S POST-EMPLOYMENT COMMITMENT.
-------------------------------------
You agree that subsequent to your period of employment with the Bank,
you will not at any time communicate or disclose to any unauthorized person,
without the written consent of the Bank, any proprietary processes of the
Company or of the Bank or any other subsidiary of the Company or other
confidential information concerning their business, affairs, products, suppliers
or customers which, if disclosed, would have a material adverse effect upon the
business or operations of the Company, the Bank and the other subsidiaries,
taken as a whole; it being understood, however, that the obligations of this
Section 17 shall not apply to the extent that the aforesaid matters (a) are
disclosed in circumstances where you are legally required to do so or (b) become
generally known to and available for use by the public otherwise than by your
wrongful act or omission. The provisions of this Section 17 do not apply to the
OTS or other federal banking agencies.
18. WITNESS FEES.
------------
If, at any time after the termination of this Agreement, Employee is
requested by the Company or any affiliate of the Company, or is required, to
testify or to provide evidence or otherwise to perform services in relation to
litigation or similar proceedings (civil, administrative, arbitral or otherwise)
in which the Company or any affiliate of the Company, but not Employee, is a
named party or is otherwise involved,
(a) Employee shall be paid by the Company (i) with respect to each day
that Employee appears as a witness or is deposed, at the rate of one thousand
dollars ($1,000.00) per day, and (ii) with respect to each day that Employee is
involved in the preparation therefor, at the rate of five hundred dollars
($500.00) per day, and
(b) Employee shall be reimbursed by the Company for reasonable travel
and accommodation expenses if such services are required to be performed outside
of the city of Employee's domicile.
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<PAGE>
19. RELATED AGREEMENTS.
------------------
To the extent that any provision of any other agreement between the
Company, the Bank or any of the other subsidiaries of the Company and you shall
limit, qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other agreement shall
be deemed to have been superseded, and to be of no force or effect, as if such
other agreement had been formally amended to the extent necessary to accomplish
such purpose.
20. COUNTERPARTS.
------------
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Bank the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
FIDELITY FEDERAL BANK, BANK PLUS CORPORATION
A FEDERAL SAVINGS BANK
By: By:
------------------------------ -----------------------------
Name: Mark K. Mason Name: Mark K. Mason
Title: Chief Executive Officer Title: Chief Executive Officer
ACCEPTED AND AGREED TO:
------------------------------
Godfrey B. Evans
Address:
------------------------------
------------------------------
------------------------------
16
<PAGE>
The payment of all obligations and liabilities of Fidelity Federal
Bank, A Federal Savings Bank, under this Agreement is specifically guaranteed by
Bank Plus Corporation.
BANK PLUS CORPORATION
By:
------------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
17
<PAGE>
EXHIBIT NO. 10.42
As of November 19, 1998
John M. Michel
Fidelity Federal Bank,
A Federal Savings Bank
4565 Colorado Boulevard
Los Angeles, California 90039
Dear Mr. Michel:
Bank Plus Corporation (the "COMPANY") and its principal subsidiary,
Fidelity Federal Bank, A Federal Savings Bank (the "BANK"), consider the
establishment and maintenance of a sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its shareholders.
In order to attract and retain capable management personnel, the Company
considers it important to offer employment contracts such as this to specify
employment terms and to provide for job security. In this connection, the
Company and the Bank recognize that, as is the case with many publicly held
corporations, the possibility of severance or a change in control may arise and
that such possibility, and the uncertainty and questions which it may raise
among management of the Bank, may hinder the Bank's efforts to recruit qualified
management personnel and result in the departure or distraction of management
personnel, in each case to the detriment of the Company and the Bank and the
Company's shareholders. Accordingly, the Board of Directors of the Company (the
"BOARD") and the board of directors of the Bank have determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of management of the Bank to their assigned duties through
the use of employment contracts. In particular, the Board believes it important,
should the Company or its shareholders receive a proposal for transfer of
control of the Company or the Bank, that you be able to assess and advise the
Board whether such proposal would be in the best interests of the Company and
its shareholders and to take such other action regarding such proposal as the
Board might determine to be appropriate, without being influenced by the
uncertainties of your own situation.
In order to induce you to accept employment with the Company and the
Bank, this letter agreement among the Company, the Bank and John Michel ("YOU"
or "EMPLOYEE") sets forth the terms of your employment by the Company and the
Bank.
<PAGE>
1. SPECIFIC POSITIONS; DUTIES AND RESPONSIBILITIES.
-----------------------------------------------
(a) The Company and you agree that, subject to the provisions of this
Agreement, the Company will employ Employee and Employee will serve the Company
as Executive Vice President and, subject to approval of the Office of Thrift
Supervision, Chief Financial Officer of the Company and the Bank.
(b) You agree to devote substantially all of your time, energy and
ability to the business of the Company and the Bank. Without the prior approval
of the Company Board, which will not be unreasonably withheld, you shall not
serve as a director, consultant or trustee of other for-profit corporations or
businesses or invest more than one million dollars ($1,000,000.00) in any
corporation or business that competes with the Company or any of its affiliates.
Subject to the foregoing, Employee may (i) invest in real estate for his own
account, (ii) become a partner or a shareholder in any privately-held
corporation, partnership or other venture not in competition with the business
of the Company or any of its affiliates and (iii) become a partner or a
shareholder with an equity interest of not more than five percent (5%) in any
corporation, partnership or other venture whose equity securities are publicly
traded.
(c) Employee has provided to the Company and the Bank proof of United
States citizenship as required by the Immigration Reform Act of 1988.
2. COMPENSATION.
------------
During the term of this Agreement, in consideration of all of
Employee's services to the Company and the Bank as contemplated by this
Agreement, the Bank or the Company, as specified below, shall provide to
Employee the following compensation:
(a) BASE COMPENSATION AND BONUS.
(i) The Bank shall pay Employee a base salary at the rate of one
hundred eighty-five thousand dollars ($185,000.00) per year, subject to annual
review for possible increases at the discretion of the Board (as in effect from
time to time, the "BASE SALARY"). Such salary shall be payable in bi-weekly
installments. Amounts payable shall be reduced by withholding and other
authorized deductions.
(ii) The Bank shall pay Employee a bonus following the year 1998 in
respect of such year in the amount of Thirty Thousand Dollars (US$30,000.00). In
respect of subsequent years, subject to the requirements of executive incentive
compensation plans of the Company and the Bank as may be in effect from time to
time, Employee will be eligible for a target bonus from the Bank of fifty
percent (50%) of Base Salary.
(b) STOCK OPTIONS.
(i) The Company shall grant, with an effective grant date of
November 19, 1998, to Employee, subject to the vesting provisions described in a
stock option agreement, options to acquire two hundred fifty thousand (250,000)
shares of the Company's common stock, par value $.01 per share ("COMMON STOCK"),
2
<PAGE>
at an exercise price of $3.8125 per share (the closing price per share of Common
Stock on the Nasdaq National Market ("NASDAQ") on November 19, 1998). All such
options granted under this Section 2(b) are referred to in this Agreement as the
"OPTIONS." Each Option shall represent the right to acquire one (1) share of
Common Stock.
(ii) All Options shall be issued under the Company's employee stock
option plan (the "STOCK PLAN") and will be embodied in the Company's standard
stock option agreement, subject to the provisions of this Agreement.
(c) GENERAL BENEFITS.
Employee shall also be entitled to all rights and benefits for
which Employee is otherwise eligible under any bonus, incentive, participation,
stock option, restricted stock or extra compensation plan, pension plan, profit
sharing plan, or any life, medical, dental, disability, accident or other
insurance plan or policy or other employee plan or benefit that Company or its
subsidiaries or affiliates may provide for Employee or (provided Employee is
eligible to participate therein) for employees of the Company generally, as from
time to time in effect, during the term of this Agreement (collectively,
"PLANS").
(d) VACATION.
Employee shall accrue paid vacation time at the rate of one hundred
sixty (160) hours per year commencing from November 19, 1998; PROVIDED, HOWEVER,
that Employee shall not earn any additional vacation days in any year in which
Employee at any time has two hundred (200) or more hours of accrued but unused
vacation time.
3. RIGHT TO TERMINATE; AGREEMENT TO PROVIDE SERVICES.
-------------------------------------------------
You agree that during any period wherein you are employed by the
Company or the Bank that you will render faithful and competent services as may
be expected of an employee in the same or in a reasonably comparable position.
Nothing in this Agreement shall be construed as an assurance of continued
employment and the Company, the Bank or you may terminate your employment at any
time, subject to the Bank's providing the benefits hereinafter specified in
accordance with the terms hereof. For purposes of this Agreement, the
termination of Employee's employment by Company shall also constitute
termination of Employee's employment by the Bank, and vice versa.
4. TERM OF AGREEMENT.
-----------------
(a) This Agreement shall commence on November 19, 1998 and shall
continue in effect until November 19, 2001; PROVIDED, HOWEVER, that commencing
on November 19, 2001 and each November 19 thereafter, the term of this Agreement
shall be extended for one additional year unless at least ninety (90) days prior
to such November 19 date, the Company, the Bank (after explicit review by their
respective Boards) or you shall have given notice that this Agreement shall not
3
<PAGE>
be extended; PROVIDED, FURTHER, HOWEVER, that, notwithstanding the delivery of
any such notice, this Agreement shall continue in effect for a period of
twenty-four (24) months after a change in control of the Company or the Bank, as
defined in Section 5 hereof, if such change in control shall have occurred
during the term of this Agreement, or as it may be extended by the first proviso
set forth above.
(b) Notwithstanding anything in this Section 4 to the contrary:
(i) this Agreement shall terminate if you or the Bank terminate
your employment prior to a change in control, subject to the Bank's obligations
to you under Sections 6 through 8 hereof, or if you terminate your employment
without Good Reason after a change in control;
(ii) the obligations of the Bank hereunder shall terminate for so
long as you are suspended and/or temporarily prohibited from participating in
the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss. 1818(e)(3) and
(g)(1)) as of the date of service of such notice unless stayed by appropriate
proceedings; PROVIDED that if the charges in the notice are dismissed, the Bank
may in its discretion (A) pay you all or part of any payments within the terms
of this Agreement withheld while its obligations under this Agreement was
suspended and (B) reinstate (in whole or in part) any of its obligations which
were suspended;
(iii) the obligations of the Bank hereunder shall terminate if you
are removed and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. ss. 1818(e)(4) or (g)(1));
(iv) this Agreement shall terminate if the Bank is in default (as
defined in Section 3(x)(1) of the Federal Deposit Insurance Act); or
(v) all obligations under this Agreement shall be terminated,
except to the extent it is determined that continuation of this Agreement is
necessary for the continuous operation of the Bank:
(A) by the Director of the Office of Thrift Supervision (the
"DIRECTOR") or his or her designee, at the time the Federal Deposit Insurance
Corporation or the Resolution Trust Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the Federal Deposit Insurance Act; or
(B) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
Director to be in an unsafe or unsound condition;
PROVIDED, HOWEVER, that vested rights held by the Bank or you shall not be
affected by such termination.
4
<PAGE>
5. DEFINITIONS.
-----------
(a) CHANGE IN CONTROL. A "CHANGE IN CONTROL" shall be deemed to occur
if (a) any "person" (as such term is defined in Section 3(a)(9) and as used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), excluding the Company, the Bank or any of the Company's other
subsidiaries, a trustee or any fiduciary holding securities under an employee
benefit plan of the Company, the Bank or any of the Company's other
subsidiaries, an underwriter temporarily holding securities pursuant to an
offering of such securities or a corporation owned, directly or indirectly, by
shareholders of the Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities ordinarily having the
right to vote at elections of directors ("VOTING SECURITIES"); or (b) during any
period of two (2) consecutive years, individuals who, at the beginning of such
period, constituted the board of directors of the Company or the Bank (together
with any new directors whose election or appointment to such board of directors
or whose nomination for election by the stockholders of Company or the Bank was
approved by a vote of two-thirds (2/3) of the directors of such board then still
in office who were either directors on such board at the beginning of such
period or whose election, appointment or nomination for election to such board
was previously so approved, but excluding any director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clause (a) or (b) of this sentence) cease for any reason to
constitute a majority of the board of directors of Company or the Bank then in
office; (c) a merger or consolidation of the Company with any other Person (as
defined below) closes, other than a merger or consolidation that results in
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the Company closes the sale or disposition by the Company of all or
substantially all of the Company's assets; (d) the Company closes a sale or
sales or other disposition or dispositions that results in the Company ceasing
to beneficially "own" (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, more than fifty percent (50%) of the Voting Securities
of the Bank; or (e) the Bank closes a sale or sales of all or substantially all
of the assets of the Bank, in a single transaction or series of transactions,
other than to a direct or indirect subsidiary of the Company; or (f) a merger or
other combination of the Bank with any other Person closes, as a result of which
the Company ceases to beneficially own, directly or indirectly, more than fifty
percent (50%) of the Voting Securities of the Bank or the surviving entity in
such merger or consolidation. For purposes of this Agreement, the term "PERSON"
shall mean and include any individual, corporation, partnership, group,
association or other "person", as such term is used in Section 14(d) of the
Exchange Act, other than the Company, the Bank, any other subsidiary of the
Company or any Plan. Notwithstanding any provision in this Agreement to the
contrary, neither the appointment of the FDIC as a receiver of the Bank or a
change in composition of the Board of Directors by directive of the OTS or FDIC
shall constitute a "change-in-control" under this Agreement.
5
<PAGE>
(b) DISABILITY. Termination by the Company or the Bank of your
employment based on "DISABILITY" shall mean termination because of your absence
from your duties with the Company or the Bank on a full time basis for one
hundred eighty (180) consecutive days as a result of your incapacity due to
physical or mental illness, unless within fifteen (15) days after Notice of
Termination (as defined below) is given to you following such absence you shall
have returned to the full time performance of your duties.
(c) RETIREMENT. Termination by you or by the Company or the Bank of
your employment based on "RETIREMENT" shall mean termination on or after your
attainment of age sixty-five (65).
(d) CAUSE. Termination by the Company or the Bank of your employment
for "CAUSE" shall mean termination upon (i) the willful and continued failure by
you to perform substantially your duties with the Company or the Bank (other
than any such failure resulting from your incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to you by the
Board or the board of directors of the Bank or the executive committee thereof,
which specifically identifies the manner in which such body believes that you
have not substantially performed your duties, or (ii) your gross negligence,
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order, or
material breach of any provision of this Agreement. For purposes of this Section
6(d) no act, or failure to act, on your part shall be considered "willful"
unless done, or omitted to be done, by you without reasonable belief that your
action or omission was in, or not opposed to, the best interests of the Company
and the Bank. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or the board of directors of the Bank or
based upon the advice of counsel for the Company or the Bank shall be
conclusively presumed to be done, or omitted to be done, by you in the best
interests of the Bank. It is also expressly understood that your attention to
matters not directly related to the business of the Bank shall not provide a
basis for termination for Cause so long as the Board or the board of directors
of the Bank has approved, after full disclosure of all material facts, your
engagement in such activities.
(e) GOOD REASON. Termination by you of your employment for "GOOD
REASON" shall mean termination based on:
(i) a material adverse change in your status or position(s) as an
executive officer of the Company or the Bank, including, without limitation, any
material adverse change in your status or position as a result of a substantial
diminution in your duties or responsibilities (other than, if applicable, any
such change directly attributable to the fact that the Company is no longer
publicly owned) or the assignment to you of any duties or responsibilities that
are substantially inconsistent with such status or position(s), or any removal
of you from or any failure to reappoint or reelect you to such position(s)
(except in connection with the termination of your employment for Cause,
Disability or Retirement or as a result of your death or by you other than for
Good Reason);
(ii) a reduction by the Bank in your Base Salary;
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<PAGE>
(iii) the failure by the Company or the Bank to continue in effect
any Plan other than as a result of the normal expiration of any such Plan, or
the taking of any action, or the failure to act, by the Company or the Bank that
would adversely affect your continued participation in any of such Plans on at
least as favorable a basis to you or that would materially reduce your benefits
in the future under any of such Plans or deprive you of any material benefit
enjoyed by you, in each case unless such loss of plan, adverse effect or loss of
material benefits were experienced by all other executives of the Company and
the Bank;
(iv) the failure by the Bank to provide and credit you with the
number of paid vacation days to which you are then entitled in accordance with
its normal vacation policy;
(v) the requirement by the Bank that you be based at a different
office that is (i) greater than thirty-five (35) miles from where your
then-current office is located and (ii) that is farther from your then-current
principal place of residence than your then-current office, except for required
travel on the business of the Company or the Bank to an extent substantially
consistent with the business travel obligations that you undertook as of the
date of this Agreement; or
(vi) the failure by the Company and the Bank to obtain from any
Successor (as defined below) the assent to this Agreement contemplated by
Section 9.
(f) NOTICE OF TERMINATION. A "NOTICE OF TERMINATION" shall mean a
notice of termination of your employment that shall indicate the specific
termination provision in this Agreement relied upon.
(g) DATE OF TERMINATION. "DATE OF TERMINATION" shall mean (i) if your
employment is to be terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period), (ii) if your employment is to be terminated by the Company or the Bank
for Cause or by you for any reason, the date specified in the Notice of
Termination, or (iii) if your employment is to be terminated by the Company or
the Bank for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than forty-five (45) days
after the date on which a Notice of Termination is given, unless an earlier date
has been expressly agreed to by you in writing either in advance of, or after,
receiving such Notice of Termination. In the case of termination by the Company
or the Bank of your employment for Cause, if you have not previously expressly
agreed in writing to the termination, then within thirty (30) days after receipt
by you of the Notice of Termination with respect thereto, you may notify the
Bank that a dispute exists concerning the termination, in which event the Date
of Termination shall be the date set either by mutual written agreement of the
parties or by the arbitrators in a proceeding as provided in Section 16 hereof.
6. TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL.
------------------------------------------------------
The Company, the Bank or you may terminate your employment at any time
prior to a change in control, subject to the Bank's providing the benefits
hereinafter specified. To be effective, any purported termination of your
7
<PAGE>
employment by the Company, the Bank or you must be communicated by written
Notice of Termination to the other parties hereto.
(a) TERMINATION FOR CAUSE, WITHOUT GOOD REASON OR UPON DEATH,
DISABILITY OR RETIREMENT.
If the Company or the Bank terminates your employment for Cause or
Disability, you terminate your employment other than for Good Reason, or in the
event of your Retirement or death, the Bank shall be liable to you for (i)
earned but unpaid salary, (ii) any unpaid annual bonus that was earned in the
Bank's fiscal years prior to the fiscal year in which your employment
terminates, (iii) unreimbursed business expenses or other allowances that are
incurred through the date your employment terminates, and (iv) your vested
benefits under the Plans and (v) no other compensation. For purposes of the
preceding sentence, expense or allowances are incurred as of the date such
expenses are payable by you or the Bank.
(b) TERMINATION OTHER THAN FOR CAUSE OR TERMINATION FOR GOOD REASON.
If the Company or the Bank terminates your employment other than
for Cause or Disability or you terminate employment for Good Reason, the Bank
shall be liable for the payments and benefits described in Section 6(a) above
and shall provide you with the additional payments and benefits described below:
(i) BASE SALARY. The Bank shall continue to pay you for two (2)
years following the Date of Termination the higher of (A) your Base Salary as of
the Date of Termination or (B) your Base Salary as of the date of this
Agreement.
(ii) ANNUAL BONUS. Within thirty (30) days following the Date of
Termination, the Bank shall make a lump-sum cash payment to you in an amount
equal to two (2) times the average of the annual bonus (bonuses for partial
years of employment to be annualized) to which you were entitled for the Bank's
two (2) fiscal years ended prior to the Date of Termination (or, if you have not
been employed hereunder sufficiently long to have earned such two (2) bonuses,
two (2) times the amount of the bonus (annualized) paid or to be paid in respect
of year 1998 pursuant to Section 2(a)(ii)).
(iii) BENEFIT PLANS. The Bank shall maintain in full force and
effect, for the continued benefit of you and your dependents for a period
terminating on the earlier of (A) two (2) years following the Date of
Termination, (B) the commencement date of equivalent benefits from a new
employer or (C) your attainment of age sixty-five (65), all insured and
self-insured employee health and welfare benefit plans in which you were
entitled to participate immediately prior to the Date of Termination, provided
that your continued participation is possible under the general terms and
provisions of such plans (and any applicable funding media) and you continue to
pay an amount equal to your regular contribution under such plans for such
participation. If, as of the third anniversary of the Date of Termination, you
have not reached your sixty-fifth (65th) birthday and you have not previously
received or are not then receiving equivalent benefits from a new employer, the
Bank shall arrange, at its sole cost and expense, to enable you to convert your
8
<PAGE>
and your dependents' coverage under such plans to individual policies or
programs upon the same terms as employees of the Bank may apply for such
conversions. In the event that your participation in any plan is barred, the
Bank shall, at its sole cost and expense, arrange to have issued for the benefit
of you and your dependents individual policies of insurance providing benefits
substantially similar (on an after-tax basis) to those that you otherwise would
have been entitled to receive under such plans pursuant to this Section or, if
such insurance is not available at a reasonable cost to the Bank, the Bank shall
provide you and your dependents with equivalent benefits (on an after-tax
basis). You shall not be required to pay any premiums or other charges in an
amount greater than the amount you would have paid in order to participate in
such plans.
(iv) EQUITY AWARDS. The restrictions on any stock options,
restricted stock or other equity awards under the Company's Stock Option and
Equity Incentive Plan or any other equity incentive plan shall lapse and all
such awards shall become 100% vested.
7. TERMINATION FOLLOWING A CHANGE IN CONTROL.
-----------------------------------------
If any of the events described in Section 5 constituting a change in
control shall have occurred, you shall be entitled to the payments and benefits
provided in Section 8 hereof. If your employment hereunder is terminated other
than for Cause by the Company or the Bank prior to a change in control and such
termination (i) was at the request of a third party who has taken steps
reasonably calculated to effect a change in control and who effectuates a change
in control or (ii) otherwise occurred in connection with, or in anticipation of,
a change in control that actually occurs, then for all purposes of this
Agreement, the date of a change in control with respect to you shall mean the
date immediately prior to the date of such termination of your employment.
8. COMPENSATION UPON A CHANGE IN CONTROL; OTHER AGREEMENTS.
-------------------------------------------------------
(a) Subject to Sections 11 and 12, if, within twenty-four (24) months
after a change in control, as defined in Section 5, shall have occurred, your
employment by the Bank shall be terminated (i) by the Company or the Bank other
than for Cause, Disability or Retirement or (ii) by you for Good Reason, then
the Bank shall pay to you, no later than the fifth (5th) business day
thereafter, without regard to any contrary provisions of any Plan (other than
any deferral election pursuant to the Company's Deferred Compensation Plan) an
amount in cash equal to two (2) times the sum of (i) your annual Base Salary as
in effect immediately prior to the change in control, plus (ii) the average of
the annual bonus (bonuses for partial years of employment to be annualized) to
which you were entitled for the Bank's two (2) fiscal years ended prior to the
change in control (or, if you have not been employed hereunder sufficiently long
to have earned such two (2) bonuses, the average of annualized bonuses to which
you were entitled during your employment tenure hereunder, or, if you have not
received any bonuses, the amount of the bonus (annualized) to be paid in respect
of year 1998 pursuant to Section 2(a)(ii)), plus (iii) an amount equal to the
matching contribution you would have received under the Bank's 401(k) plan if
you had made the maximum contribution under such plan during the year in which
the Date of Termination occurs. All amounts and benefits to which you are
entitled under this Section 8 shall be reduced by the amount of any payments and
benefits you receive under Section 6.
9
<PAGE>
(b) Further, if, within twenty-four (24) months after a change in
control shall have occurred, your employment by the Bank shall be terminated (i)
by the Company or the Bank other than for Cause, Disability or Retirement or
(ii) by you for Good Reason, then the Bank shall maintain in full force and
effect, for the continued benefit of you and your dependents for a period
terminating upon the earliest of (x) the expiration of twenty-four (24) months
after the Date of Termination, (y) the commencement date of equivalent benefits
from a new employer or (z) your attainment of age sixty-five (65), all insured
and self-insured employee health and welfare benefit Plans in which you were
entitled to participate immediately prior to the Date of Termination, provided
that your continued participation is possible under the general terms and
provisions of such Plans (and any applicable funding media) and you continue to
pay an amount equal to your regular contribution under such Plans for such
participation. If, after the expiration of twenty-four (24) months after the
Date of Termination, you have not reached your sixty-fifth (65th) birthday and
you have not previously received or are not then receiving equivalent benefits
from a new employer, the Bank shall arrange, at its sole cost and expense, to
enable you to convert your and your dependents' coverage under such Plans to
individual policies or programs upon the same terms as those for which employees
of the Bank may apply upon such conversions. In the event that your
participation in any such Plan is barred, the Bank shall, at its sole cost and
expense, arrange to have issued for the benefit of you and your dependents
individual policies of insurance providing benefits substantially similar (on an
after-tax basis) to those that you otherwise would have been entitled to receive
under such Plans pursuant to this Section 8(b) or, if such insurance is not
available at a reasonable cost to the Bank, the Bank shall provide you and your
dependents with equivalent benefits (on an after-tax basis). You shall not be
required to pay any premiums or other charges in an amount greater than that
which you would have paid in order to participate in such Plans.
(c) Except as specifically provided in Section 8(b), the amount of any
payment provided for in this Section 8 shall not be reduced, offset or subject
to recovery by the Company or the Bank by reason of any compensation earned by
you as the result of employment by another employer after the Date of
Termination, or otherwise.
(d) If, within twenty-four (24) months following a change in control,
the Company or the Bank purports to terminate your employment for Cause and you
contest the existence of Cause, then, during the pendency of any such dispute,
the Bank will continue to pay you your full compensation in effect just prior to
the time the Notice of Termination is given and until the dispute is resolved in
accordance with Section 16.
(e) In the event that you become entitled to the payments provided by
Section 8(a) (the "AGREEMENT PAYMENTS"), and if any of the Agreement Payments
will be subject to the tax (the "EXCISE TAX") imposed by Section 4999 of the
Internal Revenue Code (the "CODE") (or any similar tax that may hereafter be
imposed), the Company shall pay to you at the time specified in Section 8(f) an
additional amount (the "GROSS-UP PAYMENT") such that the net amount retained by
you, after deduction of any Excise Tax on the Total Payments (as defined below)
and any federal, state and local income and employment tax and Excise Tax upon
the Gross-up Payment provided for by this Section 8(e) but before deduction for
any federal, state or local income and employment tax on the Agreement Payments,
shall be equal to the sum of (i) the Total Payments plus (ii) an amount equal to
the product of any deductions disallowed because of the inclusion of the
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<PAGE>
Gross-up Payment in your adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made. Notwithstanding anything to the contrary
contained herein, the maximum Excise Tax rate used to calculate the Gross-up
Payment shall be 25%.
For purposes of determining whether any of the Agreement Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by you in connection with a
change in control of the Company or the Bank or your termination of employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, the Bank, any person whose actions result in a
change in control or any person affiliated with the Company or such person)
(which, together with the Agreement Payments, shall constitute the "TOTAL
PAYMENTS") shall be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless the Company's public accounting firm as of the date
immediately prior to the change in control (the "ACCOUNTING FIRM") determines
that such other payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to
the Excise Tax, (ii) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (x) the total amount
of the Total Payments or (y) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (i), above),
and (iii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Accounting Firm in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. The Accounting Firm shall provide
detailed supporting calculations to the Bank and you within fifteen (15)
business days of the receipt of notice from the Bank or you that there has been
an Agreement Payment, or such earlier time as is requested by the Bank. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the change in control, you may appoint
another nationally recognized public accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Bank and the Bank shall enter into any agreement
requested by the Accounting Firm in connection with the performance of its
services hereunder.
For purposes of determining the amount of the Gross-up Payment, you
shall be deemed to (i) pay federal income taxes at the highest marginal rate of
federal income taxation for the calendar year in which the Gross-up Payment is
to be made, (ii) pay the applicable state and local income and employment taxes
at the highest marginal rate of taxation for the calendar year in which the
Gross-up Payment is to be made, net of the maximum reduction in federal income
taxes that could be obtained from deduction of such state and local taxes
(determined without regard to limitations on deductions based upon the amount of
your adjusted gross income), and (iii) have otherwise allowable deductions for
federal income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in your adjusted gross income. In the event
that the Excise Tax is subsequently determined to be less than the amount taken
into account hereunder at the time the Gross-up Payment is made, you shall repay
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<PAGE>
to the Bank at the time that the amount of such reduction in Excise Tax is
finally determined the portion of the Gross-up Payment attributable to such
reduction (plus the portion of the Gross-up Payment attributable to the Excise
Tax and federal and state and local income tax imposed on the portion of the
Gross-up Payment being repaid by you if such repayment results in a reduction in
Excise Tax and/or a federal and state and local income tax deduction), plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the Gross-up Payment
is made (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-up Payment), the Bank shall make
an additional Gross-up Payment in respect of such excess (plus any interest
payable with respect to such excess at the rate provided in Section
1274(b)(2)(B) of the Code) at the time that the amount of such excess is finally
determined. To the extent permitted by law, any payment you make to the Bank
pursuant to this Section 8(e) will be treated as a reduction in gross wages for
purposes of payroll tax and income tax reporting to the extent the related
overpayment to you by the Bank was treated as wages for such purposes.
(f) The Gross-up Payment or portion thereof provided for in Section
8(e) shall be paid not later than the thirtieth (30th) day following payment of
any amounts under Section 8(a); PROVIDED, HOWEVER, that if the amount of such
Gross-up Payment or portion thereof cannot be finally determined on or before
such day, the Bank shall pay to you on such day an estimate, as determined in
good faith by the Bank, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be
determined, but in no event later than the forty-fifth (45th) day after payment
of any amounts under Section 8(a). In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Bank to you, payable on the fifth (5th)
day after demand by the Bank (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). To the extent permitted by law, any payment
(other than payment of interest) you make to the Bank pursuant to this Section
8(f) will be treated as a reduction in gross wages for purposes of payroll tax
and income tax reporting to the extent the related overpayment to you by the
Bank was treated as wages for such purposes.
(g) The provisions of Sections 7 and 8 shall only apply in respect of
the first change in control event that occurs after the date of this Agreement,
and in no event shall benefits be paid for any subsequent change in control.
9. SUCCESSORS; BINDING AGREEMENT.
-----------------------------
(a) The Company and the Bank will seek, by written request at least
five (5) business days prior to the time a Person becomes a Successor (as
defined below), to have such Person by agreement in form and substance
satisfactory to you, assent to the fulfillment of the Bank's obligations under
this Agreement. Failure of such Person to furnish such assent by the later of
(i) three (3) business days prior to the time such Person becomes Successor or
(ii) two (2) business days after such Person receives a written request to so
assent shall constitute Good Reason for termination by you of your employment if
a change in control occurs or has occurred. For purposes of this Agreement,
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<PAGE>
"SUCCESSOR" shall mean any Person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Bank's business
directly, by merger or consolidation, or indirectly, by purchase of the Voting
Securities of the Company or the Bank or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
be no such designee, to your estate.
(c) For purposes of this Agreement, the "Bank" and the "Company" shall
include any corporation or other entity that is the surviving or continuing
entity in respect of any merger, consolidation or form of business combination
in which the Bank or the Company, respectively, ceases to exist.
10. FEES, EXPENSES AND INTEREST; MITIGATION.
---------------------------------------
(a) If the Company or the Bank terminates your employment within
twenty-four (24) months after a change in control, then the Bank shall reimburse
you, on a current basis, for all reasonable legal fees and related expenses
incurred by you in connection with the Agreement or in any related arbitration
proceeding, including, without limitation, (i) all such fees and expenses, if
any, incurred in contesting or disputing any termination of your employment or
(ii) your seeking to obtain or enforce any right or benefit provided by this
Agreement, in each case, regardless of whether or not your claim is upheld in
arbitration; PROVIDED, HOWEVER, you shall be required to repay any such amounts
to the Bank to the extent that an arbitrator issues a final decision setting
forth the determination that the position taken by you was without merit,
frivolous or advanced by you in bad faith. In addition to the fees and expenses
provided herein, you shall also be paid interest on any disputed amount
ultimately paid to you at the prime rate announced by the Bank from time to time
from the date payment should have been made until paid in full.
(b) You shall not be required to mitigate the amount of any payment the
Company or the Bank becomes obligated to make to you in connection with this
Agreement, by seeking other employment or otherwise. Except as specifically
provided in Sections 6(b)(iii) and 8(b), the amount of any payment and benefit
provided for in Sections 6 and 8 shall not be reduced, offset or subject to
recovery by the Company or the Bank by reason of any compensation earned by you
as the result of employment by another employer or otherwise.
11. TAXES.
-----
All payments to be made to you under this Agreement will be subject to
required withholding of federal, state and local income and employment taxes.
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<PAGE>
12. OTHER LIMITATIONS ON PAYMENTS.
-----------------------------
Any payments made to you pursuant to this Agreement, or otherwise, are
subject to and conditioned upon their compliance with 12 U.S.C. ss.1828(k) and
any regulations promulgated thereunder.
13. NOTICE.
------
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid and addressed, in the
case of the Company or the Bank, to the address set forth on the first page of
this Agreement or, in the case of the undersigned employee, to the address set
forth below his signature, provided that all notices to the Bank shall be
directed to the attention of the Company and President of the Bank, with a copy
to the Secretary of the Bank, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
14. MISCELLANEOUS.
-------------
No provision of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in a writing signed
by you and the Chief Executive Officer or President of the Company and of the
Bank. No waiver by either party hereto at any time of any breach by the other
party hereto of, or of compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California applied without regard to conflict of
laws principles.
15. VALIDITY; REPRESENTATION BY COUNSEL; INTERPRETATION.
---------------------------------------------------
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect. Each party hereto
acknowledges that it or he has been represented by counsel in connection with
this Agreement and the matters contemplated by this Agreement. Accordingly, any
rule of law, including but not limited to Section 1654 of the California Civil
Code, or any legal decision that would require interpretation of any claimed
ambiguities in this Agreement against the party that drafted it has no
application and is expressly waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the intent of the parties.
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16. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in the County of Los
Angeles, State of California by one arbitrator in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; PROVIDED, HOWEVER, that
you shall be entitled to seek specific performance in such arbitration of your
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement. The
Bank shall bear all costs and expenses (including, without limitation,
reasonable legal fees and expenses) arising in connection with any arbitration
proceeding pursuant to this Section 16; PROVIDED, HOWEVER, that you shall bear
such costs and expenses to the extent that an arbitrator issues a final decision
setting forth the determination that the position taken by you was without
merit, frivolous or advanced by you in bad faith.
17. EMPLOYEE'S POST-EMPLOYMENT COMMITMENT.
-------------------------------------
You agree that subsequent to your period of employment with the Bank,
you will not at any time communicate or disclose to any unauthorized person,
without the written consent of the Bank, any proprietary processes of the
Company or of the Bank or any other subsidiary of the Company or other
confidential information concerning their business, affairs, products, suppliers
or customers which, if disclosed, would have a material adverse effect upon the
business or operations of the Company, the Bank and the other subsidiaries,
taken as a whole; it being understood, however, that the obligations of this
Section 17 shall not apply to the extent that the aforesaid matters (a) are
disclosed in circumstances where you are legally required to do so or (b) become
generally known to and available for use by the public otherwise than by your
wrongful act or omission. The provisions of this Section 17 do not apply to the
OTS or other federal banking agencies.
18. WITNESS FEES.
------------
If, at any time after the termination of this Agreement, Employee is
requested by the Company or any affiliate of the Company, or is required, to
testify or to provide evidence or otherwise to perform services in relation to
litigation or similar proceedings (civil, administrative, arbitral or otherwise)
in which the Company or any affiliate of the Company, but not Employee, is a
named party or is otherwise involved,
(a) Employee shall be paid by the Company (i) with respect to each day
that Employee appears as a witness or is deposed, at the rate of one thousand
dollars ($1,000.00) per day, and (ii) with respect to each day that Employee is
involved in the preparation therefor, at the rate of five hundred dollars
($500.00) per day, and
(b) Employee shall be reimbursed by the Company for reasonable travel
and accommodation expenses if such services are required to be performed outside
of the city of Employee's domicile.
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19. RELATED AGREEMENTS.
------------------
To the extent that any provision of any other agreement between the
Company, the Bank or any of the other subsidiaries of the Company and you shall
limit, qualify or be inconsistent with any provision of this Agreement, then for
purposes of this Agreement, while the same shall remain in force, the provision
of this Agreement shall control and such provision of such other agreement shall
be deemed to have been superseded, and to be of no force or effect, as if such
other agreement had been formally amended to the extent necessary to accomplish
such purpose.
20. COUNTERPARTS.
------------
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
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If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Bank the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
FIDELITY FEDERAL BANK,
A FEDERAL SAVINGS BANK
By:
-------------------------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
BANK PLUS CORPORATION
By:
-------------------------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
ACCEPTED AND AGREED TO:
- ----------------------------------------------
John Michel
Address:
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
17
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The payment of all obligations and liabilities of Fidelity Federal
Bank, A Federal Savings Bank, under this Agreement is specifically guaranteed by
Bank Plus Corporation.
BANK PLUS CORPORATION
By:
-------------------------------------------
Name: Mark K. Mason
Title: Chief Executive Officer
18
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EXHIBIT NO. 10.43
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "AGREEMENT") is made and entered into
as of the "Date of Grant" specified below by and between BANK PLUS CORPORATION,
a Delaware corporation (the "COMPANY"), and person specified below as the
"Optionee," an employee of the Company or its wholly-owned subsidiary, Fidelity
Federal Bank, A Federal Savings Bank ("FIDELITY").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company maintains the Bank Plus Corporation Stock Option
and Equity Incentive Plan, as amended (the "PLAN"), a copy of which is attached
hereto as EXHIBIT A and the terms of which are incorporated herein by reference;
and
WHEREAS, the Plan is administered by a committee (the "COMMITTEE")
appointed by the Board of Directors of the Company as provided in Section 3 of
the Plan; and
WHEREAS, the Committee has determined that the Optionee shall be
granted the option hereinafter set forth upon the terms and conditions
hereinafter contained.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth and other good and valuable consideration, the
Company and the Optionee agree as follows:
A G R E E M E N T
- - - - - - - - -
1. Subject to the terms and conditions of this Agreement and the Plan,
the Company hereby grants to the Optionee the option (the "OPTION") to purchase,
from time to time, all or a portion of the number of shares specified below (the
"OPTION SHARES") of the Company's common stock, par value $0.01 per share (the
"COMMON STOCK"), at the purchase price per Option Share specified below (the
"EXERCISE PRICE"). The Option shall expire at the time and on the expiration
date specified below ("EXPIRATION DATE"), unless sooner terminated pursuant to
Sections 3 or 4 of this Agreement.
OPTIONEE:
----------------------------------
DATE OF GRANT: NOVEMBER 19, 1998
OPTION SHARES:
----------------------------------
EXERCISE PRICE: $3.8125
EXPIRATION DATE: 5:00 P.M. (LOS ANGELES TIME)
ON NOVEMBER 18, 2008
<PAGE>
The Option shall be exercisable for Option Shares only on the terms specified
below:
(a) The Option shall vest and become exercisable for a cumulative
percentage (the "VESTED PERCENTAGE") of the original number of Option Shares
when the Average Share Price (as defined below) reaches specified prices. As
used herein, the "AVERAGE SHARE PRICE" shall mean the average of the closing
prices per share of Common Stock on the Nasdaq Stock Market ("NASDAQ") (or other
stock exchange on which the Common Stock then trades) for any twenty (20)
consecutive trading days on such market or exchange. The following table sets
forth the Vested Percentage attributable each of certain specified Average Share
Prices:
------------------- -----------------
AVERAGE SHARE PRICE VESTED PERCENTAGE
------------------- -----------------
$ 4.00 10%
------------------- -----------------
5.00 25%
------------------- -----------------
6.00 40%
------------------- -----------------
7.00 55%
------------------- -----------------
8.00 70%
------------------- -----------------
9.00 85%
------------------- -----------------
10.00 100%
------------------- -----------------
(b) Notwithstanding Section 1(a), the Option shall become
immediately exercisable in its entirety for all Option Shares upon the earlier
of (i) the date a "CHANGE IN CONTROL" (as defined in the Plan) occurs and (ii)
November 19, 2005.
2. The Option is intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986 (the "CODE"); PROVIDED,
HOWEVER, that if, in any calendar year, vesting were to occur under the terms of
Section 1 hereof with respect to a number of Option Shares exceeding the maximum
limit imposed by the Code for annual vesting of incentive stock options, then
this Option shall only be deemed an incentive stock option with respect to the
earliest Option Shares to vest in such year in the amount of such maximum limit,
and this Option shall be deemed to be a be non-qualified stock option with
respect to the remaining shares that vest in such year. In such event, upon each
subsequent exercise of this Option, the Optionee shall designate in writing to
the Company which, if any, of the Option Shares being acquired were subject to
an incentive stock option and which were subject to a non-qualified stock
option.
3. The parties acknowledge that all outstanding options and related
agreements previously granted to Optionee under the Plan have been terminated
and are no longer in force or effect. If Nasdaq threatens any sanctions against
the Company attributable to this Agreement or the number of Option Shares
hereunder, the Company and the Optionee agree to restructure the Optionee's
compensation package to eliminate Nasdaq's objection and yet retain the
equivalent economic benefit to the Optionee.
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<PAGE>
4. The Option is not transferable by the Optionee otherwise than by
will or the laws of descent and distribution, and is exercisable, during the
Optionee's lifetime, only by the Optionee.
5. In the event of the termination of the employment of the Optionee by
the Company or Fidelity for any reason other than Cause (as defined below), the
Optionee may exercise the Option, to the extent that the Optionee was entitled
to do so on the date of termination, at any time until the earlier of (i) the
close of business on the 90th day following the effective date of such
termination or (ii) the date of expiration of the Option. In the event of the
termination of employment of the Optionee for Cause, the Option shall be
canceled as of the effective date of such termination. For purposes of this
Section, "CAUSE" shall mean the continued failure, either willful or due to
gross negligence, of the Optionee to substantially perform his/her duties as an
employee of the Company or its subsidiaries in a faithful and competent manner;
dishonesty; incompetence; willful misconduct; breach of fiduciary duty involving
personal profit; willful violation of any law, rule or regulation (other than
traffic violations or similar violations) or final cease-and-desist order,
PROVIDED, HOWEVER, that if the Optionee is subject to an employment agreement
with the Company or Fidelity, "Cause" shall have the meaning set forth in such
employment agreement.
6. In the event the Optionee dies while employed by the Company or
Fidelity, the person or persons to whom the Option is transferred by will or the
laws of descent and distribution may exercise the Option, to the extent that the
Optionee was entitled to do so on the date of the Optionee's death, at any time
until the earlier of (i) the first anniversary of the date of death or (ii) the
date of expiration of the Option.
7. The Option may be exercised only by written notice to the Secretary
of the Company at its office at 4565 Colorado Boulevard, Los Angeles, California
90039. Such notice shall state the election to exercise the Option and the
number of Option Shares in respect of which it is being exercised and shall be
signed by the Optionee. In no event may the Option be exercised for less than
500 Option Shares unless there are fewer than 500 Option Shares remaining for
exercise under the Option. The certificate or certificates of the Option Shares
as to which the Option shall have been exercised will be registered only in the
Optionee's name. In the event the Option becomes exercisable by another person
or persons upon the death of the Optionee, the notice of exercise shall be
accompanied by appropriate proof of the right to exercise the Option.
8. At the time of exercise of the Option and prior to the delivery of
the purchased Option Shares, the Optionee shall pay in cash to the Company the
sum of the aggregate purchase price for all Option Shares purchased pursuant to
such exercise of the Option and any Withholding Liability pursuant to Section 11
hereof. All payments shall be made by check payable to the order of the Company.
In lieu of making payment in cash for the aggregate purchase price for all
Option Shares purchased pursuant to the exercise of the Option or any
Withholding Liability, the Optionee may, if the Common Stock is actively traded
on an established market, make such payment (i) by delivery to the Company of
shares of Common Stock owned by the Optionee having a fair market value of at
least equal to the aggregate purchase price for the Option Shares, (ii) partly
in cash and partly by delivery of shares of Common Stock or (iii) such other
method permitted by the Committee so long as such method complies with the
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<PAGE>
applicable provisions of the Code for incentive stock options. The fair market
value shall be established in accordance with any reasonable valuation methods
determined by the Committee. If the fair market value of the shares of Common
Stock so delivered exceeds the aggregate purchase price for the Option Shares
(or part thereof) and such Withholding Liability, the Company will pay to the
Optionee in cash an amount equal to the fair market value of the fractional
portion of any share of Common Stock so delivered and not applied by the Company
in payment of the purchase price and such Withholding Liability and a
certificate for any whole shares of Common Stock not required to be applied by
the Company in payment of the purchase price and such Withholding Liability. The
Optionee shall not have any of the rights and privileges of a stockholder of the
Company with respect to the Option Shares deliverable upon any exercise of the
Option unless and until certificates representing such shares shall have been
delivered to the Optionee.
9. The Optionee agrees that any resale of the shares received upon any
exercise of the Option shall be made in compliance with the registration
requirements of the Securities Act of 1933 or an applicable exemption therefrom,
including without limitation the exemption provided by Rule 144 promulgated
thereunder (or any successor rule). The Optionee agrees that the Optionee will
give notice to the Company of any "disposition" (within the meaning of Section
424(c) of the Code) of the shares received upon exercise of the Option which is
made within the two-year period beginning on the Date of Grant or within the
one-year period beginning on the date of the issuance of such shares to the
Optionee. Such notice shall be given in writing within ten days after such
disposition and shall contain a representation by the Optionee of the net amount
realized by the Optionee from the disposition, or, if no amount is realized, a
representation as to the nature of the disposition.
10. In the event that, prior to the exercise of the Option with respect
to all of the Option Shares, the number of outstanding shares of Common Stock
shall be increased or decreased or changed into or exchanged for a different
number or kind of shares of stock or other securities through a merger,
consolidation, stock dividend, stock split, reverse stock split,
recapitalization or other capital restructuring affecting the outstanding Common
Stock, the number and nature of unpurchased Option Shares hereunder, the
Exercise Price, and the Average Share Price for each Vested Percentage shall be
appropriately adjusted by the Committee.
11. If the Company or any affiliate of the Company becomes obligated to
withhold an amount on account of any tax imposed as a result of the exercise of
this Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax (the "WITHHOLDING LIABILITY"), then the Optionee shall, on the date of
exercise and as a condition to the issuance of the Option Shares, pay the
Withholding Liability to the Company in cash or by check payable to the Company.
The Optionee hereby consents to the Company withholding the full amount of the
Withholding Liability from any compensation or other amounts otherwise payable
to the Optionee if the Optionee does not pay the Withholding Liability to the
Company on the date of exercise of the Option, and the Optionee agrees that the
withholding and payment of any such amount by the Company to the relevant taxing
authority shall constitute full satisfaction of the Company's obligation to pay
such compensation or other amounts to the Optionee.
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<PAGE>
12. If any of the terms of this Agreement are inconsistent with the
terms of the Plan, the terms of the Plan shall be controlling. The Committee
shall have authority to interpret the Plan and this Agreement and to make any
and all determinations under them, and its decisions shall be binding and
conclusive upon the Optionee and the Optionee's legal representative in respect
of any questions arising under the Plan or this Agreement.
13. Any notice to be given to the Company shall be addressed to the
Secretary of the Company at 4565 Colorado Boulevard, Los Angeles, California
90039 and any notice to be given to the Optionee shall be addressed to the
Optionee at the Optionee's residence as it may appear on the records of the
Company or at such other address as either party may hereafter designate in
writing to the other.
14. The Agreement shall be binding upon and inure to the benefit of the
parties hereto and any successors to the business of the Company and any
successors to the Optionee by will or the laws of descent and distribution, but
this Agreement shall not otherwise be assignable by the Optionee.
15. This Agreement shall be governed by, and construed in accordance
with, the internal laws, and not the laws of conflicts or choice of law, of the
State of California and applicable Federal law.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date and year first above written.
BANK PLUS CORPORATION
By:
----------------------------------
Chief Executive Officer
----------------------------------
Optionee
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<PAGE>
EXHIBIT NO. 10.44
================================================================================
MASTER AGREEMENT
BY AND AMONG
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY,
GATEWAY INVESTMENT SERVICES, INC.,
AND
BANK PLUS CORPORATION
December 17, 1998
================================================================================
<PAGE>
Exhibit No. 10.44
MASTER AGREEMENT
TABLE OF CONTENTS
RECITALS
ARTICLE 1 DEFINITIONS
1.01 DEFINITIONS.........................................................1
ARTICLE 2 INTEGRATED TRANSACTION; CLOSING
2.01 INTEGRATED TRANSACTION..............................................3
2.02 CLOSING.............................................................4
ARTICLE 3 CONDITIONS TO CLOSING
3.01 CONDITIONS TO OBLIGATIONS OF VALIC..................................4
3.02 CONDITIONS TO OBLIGATIONS OF BANK PLUS AND GATEWAY..................5
ARTICLE 4 INDEMNIFICATION
4.01 BANK PLUS INDEMNITY.................................................5
4.02 SALE OF BANK PLUS..................................................5
4.03 POSTING OF SECURITY.................................................6
4.04 BREACHES OF REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS....6
4.05 INDEMNIFICATION PROCEDURES..........................................6
ARTICLE 5 TRANSITION ISSUES
5.01 EMPLOYEES...........................................................7
5.02 TRANSITION SERVICES.................................................8
5.03 OFFICE SPACE........................................................8
5.04 EQUIPMENT...........................................................8
5.05 ACUMEN CONTRACTS....................................................8
ARTICLE 6 REPRESENTATIONS AND WARRANTIES
6.01 REPRESENTATIONS AND WARRANTIES BY EACH PARTY. ......................8
6.02 REPRESENTATIONS AND WARRANTIES BY BANK PLUS AND GATEWAY. ...........9
ARTICLE 7 DISPUTE RESOLUTION
7.01 DISPUTES...........................................................10
7.02 NEGOTIATION TO RESOLVE DISPUTES....................................11
7.03 SELECTION OF ARBITRATOR............................................11
7.04 CONDUCT OF ARBITRATION.............................................11
7.05 IMMEDIATE INJUNCTIVE RELIEF........................................12
ARTICLE 8 TERMINATION
8.01 RIGHT OF TERMINATION...............................................12
8.02 EFFECT OF TERMINATION..............................................13
8.03 EXCLUSIVITY........................................................13
<PAGE>
Exhibit No. 10.44
ARTICLE 9 GENERAL PROVISIONS
9.01 NOTICES............................................................13
9.02 ENTIRE AGREEMENT; SUPERSEDING EFFECT...............................14
9.03 EFFECT OF WAIVER OR CONSENT........................................14
9.04 AMENDMENT OR RESTATEMENT...........................................14
9.05 BINDING EFFECT.....................................................14
9.06 GOVERNING LAW; SEVERABILITY........................................14
9.07 FURTHER ASSURANCES.................................................14
9.08 COUNTERPARTS.......................................................15
Attachments:
A - Form of LLC Agreement
B - Form of Services Agreement
C - Form of Non-Competition Agreement
D - Terms and Conditions of Head Office Lease
E - Field Office Leases
F - Form of Non-Exclusive License Agreement
G - Terms and Conditions of Letter of Credit
H - Employees Primarily Involved In CalPERS Business
I - Employees Involved in CalPERS Business
J - Governmental Authorizations
K - CalPERS Contract Disclosures
L-1 - Approved Products List for CalPERS Members
L-2 - Approved Products List for Non-CalPERS Members
M - Equipment List
<PAGE>
Exhibit No. 10.44
MASTER AGREEMENT
THIS MASTER AGREEMENT (this "AGREEMENT"), dated as of December 17, 1998
(the "EFFECTIVE DATE"), is entered into by and among The Variable Annuity Life
Insurance Company, a Texas life insurance company ("VALIC"), Gateway Investment
Services, Inc., a California corporation ("GATEWAY") and Bank Plus Corporation,
a Delaware corporation ("BANK PLUS").
RECITALS
1. VALIC and Gateway desire to enter into a Limited Liability Company
Agreement for American General Gateway Services, LLC, a Delaware limited
liability company (the "LLC") for purposes of , among other things, assuming the
rights and obligations of Gateway under that certain Agreement (Contract Number
97-169), dated July 1, 1997, between the California Public Employee Retirement
System ("CalPERS") and Gateway (the "ORIGINAL CalPERS CONTRACT," and as amended
from time to time, the "CalPERS CONTRACT").
2. As conditions precedent to entering into a Limited Liability Company
Agreement whereby VALIC will make capital contributions to the LLC, VALIC
requires that Gateway and Bank Plus provide certain indemnities, consents and
agreements, as more fully set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.01 DEFINITIONS. As used in this Agreement, the following terms have
the respective meanings set forth below or set forth in the Sections referred to
below:
ACCEPTABLE BANK - any bank or trust company organized under the laws of
the United States or any state thereof that has capital, surplus and undivided
profits of at least $500,000,000 and outstanding unsecured indebtedness rated A
or better by Standard & Poor's Corporation or A2 or better by Moody's Investors
Service, Inc.
ACUMEN - Acumen Financial Inc.
ACUMEN CONTRACTS - the Service Bureau Agreement, dated as of August 1,
1997, between Gateway and Acumen, and the Software License Agreement, dated as
of August 1, 1997, between Gateway and Acumen.
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Exhibit No. 10.44
AFFILIATE - with respect to any Person, any other Person that (a) owns
or controls the first Person, (b) is owned or controlled by the first Person or
(c) is under common ownership or control with first Person, where "own" means
direct or indirect ownership of more than 50% of the equity interest or rights
to distributions on account of equity of the Person and "control" means the
direct or indirect power to direct the management or policies of the Person,
whether through the ownership of voting securities, by contract, or otherwise.
AGREEMENT - Opening Paragraph
BANK INDEMNITEES - Section 4.04.
BANK PLUS - Opening Paragraph
BANK PLUS INDEMNITY - Section 4.01
BUSINESS DAY - any day other than a Saturday, a Sunday, or a holiday on
which national banking associations in the States of Texas and California are
closed.
CalPERS - First Recital
CalPERS BUSINESS - the CalPERS Contract and any renewals thereto,
together with any and all business, assets and operations associated therewith.
CalPERS CONTRACT - First Recital
CONFIDENTIALITY AGREEMENT - the letter agreement, dated August 17,
1998, between American General Corporation and Bank Plus.
CONSOLIDATED - with respect to any Person, the consolidation of the
accounts of such Person and its subsidiaries in accordance with GAAP.
DISPUTE - Section 7.01
DISPUTING PARTY - Section 7.01
EFFECTIVE DATE - Opening Paragraph
FIELD OFFICE LEASES - the leases described on Attachment E.
FPC DISPUTE - the dispute between Gateway and Financial Plan
Coordinator, Inc., Brian Conway and Patricia Conway relating in any way to the
CalPERS Contract.
GAAP - generally accepted accounting principles and policies as of the
date of any determination dependent thereupon.
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<PAGE>
Exhibit No. 10.44
GATEWAY - Opening Paragraph
HEAD OFFICE LEASE - Section 3.01(g)
KEY EMPLOYEES - Monica C. Bacon, Theresa A. Fletcher, Dean Holmes,
Stephen Hughes, and Eric A. Porter.
LICENSE AGREEMENT - Section 3.02(d)
LLC - First Recital
LLC AGREEMENT - Section 3.01(a)
LOSSES - any and all losses, costs, expenses, claims, demands,
liabilities, suits or actions, including all reasonable expenses and attorneys'
fees associated therewith.
NON-COMPETITION AGREEMENT - Section 3.01(c)
PARTY - each of VALIC, Gateway and Bank Plus.
PERSON - any (a) natural person or (b) corporation, limited liability
company, partnership, limited partnership, venture, trust, estate, governmental
entity or other entity.
QUALIFIED INDEMNITOR- an entity (a) whose long-term senior unsecured
debt is rated investment grade or better by one of Standard & Poor's Corporation
or Moody's Investor's Service, or their respective successors and assigns to the
extent the primary business of any such successor or assign is the rating of
debt securities of corporate and other issues or, if such entity is not rated by
such rating agencies, (b) whose stockholders' equity determined in accordance
with GAAP on a Consolidated basis is at least equal to $95,796,750.
SERVICES AGREEMENT - Section 3.01(b).
TRANSACTION DOCUMENTS - this Agreement, the LLC Agreement, the Services
Agreement, the Non-Competition Agreement, the CalPERS Contract and all renewals
thereof, the Acumen Contracts and all amendments and renewals thereof, the Head
Office Lease, the License Agreement, any letter of credit or escrow agreement
entered into pursuant to Section 4.03 and the Confidentiality Agreement.
VALIC - Opening Paragraph
VALIC INDEMNITEES - Section 4.04
VISCO - VALIC Investment Services Company, a wholly owned subsidiary of
VALIC.
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<PAGE>
Exhibit No. 10.44
ARTICLE 2
INTEGRATED TRANSACTION; CLOSING
2.01 INTEGRATED TRANSACTION. The parties are entering into this Master
Agreement for purposes of describing the integrated transaction whereby VALIC
and Gateway will enter into the LLC Agreement, effective subject to the
satisfaction of certain conditions precedent. VALIC has filed the certificate of
formation for the LLC in advance of the satisfaction of such conditions
precedent for purposes of convenience. The parties acknowledge that, until such
time as the LLC Agreement is fully executed and becomes effective, the LLC shall
not transact any business and there shall be no obligations between Gateway and
VALIC. In addition, the parties agree that, until the License Agreement has been
executed, the name and/or mark "American General" shall not be used in
association with the business, goods or services of the LLC.
2.02 CLOSING. Upon satisfaction of the conditions precedent set forth
in Article 3, the consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place on the date that is five Business
Days after satisfaction of all conditions precedent set forth in Article 3, or
such other date as may be agreed in writing by the Parties (the "Closing Date").
ARTICLE 3
CONDITIONS TO CLOSING
3.01 CONDITIONS TO OBLIGATIONS OF VALIC. The obligation of VALIC to
perform any obligations set forth in the LLC Agreement is subject to the
fulfillment (or waiver by VALIC) on or prior to the Closing Date of the
following conditions:
(a) Gateway shall have executed and delivered to VALIC the Limited
Liability Company Agreement, in the form attached hereto as Attachment A, and
effective as of the Closing Date (the "LLC Agreement")
(b) Gateway and Bank Plus shall have executed and delivered to
VALIC the Services Agreement, in the form attached hereto as Attachment B, and
effective as of the Closing Date (the "Services Agreement");
(c) Robert P. Condon shall have executed and delivered to VALIC
the Non-Solicitation and Non-Competition Agreement, in the form attached hereto
as Attachment C, and effective as of the Closing Date (the "Non-Competition
Agreement");
(d) Gateway shall have delivered to VALIC an amendment or
amendments to the Original CalPERS Contract, duly executed by CalPERS and in a
form acceptable to VALIC, that (i) renews the Original CalPERS Contract for an
additional term of not less than two years from July 1, 1998, (ii) amends
Attachment A to the Original CalPERS Contract, entitled "Key Personnel," to
reflect only the name of Robert P. Condon, and (iii) reflects the necessary
CalPERS consent for assignment of the CalPERS Contract to the LLC.
(e) Gateway shall have provided written confirmation that American
General Annuity Insurance Company products have been added to the list of credit
and investment products available on the Fidelity Federal Bank sales platform;
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<PAGE>
Exhibit No. 10.44
(f) Fidelity Federal Bank shall have executed and delivered to the
LLC a Lease Agreement, consistent with the term sheet attached hereto as
Attachment D (the "Head Office Lease"), to be effective as of March 1, 1999.
(g) Gateway shall have delivered to VALIC originals (or, where
necessary, copies) of all of the books and records of Gateway relating to the
CalPERS Business, including but not limited to the consultation requests
submitted by, and financial plans prepared for, CalPERS members, spouses and
dependants; and
(h) The representations and warranties of Bank Plus and Gateway
hereunder shall be made again at the Closing and shall be true and correct in
all material respects as of the Closing. Each of Bank Plus and Gateway shall
have furnished VALIC with a certificate to such effect dated as of the Closing
Date and executed by an executive officer of each of Bank Plus and Gateway.
3.02 CONDITIONS TO OBLIGATIONS OF BANK PLUS AND GATEWAY. The obligation
of Gateway to form the LLC and the obligations of Gateway and Bank Plus to
perform under this Agreement are subject to the fulfillment (or waiver by
Gateway or Bank Plus) on or prior to the Closing Date of the following
conditions:
(a) VALIC shall have executed and delivered to Gateway the LLC
Agreement;
(b) VALIC, for itself and in its capacity as managing member of
the LLC, shall have executed and delivered to Gateway the Services Agreement;
(c) VALIC shall have executed and delivered to Gateway the
Non-Competition Agreement;
(d) American General Corporation shall have executed and delivered
to the LLC the Non-Exclusive License Agreement, in the form attached hereto as
Attachment F (the "License Agreement"); and
(e) The representations and warranties of VALIC hereunder shall be
made again at the Closing and shall be true and correct in all material respects
as of the Closing. VALIC shall have furnished each of Bank Plus and Gateway with
a certificate to such effect dated as of the Closing Date and executed by an
executive officer of VALIC.
ARTICLE 4
INDEMNIFICATION
4.01 BANK PLUS INDEMNITY. Effective as of the Closing Date, Bank Plus
hereby agrees to indemnify, protect, defend, release and hold harmless VALIC and
VALIC's Affiliates, and their respective directors, officers, employees, agents,
successors and assigns (collectively, the "VALIC INDEMNITEES"), from and against
any and all Losses arising out of, relating to or otherwise attributable to the
FPC Dispute (the "BANK PLUS INDEMNITY").
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Exhibit No. 10.44
4.02 SALE OF BANK PLUS. In the event that Bank Plus sells or otherwise
transfers all or any part of its assets or stock, the Bank Plus Indemnity shall
remain in full force and effect notwithstanding such transfer. However, if the
Bank Plus Indemnity is replaced by an indemnity agreement, in form and substance
satisfactory to VALIC and issued by a Qualified Indemnitor, then VALIC shall
release the Bank Plus Indemnity.
4.03 POSTING OF SECURITY. (a) If at any time Bank Plus fails to satisfy
the requirements of being a Qualified Indemnitor, then, promptly upon such
determination, Bank Plus shall cause a deposit of cash or investment securities
acceptable to VALIC to be made in an escrow account with an Acceptable Bank in
accordance with an escrow agreement satisfactory to VALIC, in the amount of
$1,000,000. In lieu of funding such escrow account, Bank Plus may provide, or
cause to be provided, a letter of credit issued by an Acceptable Bank in favor
of VALIC in the face amount of $1,000,000, and reflecting the terms set forth in
Attachment G. If a cash deposit or letter of credit has been provided as set
forth above, and VALIC is notified by Bank Plus or Gateway at any time
thereafter and determines that Bank Plus once again satisfies the requirements
of being a Qualified Indemnitor, then VALIC shall promptly return the unused
portion of such cash deposit to Bank Plus or return the letter of credit to Bank
Plus for cancellation.
(b) The obligation of Bank Plus to fund the escrow account (or
post a letter of credit) as set forth in Section 4.03(a) shall terminate upon
the occurrence of any of the following events: (i) FPC has executed a full and
final release of all claims against the VALIC Indemnitees, in a form acceptable
to VALIC, (ii) the entry of a final, non-appealable judgment against FPC that,
in VALIC's sole determination, extinguishes all claims against the VALIC
Indemnitees, (iii) the full satisfaction of any judgment against Bank Plus,
Gateway and/or the VALIC Indemnitees that, in VALIC's sole determination,
extinguishes all further claims against the VALIC Indemnitees, or (iv) one day
following the expiration of the statute of limitations with respect to the FPC
Dispute, as determined solely by VALIC, without the filing of any claim by FPC
prior to such time.
4.04 BREACHES OF REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS.
Bank Plus and Gateway, on a joint and several basis, agree to indemnify,
protect, defend, release and hold harmless the VALIC Indemnitees from and
against any and all Losses (including, without limitation, involving theories of
negligence or strict liability) asserted against, resulting from, imposed upon
or incurred by any of the VALIC Indemnitees by, or arising out of, or as a
result of, any of the representations, warranties, covenants or agreements of
Bank Plus or Gateway contained in or related to this Agreement being materially
incorrect, untrue or breached. VALIC agrees to indemnify, protect, defend,
release and hold harmless Bank Plus, Gateway, and their respective directors,
officers, employees, agents, successors and assigns (collectively, the "BANK
INDEMNITEES") from and against any and all Losses (including, without
limitation, involving theories of negligence or strict liability) asserted
against, resulting from, imposed upon or incurred by any of the Bank Indemnitees
by, or arising out of, or as a result of, any of the representations,
warranties, covenants or agreements of VALIC contained in or related to this
Agreement being materially incorrect, untrue or breached.
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<PAGE>
Exhibit No. 10.44
4.05 INDEMNIFICATION PROCEDURES.
(a) In case any action shall be brought against any VALIC
Indemnitee or Bank Indemnitee (either, as applicable, an "Indemnified Party")
that may give rise to a claim for indemnification hereunder, it shall promptly
give the other party (the "Indemnifying Party") written notice of such claim
and, if known, the facts constituting the basis for such claim and the amount or
an estimate of the amount of the liability arising therefrom, PROVIDED THAT
failure to give such prompt notice shall not relieve the Indemnifying Party from
any liability hereunder, unless such failure materially prejudices the rights or
increases the liability of the Indemnifying Party with respect to such claim, in
which case the Indemnifying Party's obligation shall be reduced by the amount it
has been actually damaged thereby.
(b) The Indemnifying Party, at its own expense, may elect to
assume the defense of any action brought against an Indemnified Party, including
the employment of counsel reasonably satisfactory to such Indemnified Party and
the payment by the Indemnifying Party of all costs thereof. Any Indemnified
Party shall have the right to employ separate counsel at its expense in any such
action and to consult with the Indemnifying Party regarding the defense thereof,
provided that, except as otherwise provided below, the Indemnifying Party shall
at all times control such defense. If the Indemnifying Party shall have failed
to employ counsel reasonably satisfactory to such Indemnified Party, the fees
and expenses of counsel to each Indemnified Party shall be paid by the
Indemnifying Party.
(c) If the Indemnifying Party shall elect in writing not to assume
the defense or shall fail to prosecute diligently such defense thereof, an
Indemnified Party may, after written notice to the Indemnifying Party and the
Indemnifying Party's failure to promptly remedy the same, assume the defense
thereof, including the employment of counsel, in which case the Indemnifying
Party shall pay all of the losses and reasonable costs of such Indemnified Party
incurred in respect of such defense.
(d) If any Indemnified Party shall have been advised by counsel
chosen by it that it would be inappropriate for such counsel to continue to
represent, in respect to a particular legal or factual issue or otherwise, both
the Indemnified Party and the Indemnifying Party (for reasons which may include,
without limitation, that there may be one or more legal defenses available to
such Indemnified Party that are different from or additional to those available
to the Indemnifying Party), the Indemnified Party may retain additional and
separate counsel reasonably satisfactory to such Indemnifying Party to represent
it, and the Indemnifying Party will reimburse such Indemnified Party for the
reasonable fees and expenses of such counsel retained by the Indemnified Party.
(e) The Indemnifying Party shall not be liable for any settlement
of any action without its consent, which consent shall not be unreasonably
withheld or delayed. No settlement of any such action may be made by the
Indemnifying Party without the Indemnified Party's consent, which consent shall
not be unreasonably withheld or delayed; PROVIDED THAT such consent shall not be
necessary if the settlement results in any unconditional release of the
Indemnified Party without the admission by the Indemnified Party of guilt,
complicity or culpability and without the settlement or release of any claim,
counterclaim or cross-claim of the Indemnified Party.
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Exhibit No. 10.44
ARTICLE 5
TRANSITION ISSUES
5.01 EMPLOYEES. VALIC shall offer employment (through VALIC, VISCO or
any other VALIC Affiliate) to each of the Gateway employees listed on Attachment
H (the "CalPERS Employees"), on such terms and conditions as VALIC (in its sole
discretion) finds appropriate, upon termination of the Services Agreement,
except that VALIC shall not be obligated to offer employment to those employees
indicated with an asterisk on Attachment H. From the date hereof until the
termination of the Services Agreement, all communications between the CalPERS
Employees and Gateway or Bank Plus regarding the employment (including any terms
or conditions thereof) to be offered to such employees by VALIC or its
Affiliates shall require the advance approval of VALIC.
5.02 TRANSITION SERVICES. During the term of the Services Agreement,
and in accordance with the terms thereof, Gateway shall continue to operate the
CalPERS Business, including serving as the broker/dealer of record and providing
the trade-clearing and other processing services necessary to support the
CalPERS Business, all in a manner consistent with Gateway's past practices.
5.03 OFFICE SPACE. During the period from the Closing Date until March
1, 1999, Gateway shall maintain the Field Office Leases and pay all rent due
thereunder, it being understood that such rent shall be an expense of the LLC
for which Gateway is entitled to reimbursement. From and after March 1, 1999,
all Field Office Leases shall be terminated, and neither the LLC nor VALIC shall
be liable for any rent due under the Field Office Leases from and after that
date.
5.04 EQUIPMENT. The LLC shall have the right, but not the obligation,
to purchase from Gateway, effective March 1, 1999, all or any item of the
equipment listed on Attachment M. The price payable by the LLC for each such
item of equipment shall be equal to the remaining book value of such equipment
on March 1, 1999, calculated in accordance with GAAP.
5.05 ACUMEN CONTRACTS. Effective as of the date of termination of the
Services Agreement, Gateway shall assign its rights and obligations under the
Acumen Contracts to the LLC, and the LLC shall assume such rights and
obligations, pursuant to a mutually acceptable agreement reflecting the consent
of Acumen. Any such assignment agreement shall contain a representation that
Gateway has paid in full all obligations under the Acumen Contracts through the
date of assignment, and shall disclaim liability for and indemnify each party
against liability for claims arising from actions taken by the other party. In
addition, Gateway shall cooperate with VALIC to secure any amendments to the
Acumen Contracts that VALIC may request.
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Exhibit No. 10.44
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.01 REPRESENTATIONS AND WARRANTIES BY EACH PARTY. Each Party hereby
represents, warrants and covenants to each other Party that the following
statements are true and correct as of the Effective Date, and shall be true and
correct as of the Closing Date and (where relevant) for a period of two years
following the Closing Date:
(a) ORGANIZATION AND GOOD STANDING. That Party is duly
incorporated, organized or formed (as applicable), validly existing, and (if
applicable) in good standing under the Law of the jurisdiction of its
incorporation, organization or formation; if required by applicable Law, that
Party is duly qualified and in good standing in the jurisdiction of its
principal place of business, if different from its jurisdiction of
incorporation, organization or formation; and that Party has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder, and all necessary actions by the board of directors, shareholders,
managers, partners, trustees, beneficiaries, or other applicable Persons
necessary for the due authorization, execution, delivery, and performance of
this Agreement by that Party have been duly taken;
(b) ENFORCEABILITY. That Party has duly executed and delivered
this Agreement and the other documents contemplated herein, and they constitute
the legal, valid and binding obligation of that Party enforceable against it in
accordance with their terms (except as may be limited by bankruptcy, insolvency
or similar laws of general application and by the effect of general principles
of equity, regardless of whether considered at law or in equity); and
(c) AUTHORIZATION, NO CONFLICT. That Party's authorization,
execution, delivery, and performance of this Agreement does not and will not (i)
conflict with, or result in a breach, default or violation of, (A) the
organizational documents of such Party, (B) any contract or agreement to which
that Party is a party or is otherwise subject, or (C) any Law, order, judgment,
decree, writ, injunction or arbitral award to which that Party is subject; or
(ii) require any consent, approval or authorization from, filing or registration
with, or notice to, any Governmental Authority or other Person, unless such
requirement has already been satisfied.
6.02 REPRESENTATIONS AND WARRANTIES BY BANK PLUS AND GATEWAY. Each of
Bank Plus and Gateway hereby represents, warrants and covenants to VALIC that
the following statements are true and correct as of the Effective Date, and
shall be true and correct as of the Closing Date and (where relevant) for a
period of two years following the Closing Date:
(a) GOVERNMENTAL AUTHORIZATIONS. Gateway holds, and during the
term of the Services Agreement will hold, such licenses, permits, consents,
authorizations and orders of such governmental or regulatory authorities as are
necessary to carry on the CalPERS Business as currently being conducted and to
be conducted until the Closing, and such licenses, permits, consents,
authorizations and orders are in full force and effect and have been and are
being complied with in all material respects by Gateway. Attachment J lists and
briefly describes all such licenses, permits, consents, authorizations and
orders as are now held and are necessary for the ongoing operation by Gateway of
the CalPERS Business.
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Exhibit No. 10.44
(b) COMPLIANCE. Gateway is not in default or violation of, and has
complied in all material respects with, (i) except as disclosed on Attachment K,
the CalPERS Contract, or any other contract, agreement, lease, license, permit,
or other instrument or obligation to which Gateway is a party or by which is
bound that relates to the CalPERS Business, (ii) any order, judgment, writ,
injunction, award or decree applicable to the CalPERS Business, (iii) to
Gateway's best knowledge, any law, rule, statute or regulation applicable to the
CalPERS Business, and (iv) any of the provisions of its Certificate of
Incorporation or By-laws or equivalent organizational documents.
(c) LITIGATION, JUDGMENTS, ETC. Except for the FPC Dispute, there
is no dispute, action, suit, proceeding or investigation pending or, to
Gateway's best knowledge, threatened against or affecting Bank Plus or Gateway
that relates to the CalPERS Business in any court or before or by any federal,
state or other governmental department, commission, agency or other
instrumentality, or before any arbitrator. There are no bankruptcy,
reorganization or arrangement proceedings pending, or, to the best knowledge of
Bank Plus and Gateway, being contemplated by or threatened against Bank Plus or
Gateway.
(d) EMPLOYEES; KEY EMPLOYEES. Attachment H contains a true and
complete list of the name and salary (or hourly rate, as the case may be), as
well as the title or functional position, of each Gateway employee whose
employment primarily supports the CalPERS Business. Attachment I contains a true
and complete list of the name and title or functional position of each current
salaried employee, consultant, representative, salesman or agent employed or
under contract with Bank Plus, Gateway or their Affiliates whose employment is
related to the CalPERS Business, whether or not full time, in each case for
payment of whom Bank Plus, Gateway or their Affiliates are liable. Bank Plus and
Gateway have made available to VALIC true, complete, and correct copies of each
consulting and employment agreement with Bank Plus, Gateway or their Affiliates
that relates to the CalPERS Business, together with salary (or hourly rate)
information for the individuals listed on Attachment I. Effective as of the date
hereof and of the Closing Date, the Key Employees are employees of Gateway or
its Affiliates and, to Gateway's best knowledge, no Key Employee intends to
terminate their employment with Gateway or its relevant Affiliate or, following
the Closing Date, VALIC or its relevant Affiliate.
(e) ACCURACY. No representation or warranty of Bank Plus or
Gateway in this Agreement or any other written information, statement or
certificate with respect to Bank Plus or Gateway furnished or to be furnished by
Bank Plus, Gateway or affiliates, representatives, employees or consultants of
Bank Plus or Gateway, respectively, pursuant hereto or in connection with the
transactions contemplated hereby, when taken as a whole with all other
information provided to VALIC, contains or will contain any material
misstatement or omission. The Gateway books and records delivered to VALIC
pursuant to Section 3.01(m) shall be correct and current when delivered.
(f) CalPERS CLIENTS. On or prior to Closing, Gateway shall deliver
to VALIC a list which shall set forth a then correct and current list of all
clients and customers of Gateway relating to the CalPERS Business that have
executed a trade or otherwise consummated a purchase of any investment products
with Gateway, together with a notation of the type of services provided to each
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Exhibit No. 10.44
such customer. Gateway has made all reasonable efforts consistent with past
practices to preserve relationships with such customers.
(g) AUTHORIZED PRODUCTS. Attached hereto as Attachment L-1 is a
true, correct and comprehensive list of approved products that has been
authorized by CalPERS for sale to its members. Attached hereto as Attachment L-2
is a true, correct and comprehensive list of approved products that has been
authorized by Gateway for sale by the financial counselors listed on Attachment
H to non-CalPERS members.
ARTICLE 7
DISPUTE RESOLUTION
7.01 DISPUTES. This Article 7 shall apply to any dispute arising under
or related to this Agreement or the other Transaction Documents (whether arising
in contract, tort or otherwise, and whether arising at law or in equity),
including (a) any dispute regarding the construction, interpretation,
performance, validity or enforceability of any provision of this Agreement or
the other Transaction Documents or whether any Person is in compliance with, or
breach of, any provisions of this Agreement or the other Transaction Documents,
and (b) the applicability of this Article 7 to a particular dispute. Any dispute
to which this Article 7 applies is referred to herein as a "DISPUTE." With
respect to a particular Dispute, each Party that is a party to such Dispute is
referred to herein as a "DISPUTING PARTY." The provisions of this Article 7
shall be the exclusive method of resolving Disputes.
7.02 NEGOTIATION TO RESOLVE DISPUTES. If a Dispute arises, the
Disputing Parties shall attempt to resolve such Dispute through the following
procedure, unless otherwise mutually agreed by the Disputing Parties:
(a) first, an executive officer of each of the Disputing Parties
shall promptly meet (whether by phone or in person) in a good faith attempt to
resolve the Dispute;
(b) second, if the Dispute is still unresolved after 20 Days
following the commencement by any Disputing Party of the negotiations described
in Section 7.02(a), then the chief executive officer (or his designee) of the
immediate parent company of each Disputing Party shall meet (whether by phone or
in person) in a good faith attempt to resolve the Dispute; and
(c) third, if the Dispute is still unresolved after 5 Days
following the commencement by any Disputing Party of the negotiations described
in Section 7.02(b), then any Disputing Party may submit such Dispute to binding
arbitration under this Article 7 by notifying the other Disputing Parties (an
"ARBITRATION NOTICE").
7.03 SELECTION OF ARBITRATOR. (a) Any arbitration conducted under this
Article 7 shall be heard by a sole arbitrator (the "ARBITRATOR") selected in
accordance with this Section 7.03. Each Disputing Party and each proposed
Arbitrator shall disclose to the other Disputing Parties any business, personal
or other relationship or Affiliation that may exist between such Disputing Party
and such proposed Arbitrator, and any Disputing Party may disapprove of such
proposed Arbitrator on the basis of such relationship or Affiliation.
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Exhibit No. 10.44
(b) The Disputing Party that submits a Dispute to arbitration
shall designate a proposed Arbitrator in its Arbitration Notice. If any other
Disputing Party objects to such proposed Arbitrator, it may, on or before the
tenth Day following delivery of the Arbitration Notice, notify all of the other
Disputing Parties of such objection. All of the Disputing Parties shall attempt
to agree upon a mutually-acceptable Arbitrator. If they are unable to do so
within 20 Days following delivery of the notice described in the
immediately-preceding sentence, any Disputing Party may request the American
Arbitration Association (or, if such Association has ceased to exist, the
principal successor thereto) (the "AAA") to designate the Arbitrator. If the
Arbitrator so chosen shall die, resign or otherwise fail or becomes unable to
serve as Arbitrator, a replacement Arbitrator shall be chosen in accordance with
this Section 7.03.
7.04 CONDUCT OF ARBITRATION. The Arbitrator shall expeditiously (and,
if possible, within 90 Days after the Arbitrator's selection) hear and decide
all matters concerning the Dispute. Any arbitration hearing shall be held in
Houston, Texas. The arbitration shall be conducted in accordance with the
then-current Commercial Arbitration Rules of the AAA (excluding rules governing
the payment of arbitration, administrative or other fees or expenses to the
Arbitrator or the AAA), to the extent that such Rules do not conflict with the
terms of this Agreement. Except as expressly provided to the contrary in this
Agreement, the Arbitrator shall have the power (a) to gather such materials,
information, testimony and evidence as it deems relevant to the dispute before
it (and each Party will provide such materials, information, testimony and
evidence requested by the Arbitrator, except to the extent any information so
requested is proprietary, subject to a third-party confidentiality restriction
or to an attorney-client or other privilege) and (b) to grant injunctive relief
and enforce specific performance. If it deems necessary, the Arbitrator may
propose to the Disputing Parties that one or more other experts be retained to
assist it in resolving the Dispute. The retention of such other experts shall
require the unanimous consent of the Disputing Parties, which shall not be
unreasonably withheld. Each Disputing Party, the Arbitrator and any proposed
expert shall disclose to the other Disputing Parties any business, personal or
other relationship or Affiliation that may exist between such Disputing Party
(or the Arbitrator) and such proposed expert; and any Disputing Party may
disapprove of such proposed expert on the basis of such relationship or
Affiliation. The decision of the Arbitrator (which shall be rendered in writing)
shall be final, nonappealable and binding upon the Disputing Parties and may be
enforced in any court of competent jurisdiction; provided that the Parties agree
that the Arbitrator and any court enforcing the award of the Arbitrator shall
not have the right or authority to award punitive or exemplary damages to any
Disputing Party. The responsibility for paying the costs and expenses of the
arbitration, including compensation to the Arbitrator and any experts retained
by the Arbitrator, shall be allocated among the Disputing Parties in a manner
determined by the Arbitrator to be fair and reasonable under the circumstances.
Each Disputing Party shall be responsible for the fees and expenses of its
respective counsel, consultants and witnesses, unless the Arbitrator determines
that the Dispute in question was frivolous, in which case all of such costs and
expenses shall be allocated to the Disputing Party who initiated such frivolous
Dispute.
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Exhibit No. 10.44
7.05 IMMEDIATE INJUNCTIVE RELIEF. Notwithstanding anything to the
contrary in this Article 7, the Parties agree that in those situations where a
Disputing Party makes a good faith determination that a breach (or potential
breach) of the confidentiality or other provisions of this Agreement by any
other party may result in damages or consequences that will be immediate,
severe, and incapable of adequate redress after the fact, so that a temporary
restraining order or other immediate injunctive relief is necessary for a
realistic and adequate remedy, the Disputing Party making such determination may
seek such immediate injunctive relief from an appropriate court without first
following the procedures set forth in this Article 7. Whether or not the
immediate injunctive relief sought is granted, the litigation filed will be
stayed or dismissed, as appropriate, and the parties shall proceed with
arbitration of the dispute in accordance with this Article 7.
ARTICLE 8
TERMINATION
8.01 RIGHT OF TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time at or prior to the Closing:
(a) by the mutual consent of the parties;
(b) by any party if the Closing shall not have occurred on or
before January 15, 1999 PROVIDED, HOWEVER, that no party hereto can so terminate
this Agreement if such party is at such time in breach of any provision of this
Agreement or if the delay of the Closing occurs as a result of the conduct of
the party asserting the right to terminate hereunder; or
(c) by any party if any court or governmental agency shall have
issued an order, judgment or decree or taken any other action challenging,
delaying, restraining, enjoining, prohibiting or invalidating the consummation
of any of the transactions contemplated herein.
8.02 EFFECT OF TERMINATION. In the event that the Closing does not
occur as a result of any Party exercising its right to terminate pursuant to
Section 8.01, then this Agreement shall be null and void and no party hereto
shall have any rights or obligations under this Agreement, except that nothing
herein shall relieve any party from liability for any breach hereof. In the
event the termination of this Agreement results from the failure of any Party to
perform any material obligation, covenant or agreement herein, then the other
Parties hereto shall be entitled to seek all remedies available at law or in
equity. If any such termination becomes the subject of a dispute among the
Parties, then such dispute shall be handled in accordance with Article 7.
Notwithstanding the foregoing, no party to this Agreement shall be considered in
breach of this Agreement by failure to achieve the condition precedent listed in
Section 3.01 (d), PROVIDED, however, that each party shall act in good faith and
exert all commercially reasonable efforts to achieve such conditions precedent.
8.03 EXCLUSIVITY. Bank Plus and Gateway shall not enter into any
negotiations or commitment for sale or other disposition of all or any part of
the CalPERS Business to any other person during such time as this Agreement
remains in effect.
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Exhibit No. 10.44
ARTICLE 9
GENERAL PROVISIONS
9.01 NOTICES. Except as expressly set forth to the contrary in this
Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and must be delivered to the
recipient in person, by courier or mail or by facsimile or other electronic
transmission. A notice, request or consent given under this Agreement is
effective on receipt by the Party to receive it; provided, however, that a
facsimile or other electronic transmission that is transmitted after the normal
business hours of the recipient shall be deemed effective on the next Business
Day. All notices, requests and consents to be sent to a Party must be sent to or
made at the addresses set forth below, or such other address as that Party may
specify by notice to the other Parties:
The Variable Annuity Life Insurance Company
P.O. Box 3206
2929 Allen Parkway
Houston, Texas 77019-2256
Attention: Vice Chairman
Fax: 713-831-4940
Gateway Investment Services, Inc.
4565 Colorado Blvd.
Los Angeles, California 90039
Attention: President
Fax: 818-549-3543
Bank Plus Corporation
4565 Colorado Blvd.
Los Angeles, California 90039
Attention: General Counsel
Fax: 818-549-3559
9.02 ENTIRE AGREEMENT; SUPERSEDING EFFECT. This Agreement and the other
Transaction Documents constitute the entire agreement of the Parties and their
Affiliates relating to the transactions contemplated hereby and thereby, and
supersedes all provisions and concepts contained in all prior contracts or
agreements between the Parties or any of their Affiliates with respect to the
Company, the other Transaction Documents, and the transactions contemplated
hereby or thereby, whether oral or written.
9.03 EFFECT OF WAIVER OR CONSENT. Except as otherwise provided in this
Agreement, a waiver or consent, express or implied, to or of any breach or
default by any Party in the performance by that Party of its obligations under
this Agreement is not a consent or waiver to or of any other breach or default
in the performance by that Party of the same or any other obligations of that
Party under this Agreement. Except as otherwise provided in this Agreement,
failure on the part of a Party to complain of any act of any Party or to declare
any Party in default under this Agreement, irrespective of how long that failure
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Exhibit No. 10.44
continues, does not constitute a waiver by that Party of its rights with respect
to that default until the applicable statute-of-limitations period has run.
9.04 AMENDMENT OR RESTATEMENT. This Agreement may be amended or
restated only by a written instrument executed by all Parties.
9.05 BINDING EFFECT. This Agreement is binding on and shall inure to
the benefit of the Parties and their respective successors and permitted
assigns.
9.06 GOVERNING LAW; SEVERABILITY. THIS AGREEMENT IS GOVERNED BY AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE
OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. If any
provision of this Agreement or the application thereof to any Party or
circumstance is held invalid or unenforceable to any extent, (a) the remainder
of this Agreement and the application of that provision to other Parties or
circumstances is not affected thereby, and (b) the Parties shall negotiate in
good faith to replace that provision with a new provision that is valid and
enforceable and that puts the Parties in substantially the same economic,
business and legal position as they would have been in if the original provision
had been valid and enforceable.
9.07 FURTHER ASSURANCES. In connection with this Agreement and the
transactions contemplated hereby, each Party shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
9.08 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all signing parties had signed the same
document. All counterparts shall be construed together and constitute the same
instrument.
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Exhibit No. 10.44
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
By:
Name:
Title:
GATEWAY INVESTMENT SERVICES, INC.
By:
Name:
Title:
BANK PLUS CORPORATION
By:
Name:
Title:
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Exhibit No. 10.45
================================================================================
LIMITED LIABILITY COMPANY AGREEMENT
OF
AMERICAN GENERAL GATEWAY SERVICES, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
================================================================================
<PAGE>
Exhibit No. 10.45
LIMITED LIABILITY COMPANY AGREEMENT
OF
AMERICAN GENERAL GATEWAY SERVICES, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY
TABLE OF CONTENTS
RECITALS
ARTICLE 1 DEFINITIONS
1.01 DEFINITIONS.........................................................1
1.02 CONSTRUCTION........................................................9
ARTICLE 2 ORGANIZATION
2.01 FORMATION...........................................................9
2.02 NAME................................................................9
2.03 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE;
OTHER OFFICES.......................................................9
2.04 PURPOSES............................................................9
2.05 FOREIGN QUALIFICATION...............................................9
2.06 TERM...............................................................10
2.07 NO STATE-LAW PARTNERSHIP...........................................10
ARTICLE 3 MEMBERSHIP; DISPOSITIONS OF INTERESTS
3.01 INITIAL MEMBERS....................................................10
3.02 REPRESENTATIONS, WARRANTIES AND COVENANTS..........................10
3.03 DISPOSITIONS AND ENCUMBRANCES OF MEMBERSHIP INTERESTS..............11
3.04 CREATION OF ADDITIONAL MEMBERSHIP INTEREST.........................14
3.05 ACCESS TO INFORMATION..............................................14
3.06 CONFIDENTIAL INFORMATION...........................................15
3.07 LIABILITY TO THIRD PARTIES.........................................16
3.08 WITHDRAWAL.........................................................16
ARTICLE 4 CAPITAL CONTRIBUTIONS
4.01 INITIAL CONTRIBUTIONS..............................................17
4.02 SUBSEQUENT CAPITAL CONTRIBUTIONS...................................17
4.03 FAILURE TO CONTRIBUTE..............................................17
4.04 LOANS..............................................................18
4.05 RETURN OF CONTRIBUTIONS............................................18
4.06 CAPITAL ACCOUNTS...................................................18
ARTICLE 5 DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
5.01 DISTRIBUTIONS......................................................19
5.02 DISTRIBUTIONS ON DISSOLUTION AND WINDING UP........................19
5.03 ALLOCATIONS........................................................19
5.04 VARYING INTERESTS..................................................20
<PAGE>
Exhibit No. 10.45
ARTICLE 6 MANAGEMENT
6.01 MANAGEMENT BY MEMBERS..............................................20
6.02 MANAGEMENT COMMITTEE...............................................20
6.03 MANAGING MEMBER....................................................24
6.04 CONFLICTS OF INTEREST..............................................25
6.05 INDEMNIFICATION FOR BREACH OF AGREEMENT............................25
ARTICLE 7 TAXES
7.01 TAX RETURNS........................................................26
7.02 TAX ELECTIONS......................................................26
ARTICLE 8 BOOKS, RECORDS, REPORTS, BUDGETS AND BANK ACCOUNTS
8.01 MAINTENANCE OF BOOKS...............................................26
8.02 REPORTS AND BUDGETS................................................26
8.03 BANK ACCOUNTS......................................................27
ARTICLE 9 BUYOUT OPTION
9.01 BUYOUT EVENTS......................................................27
9.02 PROCEDURE..........................................................28
9.03 PURCHASE PRICE.....................................................28
9.04 CLOSING............................................................28
9.05 TERMINATED MEMBER..................................................28
ARTICLE 10 DISPUTE RESOLUTION
10.01 DISPUTES...........................................................29
10.02 NEGOTIATION TO RESOLVE DISPUTES....................................29
10.03 SELECTION OF ARBITRATOR............................................30
10.04 CONDUCT OF ARBITRATION.............................................30
10.05 IMMEDIATE INJUNCTIVE RELIEF........................................31
ARTICLE 11 DISSOLUTION, WINDING-UP AND TERMINATION
11.01 DISSOLUTION........................................................31
11.02 WINDING-UP AND TERMINATION.........................................31
11.03 DEFICIT CAPITAL ACCOUNTS...........................................32
11.04 CERTIFICATE OF CANCELLATION........................................33
ARTICLE 12 GENERAL PROVISIONS
12.01 OFFSET.............................................................33
12.02 NOTICES............................................................33
12.03 ENTIRE AGREEMENT; SUPERSEDING EFFECT...............................33
12.04 EFFECT OF WAIVER OR CONSENT........................................33
12.05 AMENDMENT OR RESTATEMENT...........................................34
12.06 BINDING EFFECT.....................................................34
12.07 GOVERNING LAW; SEVERABILITY........................................34
12.08 FURTHER ASSURANCES.................................................34
12.09 WAIVER OF CERTAIN RIGHTS...........................................34
12.10 COUNTERPARTS.......................................................34
<PAGE>
Exhibit No. 10.45
EXHIBIT:
A Members
B Guidelines for Measurement of CalPERS Profits
<PAGE>
Exhibit No. 10.45
LIMITED LIABILITY COMPANY AGREEMENT
OF
AMERICAN GENERAL GATEWAY SERVICES, L.L.C.
A Delaware Limited Liability Company
THIS LIMITED LIABILITY COMPANY AGREEMENT OF AMERICAN GENERAL GATEWAY
SERVICES, L.L.C. (this "Agreement"), dated as of January 1, 1999 (the "EFFECTIVE
DATE"), is entered into by The Variable Annuity Life Insurance Company, a Texas
life insurance company ("VALIC"), and Gateway Investment Services, Inc., a
California corporation ("GATEWAY").
RECITALS
1. Pursuant to a letter of intent, dated September 18, 1998 (the
"PRELIMINARY AGREEMENT"), VALIC and Gateway have agreed to form the Company (as
defined below).
2. VALIC and Gateway now desire to enter into this Agreement to agree
upon various matters relating to the Company.
ARTICLE 1
DEFINITIONS
1.01 DEFINITIONS. As used in this Agreement, the following terms have
the respective meanings set forth below or set forth in the Sections referred to
below:
AAA - Section 10.03(b).
ACT - the Delaware Limited Liability Company Act.
AFFILIATE - with respect to any Person, (a) each entity that such
Person Controls; (b) each Person that Controls such Person, including,
in the case of a Member, such Member's Parent; and (c) each entity that
is under common Control with such Person, including, in the case of a
Member, each entity that is Controlled by such Member's Parent.
AGREEMENT - introductory paragraph.
ALTERNATE REPRESENTATIVE - Section 6.02(a)(i).
ACQUISITION NOTICE - Section 9.02.
ARBITRATION NOTICE - Section 10.02(c).
ARBITRATOR - Section 10.03(a).
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Exhibit No. 10.45
ASSIGNEE - any Person that acquires a Membership Interest or any
portion thereof through a Disposition; provided, however, that, an
Assignee shall have no right to be admitted to the Company as a Member
except in accordance with Section 3.03. The Assignee of a dissolved
Member is the shareholder, partner, member or other equity owner or
owners of the dissolved Member to whom such Member's Membership
Interest is assigned by the Person conducting the liquidation or
winding up of such Member. The Assignee of a Bankrupt Member is (a) the
Person or Persons (if any) to whom such Bankrupt Member's Membership
Interest is assigned by order of the bankruptcy court or other
Governmental Authority having jurisdiction over such Bankruptcy, or (b)
in the event of a general assignment for the benefit of creditors, the
creditor to which such Membership Interest is assigned.
BANKRUPTCY or BANKRUPT - with respect to any Person, that (a) such
Person (i) makes a general assignment for the benefit of creditors;
(ii) files a voluntary bankruptcy petition; (iii) becomes the subject
of an order for relief or is declared insolvent in any federal or state
bankruptcy or insolvency proceedings; (iv) files a petition or answer
seeking for such Person a reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any
Law; (v) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against such
Person in a proceeding of the type described in subclauses (i) through
(iv) of this clause (a); or (vi) seeks, consents to, or acquiesces in
the appointment of a trustee, receiver, or liquidator of such Person or
of all or any substantial part of such Person's properties; or (b)
against such Person, a proceeding seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief
under any Law has been commenced and 120 Days have expired without
dismissal thereof or with respect to which, without such Person's
consent or acquiescence, a trustee, receiver, or liquidator of such
Person or of all or any substantial part of such Person's properties
has been appointed and 90 Days have expired without the appointment's
having been vacated or stayed, or 90 Days have expired after the date
of expiration of a stay, if the appointment has not previously been
vacated.
BUSINESS DAY - any day other than a Saturday, a Sunday, or a
holiday on which national banking associations in the States of
California and Texas are closed.
BUYOUT EVENT - Section 9.01.
CalPERS CONTRACT - the Agreement (Contract Number 97-169), dated
July 1, 1997, between the California Public Employee Retirement System
and Gateway, as such agreement is amended from time to time.
CalPERS LOSSES - the Losses of the Company, calculated solely by
reference to the business generated directly by the CalPERS Contract or
the clients obtained thereunder, on a stand-alone basis, and by
reference to the principles set forth on Exhibit B.
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Exhibit No. 10.45
CalPERS PROFITS - the Profits of the Company, calculated solely by
reference to the business generated directly by the CalPERS Contract or
the clients obtained thereunder, on a stand-alone basis, and by
reference to the principles set forth on Exhibit B.
CAPITAL ACCOUNT - the account to be maintained by the Company for
each Member in accordance with Section 4.06.
CAPITAL CONTRIBUTION - with respect to any Member, the amount of
money and the net agreed fair market value of any property (other than
money) contributed to the Company by the Member. Any reference in this
Agreement to the Capital Contribution of a Member shall include a
Capital Contribution of its predecessors in interest.
CERTIFIED PUBLIC ACCOUNTANTS - a firm of independent public
accountants selected from time to time by the Managing Member.
CHANGE OF MEMBER CONTROL - with respect to any Member, (a) an
event that causes such Member to cease to be Controlled by such
Member's Parent; or (b) a change in control of a nature that would
require such Member's Parent to report in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act or,
if Item 6(e) is no longer in effect, any regulations issued by the
Securities and Exchange Commission pursuant to the Exchange Act which
serve similar purposes; provided that, without limitation, such a
change in control shall be deemed to have occurred if and when either
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes a "beneficial owner" (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of such Member's Parent, representing 25% or
more of the combined voting power of the Parent's then outstanding
securities entitled to vote with respect to the election of its Board
of Directors or (ii) as the result of a tender offer, merger,
consolidation, sale of assets, or contest for election or directors, or
any combination of the foregoing transactions or events, individuals
who were members of the Parent's Board of Directors immediately prior
to any such transaction or event shall not constitute a majority of the
Board of Directors following such transaction or event.
CLAIM - any and all judgments, claims, causes of action, demands,
lawsuits, suits, proceedings, Governmental investigations or audits,
losses, assessments, fines, penalties, administrative orders,
obligations, costs, expenses, liabilities and damages (whether actual,
consequential or punitive), including interest, penalties, reasonable
attorney's fees, disbursements and costs of investigations,
deficiencies, levies, duties and imposts.
CODE - the Internal Revenue Code of 1986, as amended.
COMPANY - American General Gateway Services, L.L.C., a Delaware
limited liability company.
CONFIDENTIAL INFORMATION - information and data (including all
copies thereof) that is furnished or submitted by any of the Members or
their Affiliates (whether oral, written, or electronic) on a
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Exhibit No. 10.45
confidential basis to the other Members or their Affiliates in
connection with the Company, and any and all of the activities,
analyses and studies performed pursuant to the Preliminary Agreement or
this Agreement, and the resulting information and data obtained from
those analyses and studies. Notwithstanding the foregoing, the term
"Confidential Information" shall not include any information that:
(a) is in the public domain at the time of its disclosure or
thereafter, other than as a result of a disclosure directly or
indirectly by a Member or its Affiliates in contravention of the
Confidentiality Agreement or this Agreement;
(b) as to any Member, was in the possession of such Member
or its Affiliates prior to the execution of the Confidentiality
Agreement provided that, to the knowledge of such Member, the
information is not subject to any confidentiality obligations
which prohibit its disclosure; or
(c) has been independently acquired or developed by a Member
or its Affiliates without violating any of the obligations of such
Member or its Affiliates under the Confidentiality Agreement, the
Preliminary Agreement or this Agreement.
CONFIDENTIALITY AGREEMENT - that certain letter agreement, dated
August 17, 1998, between American General Corporation and Bank Plus
Corporation.
CONTINUATION ELECTION - Section 11.01(b).
CONTROL - the possession, directly or indirectly, through one or
more intermediaries, of either of the following:
(a) (i) in the case of a corporation, more than 80% of the
outstanding voting securities thereof; (ii) in the case of a
limited liability company, partnership, limited partnership or
venture, the right to more than 80% of the distributions therefrom
(including liquidating distributions); (iii) in the case of a
trust or estate, including a business trust, more than 80% of the
beneficial interest therein; and (iv) in the case of any other
entity, more than 80% of the economic or beneficial interest
therein; or
(b) in the case of any entity, the power or authority,
through ownership of voting securities, by contract or otherwise,
to exercise a controlling influence over the management of the
entity.
DAY - a calendar day; provided, however, that, if any period of
Days referred to in this Agreement shall end on a Day that is not a
Business Day, then the expiration of such period shall be automatically
extended until the end of the first succeeding Business Day.
DEFAULT - with respect to any Member, the failure of a Member to
comply in any material respect with any of its agreements, covenants or
obligations under this Agreement (other than its agreement not to
Withdraw from the Company in Section 3.08), or the failure of any
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Exhibit No. 10.45
representation or warranty made by a Member in this Agreement to have
been true and correct in all material respects at the time it was made,
in each case if such default is not cured by the applicable Member
within 30 Days of its receiving notice of such default from any other
Member (or, if such default is not capable of being cured within such
30-Day period, if such Member fails to promptly commence substantial
efforts to cure such default or to prosecute such curative efforts to
completion with continuity and diligence).
DEFAULT RATE - a rate per annum equal to the lesser of (a) a
varying rate per annum equal to the sum of (i) the prime rate as
published in The Wall Street Journal, with adjustments in that varying
rate to be made on the same date as any change in that rate is so
published, PLUS (ii) 2 % per annum, and (b) the maximum rate permitted
by Law.
DEFERRED AMOUNT - Section 9.03(c).
DELAWARE CERTIFICATE - Section 2.01.
DISPOSE, DISPOSING or DISPOSITION - with respect to any asset
(including a Membership Interest or any portion thereof), a sale,
assignment, transfer, conveyance, gift, exchange or other disposition
of such asset, whether such disposition be voluntary, involuntary or by
operation of Law, including the following: (a) in the case of an asset
owned by a natural person, a transfer of such asset upon the death of
its owner, whether by will, intestate succession or otherwise; (b) in
the case of an asset owned by an entity, (i) a merger or consolidation
of such entity (other than where such entity is the survivor thereof),
(ii) a conversion of such entity into another type of entity, or (iii)
a distribution of such asset, including in connection with the
dissolution, liquidation, winding-up or termination of such entity
(unless, in the case of dissolution, such entity's business is
continued without the commencement of liquidation or winding-up); and
(c) a disposition in connection with, or in lieu of, a foreclosure of
an Encumbrance; but such terms shall not include the creation of an
Encumbrance.
DISPOSING MEMBER - Section 3.03(b)(ii)(A).
DISPOSITION INTEREST - Section 3.03(b)(ii)(A).
DISPOSITION NOTICE - Section 3.03(b)(ii)(A).
DISPUTE - Section 10.01.
DISPUTING MEMBER - Section 10.01.
DISSOLUTION EVENT - Section 11.01(a).
EFFECTIVE DATE - introductory paragraph.
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Exhibit No. 10.45
ENCUMBER, ENCUMBERING, or ENCUMBRANCE - the creation of a security
interest, lien, pledge, mortgage or other encumbrance, whether such
encumbrance be voluntary, involuntary or by operation of Law.
EXCHANGE ACT- Securities Exchange Act of 1934
EXERCISE NOTICE - Section 3.03(b)(ii)(A).
FAIR MARKET VALUE - Section 9.04.
GATEWAY - introductory paragraph.
GATEWAY PAYOUT DATE - the date on which Gateway has received cash
distributions in an amount equal to the Operating Losses.
GOVERNMENTAL AUTHORITY - a federal, state, local or foreign
governmental authority; a state, province, commonwealth, territory or
district thereof; a county or parish; a city, town, township, village
or other municipality; a district, ward or other subdivision of any of
the foregoing; any executive, legislative or other governing body of
any of the foregoing; any agency, authority, board, department, system,
service, office, commission, committee, council or other administrative
body of any of the foregoing; any court or other judicial body; and any
officer, official or other representative of any of the foregoing.
INCLUDING - including, without limitation.
INTEREST RATE - a rate per annum equal to the lesser of (a) a
varying rate per annum equal to the prime rate as published in The Wall
Street Journal, with adjustments in that varying rate to be made on the
same date as any change in that rate is so published, and (b) the
maximum rate permitted by Law.
LAW - any applicable constitutional provision, statute, act, code
(including the Code), law, regulation, rule, ordinance, order, decree,
ruling, proclamation, resolution, judgment, decision, declaration, or
interpretative or advisory opinion or letter of a Governmental
Authority having valid jurisdiction.
LOSSES - the losses of the Company as determined by the Managing
Member, which losses shall be determined quarterly in accordance with
GAAP and by reference to the principles set forth on Exhibit B.
MAJORITY INTEREST - Members holding among them at least a majority
of the Sharing Ratios.
MANAGEMENT COMMITTEE - Section 6.02.
MANAGING MEMBER - Section 6.03.
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Exhibit No. 10.45
MANAGING-MEMBER INDEMNIFIED ACTS - Section 6.03(d).
MANAGING-MEMBER INDEMNIFIED PARTIES - Section 6.03(d).
MASTER AGREEMENT - the Master Agreement, dated December 17, 1998,
between VALIC, Gateway and Bank Plus Corporation.
MEMBER - any Person executing this Agreement as of the date of
this Agreement as a member or hereafter admitted to the Company as a
member as provided in this Agreement, but such term does not include
any Person who has ceased to be a member in the Company.
MEMBERSHIP INTEREST - with respect to any Member, (a) that
Member's status as a Member; (b) that Member's share of the income,
gain, loss, deduction and credits of, and the right to receive
distributions from, the Company; (c) all other rights, benefits and
privileges enjoyed by that Member (under the Act, this Agreement, or
otherwise) in its capacity as a Member, including that Member's rights
to vote, consent and approve and otherwise to participate in the
management of the Company, including through the Management Committee;
and (d) all obligations, duties and liabilities imposed on that Member
(under the Act, this Agreement or otherwise) in its capacity as a
Member, including any obligations to make Capital Contributions.
NON-CASH CONSIDERATION - Section 3.03(b)(ii)(D).
NON-COMPETITION AGREEMENT - the Non-Competition Agreement, dated
as of the Effective Date, executed by Robert Condon in favor of VALIC
and the Company.
OPERATING LOSSES - $2 Million.
OFFICER - any Person designated as an officer of the Company as
provided in Section 6.03(c), but such term does not include any Person
who has ceased to be an officer of the Company.
PARENT - the Person that Controls a Member and that is not itself
Controlled by any other Person. The Parent of Gateway as of the
Effective Date is Bank Plus Corporation.
PERSON - the meaning assigned that term in Section 18-101(11) of
the Act and also includes a Governmental Authority and any other
entity.
PREFERENTIAL RIGHT - Section 3.03(b)(ii)(A).
PRELIMINARY AGREEMENT - Recital 1.
PROFITS - the profits of the Company as determined by the Managing
Member, which profits shall be determined quarterly in accordance with
GAAP and by reference to the principles set forth on Exhibit B.
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Exhibit No. 10.45
PURCHASING MEMBER - Section 3.03(b)(ii)(A).
PURCHASE PRICE - Section 9.03.
REMAINING LOSSES - that portion of the Losses of the Company that
is remaining after deducting CalPERS Losses.
REMAINING PROFITS - that portion of the Profits of the Company
that is remaining after deducting CalPERS Profits.
REPRESENTATIVE - Section 6.02(a)(i).
SHARING RATIO - subject in each case to adjustments in accordance
with this Agreement or in connection with Dispositions of Membership
Interests, (a) in the case of a Member executing this Agreement as of
the Effective Date or a Person acquiring such Member's Membership
Interest, the percentage specified for that Member as its Sharing Ratio
on Exhibit A, and (b) in the case of Membership Interest issued
pursuant to Section 3.04, the Sharing Ratio established pursuant
thereto; provided, however, that the total of all Sharing Ratios shall
always equal 100%.
SOLE DISCRETION - Section 6.02(f)(ii).
TERM - Section 2.06.
TERMINATED MEMBER - Section 9.05.
TREASURY REGULATIONS - the regulations (including temporary
regulations) promulgated by the United States Department of the
Treasury pursuant to and in respect of provisions of the Code. All
references herein to sections of the Treasury Regulations shall include
any corresponding provision or provisions of succeeding, similar or
substitute, temporary or final Treasury Regulations.
UNEXERCISED PORTION - Section 3.03(b)(ii)(A).
VALIC - introductory paragraph.
VALIC PAYOUT DATE - the date on which VALIC has received cash
distributions in an amount equal to the Capital Contributions made by
VALIC in respect of the CalPERS Contract.
WITHDRAW, WITHDRAWING or WITHDRAWAL - the withdrawal, resignation
or retirement of a Member from the Company as a Member. Such terms
shall not include any Dispositions of Membership Interest (which are
governed by Section 3.03), even though the Member making a Disposition
may cease to be a Member as a result of such Disposition.
Other terms defined herein have the meanings so given them.
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Exhibit No. 10.45
1.02 CONSTRUCTION. Unless the context requires otherwise: (a) the
gender (or lack of gender) of all words used in this Agreement includes the
masculine, feminine, and neuter; (b) references to Articles and Sections refer
to Articles and Sections of this Agreement; (c) references to Exhibits refer to
the Exhibits attached to this Agreement, each of which is made a part hereof for
all purposes; (d) references to Laws refer to such Laws as they may be amended
from time to time, and references to particular provisions of a Law include any
corresponding provisions of any succeeding Law; and (e) references to money
refer to legal currency of the United States of America.
ARTICLE 2
ORGANIZATION
2.01 FORMATION. The Company has been organized as a Delaware limited
liability company by the filing of a Certificate of Formation, dated as of
December 9, 1998 (the "DELAWARE CERTIFICATE"), with the Secretary of State of
Delaware pursuant to the Act.
2.02 NAME. The name of the Company is "American General Gateway
Services, L.L.C." and all Company business must be conducted in that name or
such other names that comply with Law as the Managing Member may select.
2.03 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE; OTHER
OFFICES. The registered office of the Company required by the Act to be
maintained in the State of Delaware shall be the office of the initial
registered agent named in the Delaware Certificate or such other office (which
need not be a place of business of the Company) as the Managing Member may
designate in the manner provided by Law. The registered agent of the Company in
the State of Delaware shall be the initial registered agent named in the
Delaware Certificate or such other Person or Persons as the Managing Member may
designate in the manner provided by Law. The principal office of the Company
shall be at such place as the Managing Member may designate, which need not be
in the State of Delaware, and the Company shall maintain records there or such
other place as the Managing Member shall designate and shall keep the street
address of such principal office at the registered office of the Company in the
State of Delaware. The Company may have such other offices as the Managing
Member may designate.
2.04 PURPOSES. The purposes of the Company are to perform all
obligations of the Contractor (as such term is defined in the CalPERS Contract)
under the CalPERS Contract, to participate in the bidding process for, and
perform all obligations required under, such other contracts identified by the
Managing Member relating to the provision of financial education and planning
seminars or the sale of financial products and services. In addition, the
purposes of the Company are to engage in any other business or activity that now
or hereafter may be determined by the Managing Member to be necessary,
incidental, proper, advisable or convenient to accomplish the foregoing
(including obtaining financing therefor) and that is not forbidden by the law of
the jurisdiction in which the Company engages in that business.
2.05 FOREIGN QUALIFICATION. Prior to the Company's conducting business
in any jurisdiction other than Delaware, the Managing Member shall cause the
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Exhibit No. 10.45
Company to comply, to the extent procedures are available and those matters are
reasonably within the control of the Managing Member, with all requirements
necessary to qualify the Company as a foreign limited liability company in that
jurisdiction. At the request of the Managing Member, each Member shall execute,
acknowledge, swear to, and deliver all certificates and other instruments
conforming with this Agreement that are necessary or appropriate to qualify,
continue, and terminate the Company as a foreign limited liability company in
all such jurisdictions in which the Company may conduct business.
2.06 TERM. The period of existence of the Company (the "TERM")
commenced on the Effective Date and shall end at such time as a certificate of
cancellation is filed with the Secretary of State of Delaware in accordance with
Section 11.04.
2.07 NO STATE-LAW PARTNERSHIP. The Members intend that the Company not
be a partnership (including a limited partnership) or joint venture, and that no
Member be a partner or joint venturer of any other Member, for any purposes
other than federal and state tax purposes, and this Agreement may not be
construed to suggest otherwise.
ARTICLE 3
MEMBERSHIP; DISPOSITIONS OF INTERESTS
3.01 INITIAL MEMBERS. The initial Members of the Company are VALIC
and Gateway.
3.02 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Member hereby
represents, warrants and covenants to the Company and each other Member that the
following statements are true and correct as of the Effective Date and shall be
true and correct at all times that such Member is a Member:
(a) that Member is duly incorporated, organized or formed (as
applicable), validly existing, and (if applicable) in good standing
under the Law of the jurisdiction of its incorporation, organization or
formation; if required by applicable Law, that Member is duly qualified
and in good standing in the jurisdiction of its principal place of
business, if different from its jurisdiction of incorporation,
organization or formation; and that Member has full power and authority
to execute and deliver this Agreement and to perform its obligations
hereunder, and all necessary actions by the board of directors,
shareholders, managers, members, partners, trustees, beneficiaries, or
other applicable Persons necessary for the due authorization,
execution, delivery, and performance of this Agreement by that Member
have been duly taken;
(b) that Member has duly executed and delivered this Agreement and
the other documents contemplated herein, and they constitute the legal,
valid and binding obligation of that Member enforceable against it in
accordance with their terms (except as may be limited by bankruptcy,
insolvency or similar Laws of general application and by the effect of
general principles of equity, regardless of whether considered at law
or in equity); and
(c) that Member's authorization, execution, delivery, and
performance of this Agreement does not and will not (i) conflict with,
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Exhibit No. 10.45
or result in a breach, default or violation of, (A) the organizational
documents of such Member, (B) any contract or agreement to which that
Member is a party or is otherwise subject, or (C) any Law, order,
judgment, decree, writ, injunction or arbitral award to which that
Member is subject; or (ii) require any consent, approval or
authorization from, filing or registration with, or notice to, any
Governmental Authority or other Person, unless such requirement has
already been satisfied.
3.03 DISPOSITIONS AND ENCUMBRANCES OF MEMBERSHIP INTERESTS.
(a) GENERAL RESTRICTION. A Member may not Dispose of or Encumber
all or any portion of its Membership Interest except in strict
accordance with this Section 3.03. (References in this Section 3.03 to
Dispositions or Encumbrances of a Membership Interest shall also refer
to Dispositions or Encumbrances of a portion of a Membership Interest.)
Any attempted Disposition or Encumbrance of a Membership Interest,
other than in strict accordance with this Section 3.03, shall be, and
is hereby declared, null and void AB INITIO. The Members agree that a
breach of the provisions of this Section 3.03 may cause irreparable
injury to the Company and to the other Members for which monetary
damages (or other remedy at law) are inadequate in view of (i) the
complexities and uncertainties in measuring the actual damages that
would be sustained by reason of the failure of a Member to comply with
such provision and (ii) the uniqueness of the Company business and the
relationship among the Members. Accordingly, the Members agree that the
provisions of this Section 3.03 may be enforced by specific
performance.
(b) DISPOSITIONS OF MEMBERSHIP INTERESTS.
(i) GENERAL RESTRICTION. A Member may not Dispose of its
Membership Interest except by complying with all of the following
requirements: (A) such Member must receive the consent of a
Majority Interest; (B) such Member must offer the other Members
the right to acquire such Membership Interest in accordance with
Section 3.03(b)(ii), unless the proposed Assignee is a
wholly-owned subsidiary of the Disposing Member; (C) such Member
may not Dispose of any Membership Interest that represents less
than 10% of the total interests in the Company; provided that, if
such Member's entire Membership Interest is less than 10%, such
Member may Dispose of its entire Membership Interest; and (D) such
Member must comply with the requirements of Section 3.03(b)(iv)
and, if the Assignee is to be admitted as a Member, Section
3.03(b)(iii).
(ii) PREFERENTIAL PURCHASE RIGHT.
(A) PROCEDURE. If a Member at any time proposes to
accept an offer (including one made by another Member) for the
acquisition of its Membership Interest, then such Member (the
"DISPOSING MEMBER") shall promptly give notice thereof (the
"DISPOSITION NOTICE") to the Company and the other Members;
provided, however, that this Section 3.03(b)(ii) shall not
apply to a Disposition to a wholly-owned subsidiary of the
Disposing Member. Such offer must be legal, valid and binding.
The Disposition Notice shall set forth all relevant
information with respect to the offer and the proposed
Disposition, including the name and address of the prospective
acquirer, the precise Membership Interest, expressed as a
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Exhibit No. 10.45
percentage, that is the subject of the Disposition (the
"DISPOSITION INTEREST"), the price to be paid for such
Disposition Interest, any other terms and conditions of the
offer and proposed Disposition and, if any portion of the
purchase price is to be paid in Non-Cash Consideration, the
information required by Section 3.03(b)(ii)(D). The other
Members shall have the preferential right ("PREFERENTIAL
RIGHT") to acquire, for the same purchase price (which, in the
case of Non-Cash Consideration, shall be deemed to be the fair
market value of such Non-Cash Consideration as determined in
accordance with Section 3.03(b)(ii)(D)), and on the same terms
and conditions, as are set forth in the Disposition Notice,
such Disposition Interest in accordance with this Section
3.03(b). Each Member (excluding the Disposing Member) shall
have the right (but not the obligation) to acquire a portion
of the Disposition Interest that is equal to (aa) the
Disposition Interest times (bb) a fraction, the numerator of
which is such Member's Sharing Ratio and the denominator of
which is the total Sharing Ratios of all Members other than
the Disposing Member. Each Member (other than the Disposing
Member) shall have 15 Business Days following its receipt of
the Disposition Notice in which to notify the other Members
(including the Disposing Member) whether such Member desires
to exercise its preferential right. (A notice in which a
Member exercises such right is referred to herein as an
"EXERCISE NOTICE," and a Member that delivers an Exercise
Notice is referred to herein as a "PURCHASING MEMBER"). If the
Purchasing Members constitute less than all of the Members
(other than the Disposing Member), and, consequently, there is
a percentage of the Membership Interest for which such
preferential right has not been exercised (an "UNEXERCISED
PORTION"), then each Purchasing Member shall have 10 Days
following the end of such period in which to notify the other
Purchasing Members and the Disposing Member whether it desires
to acquire the portion of the Unexercised Portion that is
equal to (x) the Unexercised Portion times (y) a fraction, the
numerator of which is such Purchasing Member's Sharing Ratio
and the denominator of which is the total Sharing Ratios of
all Purchasing Members. If, at the end of such 10-Day period,
there remains an Unexercised Portion, then the Purchasing
Members shall have an additional 10-Day period in which to
negotiate among themselves for a mutually-agreeable method of
sharing the acquisition of the remaining Unexercised Portion.
If the Purchasing Members are able to reach such agreement
during such 10-Day period, then the Preferential Right shall
be deemed exercised, and the Disposing Member and the
Purchasing Members shall close the acquisition of the
Membership Interest in accordance with Section 3.03(b)(ii)(B).
If, however, the Purchasing Members are unable to reach such
agreement during such 10-Day period, then the Preferential
Right shall be deemed to have been waived, and the Disposing
Member shall be free to Dispose of the entire Disposition
Interest in accordance with Section 3.03(b)(ii)(C). A Member
that fails to exercise a right during any applicable period
set forth in this Section 3.03(b)(ii)(A) shall be deemed to
have waived such right, but not any future right.
(B) CLOSING. If the Preferential Right is deemed
exercised in accordance with Section 3.03(b)(ii)(A), the
closing of the purchase of the Membership Interest shall occur
at the principal place of business of the Company on the 30th
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Exhibit No. 10.45
Day after the expiration of the last applicable period
referred to in such Section 3.03(b)(ii)(A) (or, if later, the
fifth Business Day after the receipt of all applicable
Authorizations to the purchase), unless the Disposing Member
and the Purchasing Members agree upon a different place or
date. At the closing, (I) the Disposing Member shall execute
and deliver to the Purchasing Members (aa) an assignment of
the Membership Interest, in form and substance reasonably
acceptable to the Purchasing Members, containing a general
warranty of title as to such Membership Interest (including
that such Membership Interest is free and clear of all
Encumbrances, other than those permitted under Section
3.03(c)(ii)) and (bb) any other instruments reasonably
requested by the Purchasing Members to give effect to the
purchase; and (II) the Purchasing Members shall deliver to the
Disposing Member in immediately-available funds the purchase
price provided for in Section 3.03(b)(ii)(A). The Sharing
Ratios and Capital Accounts of the Members shall be deemed
adjusted to reflect the effect of the purchase.
(C) WAIVER OF PREFERENTIAL RIGHT. If no Members
deliver Exercise Notices or if the Preferential Right is
otherwise deemed waived pursuant to Section 3.03(b)(ii)(A),
the Disposing Member shall have the right, subject to
compliance with the provisions of this Section 3.03, to
Dispose of the Membership Interest described in the
Disposition Notice to the proposed Assignee strictly in
accordance with the terms of the Disposition Notice for a
period of 90 Days after the expiration of the last applicable
period referred to in such Section 3.03(b)(ii)(A) (or, if
later, the fifth Business Day after the receipt of all
applicable Authorizations to the purchase). If, however, the
Disposing Member fails so to Dispose of the Membership
Interest within such 90-Day period, the proposed Disposition
shall again become subject to the Preferential Right.
(D) NON-CASH CONSIDERATION. If any portion of the
purchase price is to be paid in a form other than cash or cash
equivalents (including real or personal property, promissory
notes, securities, contractual benefits, assumption of
liabilities or anything else of value) ("NON-CASH
CONSIDERATION"), the Disposing Member shall state in its
Disposition Notice its determination of the aggregate fair
market value of such Non-Cash Consideration (which, in the
case of marketable securities, shall be the market price of
such securities). If a Majority Interest of the non-Disposing
Members (calculated without reference to the Sharing Ratio of
the Disposing Member) disagree with such determination, they
shall notify the other Members of such disagreement within 10
Business Days of receiving the Disposition Notice. If such
Dispute is not resolved within five Business Days after such
notice, the Disposing Member or a designee of such Majority
Interest of the non-Disposing Members may submit such Dispute
to binding arbitration by delivering an Arbitration Notice.
All of the provisions of Article 10 shall apply to such
arbitration, with the following exceptions: (I) the Arbitrator
shall be an appraiser or investment banking firm having
expertise in the valuation of the types of assets represented
by the Non-Cash Consideration; (II) the 20-Day period in
Section 10.03(b) shall be a five-Business Day period; (III)
the 90-Day period in Section 10.04 shall be a 20-Day period;
and (IV) a designee of such Majority Interest of the
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Exhibit No. 10.45
non-Disposing Members shall propose a single determination of
such aggregate fair market value, and the Arbitrator shall be
required to select either the determination of the Disposing
Member or the determination of the designee of such Majority
Interest (and shall not be permitted to select any other
amount).
(iii) ADMISSION OF ASSIGNEE AS A MEMBER. An Assignee has the
right to be admitted to the Company as a Member, with the
Membership Interest (and attendant Sharing Ratio) so transferred
to such Assignee, only if (A) the Disposing Member making the
Disposition has granted the Assignee either (I) the Disposing
Member's entire Membership Interest or (II) the express right to
be so admitted; and (B) such Disposition is effected in strict
compliance with this Section 3.03.
(iv) REQUIREMENTS APPLICABLE TO ALL DISPOSITIONS AND
ADMISSIONS. In addition to the requirements set forth in Sections
3.03(b)(i), 3.03(b)(ii) and 3.03(b)(iii), any Disposition of a
Membership Interest and any admission of an Assignee as a Member
shall also be subject to any additional requirements of the
non-Disposing Members. The Disposing Member and its Assignee shall
pay, or reimburse the Company for, all reasonable costs and
expenses incurred by the Company in connection with the
Disposition and admission on or before the tenth Day after the
receipt by that Person of the Company's invoice for the amount
due. If payment is not made by the date due, the Person owing that
amount shall pay interest on the unpaid amount from the date due
until paid at a rate per annum equal to the Default Rate. No
Disposition of a Membership Interest shall effect a release of the
Disposing Member from any liabilities to the Company or the other
Members arising from events occurring prior to the Disposition.
(c) ENCUMBRANCES OF MEMBERSHIP INTEREST. A Member may not Encumber
its Membership Interest except by complying with both of the following
requirements: (i) such Member must receive the consent of a Majority
Interest, which consent may be granted or withheld in the Sole
Discretion of each Member composing such Majority Interest; and (ii)
the instrument creating such Encumbrance must provide that any
foreclosure of such Encumbrance (or Disposition in lieu of such
foreclosure) must comply with the requirements of Section 3.03(b).
3.04 CREATION OF ADDITIONAL MEMBERSHIP INTEREST. Additional Membership
Interests may be created and issued to existing Members or to other Persons, and
such other Persons may be admitted to the Company as Members, with the consent
of the Management Committee (which consent may be granted or withheld in the
Sole Discretion of each Representative), on such terms and conditions as the
Management Committee may determine at the time of admission. The terms of
admission or issuance must specify the Sharing Ratios applicable thereto and may
provide for the creation of different classes or groups of Members having
different rights, powers, and duties. The Managing Member may reflect the
creation of any new class or group in an amendment to this Agreement indicating
the different rights, powers, and duties, and such an amendment need be executed
only by the Managing Member. Any such admission is effective only after the new
Member has executed and delivered to the Members an instrument containing the
notice address of the new Member, the Assignee's ratification of this Agreement
and agreement to be bound by it, and its confirmation that the representations
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Exhibit No. 10.45
and warranties in Section 3.02 are true and correct with respect to it. The
provisions of this Section 3.04 shall not apply to Dispositions of Membership
Interests or admissions of Assignees in connection therewith, such matters being
governed by Section 3.03.
3.05 ACCESS TO INFORMATION. Each Member shall be entitled to receive
any information that it may request concerning the Company; provided, however,
that this Section 3.05 shall not obligate the Company, the Management Committee
or the Managing Member to create any information that does not already exist at
the time of such request (other than to convert existing information from one
medium to another, such as providing a printout of information that is stored in
a computer database). Each Member shall also have the right, upon reasonable
notice, and at all reasonable times during usual business hours to inspect the
properties of the Company and to audit, examine and make copies of the books of
account and other records of the Company. Such right may be exercised through
any agent or employee of such Member designated in writing by it or by an
independent public accountant, engineer, attorney or other consultant so
designated. The Member making the request shall bear all costs and expenses
incurred in any inspection, examination or audit made on such Member's behalf.
Confidential Information obtained pursuant to this Section 3.05 shall be subject
to the provisions of Section 3.06.
3.06 CONFIDENTIAL INFORMATION. (a) Except as permitted by Section
3.06(b), (i) each Member shall keep confidential all Confidential Information
and shall not disclose any Confidential Information to any Person, including any
of its Affiliates, and (ii) each Member shall use the Confidential Information
only in connection with the Company.
(b) Notwithstanding Section 3.06(a), but subject to the other
provisions of this Section 3.06, a Member may make the following
disclosures and uses of Confidential Information:
(i) disclosures to another Member in connection with the
Company;
(ii) disclosures and uses that are approved by the
Management Committee;
(iii) disclosures to an Affiliate of such Member on a "need to
know" basis in connection with the Company, if such Affiliate has
agreed to abide by the terms of this Section 3.06;
(iv) disclosures to a Person that is not a Member or an
Affiliate of a Member, if such Person has been retained to provide
services by the Member in connection with the Company or such Member's
Membership Interest and has agreed to abide by the terms of this
Section 3.06;
(v) disclosures and uses of Confidential Information that was
directly developed and paid for by such Member;
(vi) disclosures to a bona-fide potential purchaser of such
Member's Membership Interest, if (A) such disclosure has been approved
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Exhibit No. 10.45
by the Management Committee (which approval shall not be unreasonably
withheld), and (B) such potential purchaser has agreed to abide by the
terms of this Section 3.06;
(vii) disclosures that a Member is legally compelled to make
by deposition, interrogatory, request for documents, subpoena, civil
investigative demand, order of a court of competent jurisdiction, or
similar process, or otherwise by Law or securities exchange
requirements; provided, however, that, prior to any such disclosure,
such Member shall, to the extent legally permissible:
(A) provide the Management Committee with prompt
notice of such requirements so that one or more of the Members
may seek a protective order or other appropriate remedy or
waive compliance with the terms of this Section 3.06(b)(vii);
(B) consult with the Management Committee on the
advisability of taking steps to resist or narrow such
disclosure; and
(C) cooperate with the Management Committee and with
the other Members in any attempt one or more of them may make
to obtain a protective order or other appropriate remedy or
assurance that confidential treatment will be afforded the
Confidential Information; and in the event such protective
order or other remedy is not obtained, or the other Members
waive compliance with the provisions hereof, such Member
agrees (I) to furnish only that portion of the Confidential
Information that the other Members are advised by opinion of
counsel to the disclosing Member is legally required and (II)
to exercise all reasonable efforts to obtain assurance that
confidential treatment will be accorded such Confidential
Information.
(c) Each Member shall take such precautionary measures as may be
required to ensure (and such Member shall be responsible for)
compliance with this Section 3.06 by any of its Affiliates, and its and
their directors, officers, employees and agents, and other Persons to
which it may disclose Confidential Information in accordance with this
Section 3.06.
(d) A Terminated Member shall promptly destroy (and provide a
certificate of destruction to the Company with respect to), or return
to the Company, all Confidential Information in its possession.
Notwithstanding the immediately-preceding sentence, a Terminated Member
may, subject to the other provisions of this Section 3.06, retain and
use Confidential Information for the limited purpose of preparing such
Terminated Member's tax returns and defending audits, investigations
and proceedings relating thereto.
(e) The Members agree that no adequate remedy at law exists for a
breach or threatened breach of any of the provisions of this Section
3.06, the continuation of which unremedied will cause the Company and
the other Members to suffer irreparable harm. Accordingly, the Members
agree that the Company and the other Members shall be entitled, in
addition to other remedies that may be available to them, to immediate
injunctive relief from any breach of any of the provisions of this
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Exhibit No. 10.45
Section 3.06 and to specific performance of their rights hereunder, as
well as to any other remedies available at law or in equity.
(f) The obligations of the Members under this Section 3.06 shall
terminate on the third anniversary of the end of the Term.
3.07 LIABILITY TO THIRD PARTIES. No Member shall be liable for the
debts, obligations or liabilities of the Company.
3.08 WITHDRAWAL. A Member does not have the right to Withdraw;
provided, however, a Member shall have the power to Withdraw at any time in
violation of this Agreement. If a Member exercises such power in violation of
this Agreement, (a) such Withdrawing Member shall be liable to the Company and
the other Members for all monetary damages suffered by them as a result of such
Withdrawal; and (b) such Withdrawing Member shall not have any rights under
Section 18-604 of the Act. In no event shall the Company or any Member have the
right, through specific performance or otherwise, to prevent a Member from
Withdrawing in violation of this Agreement.
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.01 INITIAL CONTRIBUTIONS. Contemporaneously with the execution by
such Member of this Agreement, each Member shall make the contributions
described for that Member in Exhibit A. The fair market value of the CalPERS
Contract shall be zero.
4.02 SUBSEQUENT CAPITAL CONTRIBUTIONS. Without creating any rights in
favor of any third party, the Members shall contribute to the Company, in cash
and in accordance with their respective Sharing Ratios, on or before the date
specified from time to time by the Managing Member, all monies that in the
judgment of the Managing Member are necessary to enable the Company to cause the
assets of the Company to be properly operated and maintained and to discharge
its costs, expenses, obligations, and liabilities; provided that, prior to the
VALIC Payout Date, Gateway shall have no obligation to make additional capital
contributions.
4.03 FAILURE TO CONTRIBUTE. If, at any time following the VALIC Payout
Date, a Member (each, a "Non-Contributing Member") does not pay to the Company
all or any portion of a Capital Contribution that is required to be paid
pursuant to Section 4.02, the Company, upon written request by any other Member
who has paid its Capital Contribution (each, a "Contributing Member"), shall
permit (but not require) each Contributing Member to make a Capital Contribution
("Payment") equal (in the aggregate) to all or any portion of the
Non-Contributing Member's unpaid required payment, with the result that, if the
Non-Contributing Member fails to make its required payment within 30 days after
receiving notice thereof, the Sharing Ratios will be adjusted as follows:
(i) Each Contributing Member's Sharing Ratio shall be adjusted to
equal the percentage (rounded to two decimal places) determined by a
fraction, the numerator of which is the sum of (A) the Contributing
Member's Sharing Ratio times the sum of all Capital Contributions made
by all Members since the VALIC Payout Date PLUS (B) the Contributing
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Exhibit No. 10.45
Member's Payment; and the denominator of which is the sum of (C) the
sum of all Capital Contributions made by all Members since the VALIC
Payout Date plus (D) the sum of each Contributing Member's Payment.
(ii) Each Non-Contributing Member's Sharing Ratio shall be
adjusted to equal the percentage (rounded to two decimal places)
determined by a fraction, the numerator of which is the
Non-Contributing Member's Sharing Ratio times the sum of all Capital
Contributions made by all Members since the VALIC Payout Date; and the
denominator of which is the sum of (A) the sum of all Capital
Contributions made by all Members since the VALIC Payout Date plus (B)
the sum of each Contributing Member's Payment.
(iii) The foregoing adjustments to the Members' Sharing Ratios
shall affect all other provisions of this Agreement from and after the
date on which the Payment is made, including without limitation for
purposes of calculating distributions and allocations under Article 5
and the Purchase Price in Section 9.03(b).
(iv) Notwithstanding the foregoing, in no event shall this Section
4.03 operate to reduce the Sharing Ratio of a Non-Contributing Member
below 1%, unless otherwise agreed by the Contributing Member.
4.04 LOANS. If the Company does not have sufficient cash to pay its
obligations, any Member(s) that may agree to do so, with the consent of the
Managing Member or (for loans in excess of $100,000) the Management Committee,
may advance all or part of the needed funds to or on behalf of the Company. An
advance described in this Section 4.03 constitutes a loan from the Member to the
Company, bears interest at the Interest Rate from the date of the advance until
the date of payment, and is not a Capital Contribution.
4.05 RETURN OF CONTRIBUTIONS. Except as expressly provided herein, a
Member is not entitled to the return of any part of its Capital Contributions or
to be paid interest in respect of either its Capital Account or its Capital
Contributions. An unrepaid Capital Contribution is not a liability of the
Company or of any Member. A Member is not required to contribute or to lend any
cash or property to the Company to enable the Company to return any Member's
Capital Contributions.
4.06 CAPITAL ACCOUNTS. A Capital Account shall be established and
maintained for each Member. Each Member's Capital Account shall be increased by
(a) the amount of money contributed by that Member to the Company, (b) the
agreed fair market value of property contributed by that Member to the Company
(net of liabilities secured by such contributed property that the Company is
considered to assume or take subject to under Section 752 of the Code), and (c)
allocations to that Member of Company income and gain (or items thereof),
including income and gain exempt from tax and income and gain described in
Treasury Regulation Section 1.704-1(b)(2)(iv)(g), but excluding income and gain
described in Treasury Regulation Section 1.704-1(b)(4)(i), and shall be
decreased by (d) the amount of money distributed to that Member by the Company,
(e) the fair market value of property distributed to that Member by the Company
(net of liabilities secured by such distributed property that such Member is
considered to assume or take subject to under Section 752 of the Code), (f)
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Exhibit No. 10.45
allocations to that Member of expenditures of the Company described (or treated
as described) in Section 705(a)(2)(B) of the Code, and (g) allocations of
Company loss and deduction (or items thereof), including loss and deduction
described in Treasury Regulation Section 1.704-1(b)(2)(iv)(g), but excluding
items described in (f) above and loss or deduction described in Treasury
Regulation Section 1.704-1(b)(4)(i) or 1.704-1(b)(4)(iii). The Members' Capital
Accounts shall also be maintained and adjusted as permitted by the provisions of
Treasury Regulation Section 1.704-1(b)(2)(iv)(f) and as required by the other
provisions of Treasury Regulation Sections 1.704-1(b)(2)(iv) and 1.704-1(b)(4),
including adjustments to reflect the allocations to the Members of depreciation,
depletion, amortization, and gain or loss as computed for book purposes rather
than the allocation of the corresponding items as computed for tax purposes, as
required by Treasury Regulation Section 1.704-1(b)(2)(iv)(g). Thus, the Members'
Capital Accounts shall be increased or decreased to reflect a revaluation of the
Company's property on its books based on the fair market value of the Company's
property on the date of adjustment immediately prior to (A) the contribution of
money or other property to the Company by a new or existing Member as
consideration for a Membership Interest or an increased Sharing Ratio, (B) the
distribution of money or other property by the Company to a Member as
consideration for a Membership Interest, or (C) the liquidation of the Company.
A Member that has more than one Membership Interest shall have a single Capital
Account that reflects all such Membership Interests, regardless of the class of
Membership Interests owned by such Member and regardless of the time or manner
in which such Membership Interests were acquired. Upon the Disposition of all or
a portion of a Membership Interest, the Capital Account of the Disposing Member
that is attributable to such Membership Interest shall carry over to the
Assignee in accordance with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(l).
ARTICLE 5
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
5.01 DISTRIBUTIONS. Distributions to the Members shall be made in the
manner described in paragraphs (a) and (b) below.
(a) CalPERS PROFITS. Cash in the amount of the CalPERS Profits
will be distributed to the Members in the following order of priority:
(i) first, 100% to Gateway until the Gateway Payout Date;
(ii) second, 100% to VALIC until the VALIC Payout Date; and
(iii) third, to the Members in accordance with their Sharing
Ratios.
(b) REMAINING PROFITS. Cash in the amount of the Remaining Profits
will be distributed 100% to VALIC.
Distributions shall be made within 45 days after the end of each calendar
quarter. Annual adjustments shall be made within 120 days after the end of each
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Exhibit No. 10.45
calendar year as necessary to reconcile distributions made over the preceding
year with the audited annual financial statements of the Company.
5.02 DISTRIBUTIONS ON DISSOLUTION AND WINDING UP. Upon the dissolution
and winding up of the Company, after adjusting the Capital Accounts for all
contributions made under Article 4, all distributions made under Section 5.01
and all allocations under Article 5 for all periods including the period during
which the liquidation occurs, all available proceeds distributable to the
Members as determined under Section 11.02 shall be distributed to all of the
Members in amounts equal to the Members' positive Capital Account balances.
5.03 ALLOCATIONS. For purposes of maintaining the Capital Accounts
pursuant to Section 4.06 and for income tax purposes, items of income, gain,
loss, deduction and credit shall be allocated to the Members in the manner
described in paragraphs (a) and (b) below.
(a) CalPERS PROFITS AND LOSSES, Each item of income, gain, loss,
deduction and credit in respect of the CalPERS Profits and CalPERS
Losses shall be allocated to the Members as follows: (i) prior to the
Gateway Payout Date, gross income in an amount equal to the
distributions made to Gateway pursuant to Section 5.01(a) (i) shall be
allocated 100% to Gateway and the remaining items of income, gain,
loss, deduction and credit shall be allocated 100% to VALIC; (ii) after
the Gateway Payout Date and before the VALIC Payout Date, each item of
income, gain, loss, deduction and credit shall be allocated 100% to
VALIC; and (iii) thereafter, to the Members in accordance with their
Sharing Ratios.
(b) REMAINING PROFITS AND LOSSES. Each item of income, gain, loss,
deduction and credit in respect of the Remaining Profits and Remaining
Losses shall be allocated 100% to VALIC.
5.04 VARYING INTERESTS. All items of income, gain, loss, deduction or
credit shall be allocated, and all distributions shall be made, to the Persons
shown on the records of the Company to have been Members as of the last calendar
day of the period for which the allocation or distribution is to be made.
Notwithstanding the foregoing, if during any taxable year there is a change in
any Member's Sharing Ratio, the Members agree that their allocable shares of
such items for the taxable year shall be determined on any method determined by
the Managing Member to be permissible under Code Section 706 and the related
Treasury Regulations to take account of the Members' varying Sharing Ratios.
ARTICLE 6
MANAGEMENT
6.01 MANAGEMENT BY MEMBERS. The management of the Company is fully
vested in the Members, acting exclusively in their membership capacities. To
facilitate the orderly and efficient management of the Company, the Members
shall act (a) collectively as a "committee of the whole" (named the Management
Committee) pursuant to Section 6.02, and (b) through the delegation of certain
responsibility and authority to the Managing Member pursuant to Section 6.03.
The Company will not have "managers," as that term is used in the Act or Rev.
Proc. 95-10, 1995-3 I.R.B. 20, it being understood that the Representatives, the
Managing Member and the Officers do not constitute "managers."
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Exhibit No. 10.45
6.02 MANAGEMENT COMMITTEE. The Members shall act collectively through
meetings as a "committee of the whole," which is hereby named the "MANAGEMENT
COMMITTEE." Decisions or actions taken by the Management Committee in accordance
with the provisions of this Agreement shall constitute decisions or actions by
the Company and shall be binding on each Member, Representative, Officer and
employee of the Company. The Management Committee shall conduct its affairs in
accordance with the following provisions and the other provisions of this
Agreement:
(a) REPRESENTATIVES.
(i) DESIGNATION. To facilitate the orderly and efficient
conduct of Management Committee meetings, each Member shall notify
the other Members, from time to time, of the identity of (A) one
of its officers, employees or agents who will represent it at such
meetings (a "REPRESENTATIVE"), and (B) one of its officers,
employees or agents who will represent it at any meeting that the
Member's Representative is unable to attend (an "ALTERNATE
Representative"). (The term "REPRESENTATIVE" shall also refer to
any Alternate Representative that is actually performing the
duties of the applicable Representative.). The initial
Representative and Alternate Representative of each Member is set
forth on Exhibit A. A Member may designate a different
Representative or Alternate Representative for any meeting of the
Management Committee by notifying each of the other Members at
least three Business Days prior to the scheduled date for such
meeting; provided, however, that if giving such advance notice is
not feasible, then such new Representative or Alternate
Representative shall present written evidence of his or her
authority at the commencement of such meeting.
(ii) AUTHORITY. Each Representative shall have the full
authority to act on behalf of the Member that designated such
Representative; the action of a Representative at a meeting (or
through a written consent) of the Management Committee shall bind
the Member that designated such Representative; and the other
Members shall be entitled to rely upon such action without further
inquiry or investigation as to the actual authority (or lack
thereof) of such Representative. In addition, the act of an
Alternate Representative shall be deemed the act of the
Representative for which such Alternate Representative is acting,
without the need to produce evidence of the absence or
unavailability of such Representative.
(iii) DISCLAIMER OF DUTIES; INDEMNIFICATION. EACH
REPRESENTATIVE SHALL REPRESENT, AND OWE DUTIES TO, ONLY THE MEMBER
THAT DESIGNATED SUCH REPRESENTATIVE (THE NATURE AND EXTENT OF SUCH
DUTIES BEING AN INTERNAL CORPORATE AFFAIR OF SUCH MEMBER), AND NOT
TO THE COMPANY, ANY OTHER MEMBER OR REPRESENTATIVE, OR ANY OFFICER
OR EMPLOYEE OF THE COMPANY, EXCEPT THAT SUCH REPRESENTATIVE SHALL
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Exhibit No. 10.45
OWE SUCH PERSONS A DUTY OF GOOD FAITH AND SHALL BE RESPONSIBLE FOR
ANY ACTS OR OMISSIONS THAT CONSTITUTE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. THE COMPANY SHALL INDEMNIFY, PROTECT, DEFEND, RELEASE
AND HOLD HARMLESS EACH REPRESENTATIVE FROM AND AGAINST ANY CLAIMS
ASSERTED BY OR ON BEHALF OF ANY PERSON (INCLUDING ANOTHER MEMBER),
OTHER THAN THE MEMBER THAT DESIGNATED SUCH REPRESENTATIVE, THAT
ARISE OUT OF, RELATE TO OR ARE OTHERWISE ATTRIBUTABLE TO, DIRECTLY
OR INDIRECTLY, SUCH REPRESENTATIVE'S SERVICE ON THE MANAGEMENT
COMMITTEE, PROVIDED HOWEVER, THAT THE ACTS, OMISSIONS OR ALLEGED
ACTS OR OMISSIONS UPON WHICH SUCH CLAIMS ARE BASED WERE NOT
PERFORMED OR OMITTED AS A RESULT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT BY SUCH REPRESENTATIVE.
(iv) ATTENDANCE. Each Member shall use all reasonable
efforts to cause its Representative or Alternate Representative to
attend each meeting of the Management Committee, unless its
Representative is unable to do so because of a "force majeure"
event or other event beyond his reasonable control, in which event
such Member shall use all reasonable efforts to cause its
Representative or Alternate Representative to participate in the
meeting by telephone pursuant to Section 6.02(h).
(b) CHAIRMAN AND SECRETARY. The Representative of VALIC will be
designated as Chairman of the Management Committee, in accordance with
this Section 6.02(b), to preside over meetings of the Management
Committee. The Management Committee shall also designate a Secretary of
the Management Committee, who need not be a Representative.
(c) PROCEDURES. The Secretary of the Management Committee shall
maintain written minutes of each of its meetings, which shall be
submitted for approval no later than the next regularly-scheduled
meeting. The Management Committee may adopt whatever rules and
procedures relating to its activities as it may deem appropriate,
provided that such rules and procedures shall not be inconsistent with
or violate the provisions of this Agreement.
(d) TIME AND PLACE OF MEETINGS. The Management Committee shall
meet annually, subject to more or less frequent meetings upon approval
of the Management Committee. Notice of, and an agenda for, all
Management Committee meetings shall be provided by the Chairman to all
Members at least ten Days prior to the date of each meeting, together
with proposed minutes of the previous Management Committee meeting (if
such minutes have not been previously ratified). Special meetings of
the Management Committee may be called at such times, and in such
manner, as the Managing Member deems necessary, by notifying the
Chairman, who in turn shall notify all Members of the date and agenda
for such meeting at least ten Days prior to the date of such meeting.
Such ten-Day period may be shortened by the Management Committee. All
meetings of the Management Committee shall be held at a location
designated by the Chairman. Attendance of a Member at a meeting of the
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Exhibit No. 10.45
Management Committee shall constitute a waiver of notice of such
meeting, except where such Member attends the meeting for the express
purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
(e) QUORUM. The presence of all Representatives shall constitute a
quorum for the transaction of business at any meeting of the Management
Committee.
(f) VOTING.
(i) VOTING. Votes of the Management Committee shall require
unanimous approval.
(ii) DISCLAIMER OF DUTIES. WITH RESPECT TO ANY VOTE, CONSENT
OR APPROVAL AT ANY MEETING OF THE MANAGEMENT COMMITTEE OR
OTHERWISE UNDER THIS AGREEMENT, EACH MEMBER MAY GRANT OR WITHHOLD
SUCH VOTE, CONSENT OR APPROVAL (A) IN ITS SOLE AND ABSOLUTE
DISCRETION, (B) WITH OR WITHOUT CAUSE, (C) SUBJECT TO SUCH
CONDITIONS AS IT SHALL DEEM APPROPRIATE, AND (D) WITHOUT TAKING
INTO ACCOUNT THE INTERESTS OF, AND WITHOUT INCURRING LIABILITY TO,
THE COMPANY, ANY OTHER MEMBER OR REPRESENTATIVE, OR ANY OFFICER OR
EMPLOYEE OF THE COMPANY (COLLECTIVELY, "SOLE DISCRETION"). THE
PROVISIONS OF THIS SECTION 6.02(f)(ii) SHALL APPLY NOTWITHSTANDING
THE NEGLIGENCE, GROSS NEGLIGENCE, WILLFUL MISCONDUCT, STRICT
LIABILITY OR OTHER FAULT OR RESPONSIBILITY OF A MEMBER OR ITS
REPRESENTATIVE.
(g) ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken at a meeting of the Management Committee may be taken without
a meeting, without prior notice, and without a vote if a consent or
consents in writing, setting forth the action so taken, is signed by
Members that could have taken the action at a meeting of the Management
Committee at which all Members entitled to vote on the action were
represented and voted.
(h) MEETINGS BY TELEPHONE. Members may participate in and hold
such meeting by means of conference telephone, video conference or
similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in such
a meeting shall constitute presence in person at such meeting, except
where a Member participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
(i) MATTERS REQUIRING MANAGEMENT COMMITTEE APPROVAL.
Notwithstanding any other provision of this Agreement, none of the
following actions may be taken by, or on behalf of, the Company
(including by the Managing Member) without first obtaining the
unanimous vote of the Management Committee:
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Exhibit No. 10.45
(A) creation of additional Membership Interests in
accordance with Section 3.04;
(B) approving disclosures of Confidential Information in
accordance with Section 3.06(b)(ii) and (vi);
(C) approving loans by the Members to the Company in excess
of $100,000, in accordance with Section 4.03;
(D) removal and replacement of the Managing Member, in
accordance with Section 6.03(a);
(E) disposing of or encumbering substantially all the assets
of the Company relating to the CalPERS Contract;
(F) dissolving the Company in accordance with Section
11.01(a)(i); and
(G) selecting a liquidator in accordance with Section 11.02.
6.03 MANAGING MEMBER. The Members hereby delegate the authority
described in Section 6.03(b) to the Member that is designated as the "MANAGING
MEMBER" in accordance with this Section 6.03. Decisions or actions taken by the
Managing Member in accordance with the provisions of this Agreement shall
constitute decisions or actions by the Company and shall be binding on each
Member, Representative, Officer and employee of the Company. The Managing Member
shall be designated, and shall exercise such delegated authority, in accordance
with the following provisions and the other provisions of this Agreement:
(a) DESIGNATION AND REMOVAL. The initial Managing Member is VALIC.
It, and any successor Managing Member that is designated in accordance
with this Section 6.03(a), shall cease to be the Managing Member upon
the earliest to occur of the following events: (i) it shall Dispose of
all of its Membership Interest; (ii) it shall become a Terminated
Member; (iii) it shall resign as Managing Member by giving notice
thereof to the other Members (which resignation shall become effective
90 Days after delivery of such notice, unless an earlier or later
effectiveness is agreed to by the Managing Member and the Management
Committee); or (iv) it shall commit gross negligence or willful
misconduct in the management of the Company and, as a consequence,
shall be removed as Managing Member by the Management Committee at a
meeting called for such purpose (which removal shall become effective
90 Days after the vote of the Management Committee, unless an earlier
or later effectiveness is agreed to by the Managing Member and the
Management Committee). Upon the occurrence of any of the events
described in the immediately preceding sentence, the Management
Committee shall designate another Member (that consents to serve as
such) as a successor Managing Member.
(b) DUTY AND AUTHORITY. Except for decisions and actions that are
to be made by the Management Committee pursuant to Section 6.02(i) or
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Exhibit No. 10.45
another express provision of this Agreement, the Managing Member is
hereby delegated the duty and authority to manage the Company.
(c) OFFICERS. The Managing Member may designate one or more
Persons to be Officers of the Company. Any Officers so designated shall
have such titles and, subject to the other provisions of this
Agreement, have such authority and perform such duties as the Managing
Member may delegate to them and shall serve at the pleasure of the
Managing Member.
The first General Manager of the Company shall be Robert Condon.
Subject to the limitations imposed by this Agreement, any employment or
consulting agreement, any employee plan, and the direction of the
Managing Member, the General Manager shall be responsible for the
management and direction of the business and affairs of the Company,
its other Officers, employees and agents, shall supervise generally the
day-to-day affairs of the Company and shall have full authority to
execute all documents and take all actions that the Company may legally
take. The General Manager shall exercise such other powers and perform
such other duties as may be assigned to him by this Agreement or the
Managing Member, including any duties and powers stated in any
employment or consulting agreement approved by the Managing Member. The
General Manager shall report monthly to the Managing Member on the
performance of the Company.
(d) LIMITATIONS OF DUTIES; INDEMNIFICATION. THE MANAGING MEMBER
SHALL BE LIABLE TO THE COMPANY AND THE OTHER MEMBERS FOR ITS GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT IN THE MANAGEMENT OF THE COMPANY; BUT
THE MANAGING MEMBER, ITS REPRESENTATIVE, ITS AFFILIATES AND THEIR
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS (THE
"MANAGING-MEMBER INDEMNIFIED PARTIES") SHALL NOT BE LIABLE TO THE
COMPANY, ANY OTHER MEMBER OR REPRESENTATIVE, OR ANY OFFICER OR EMPLOYEE
OF THE COMPANY FOR ANY ACTS OR OMISSIONS THAT DO NOT CONSTITUTE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, INCLUDING THE NEGLIGENCE, STRICT
LIABILITY OR OTHER FAULT OR RESPONSIBILITY (SHORT OF GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT) OF THE MANAGING MEMBER OR ITS REPRESENTATIVE
(THE "MANAGING-MEMBER INDEMNIFIED ACTS"); AND THE COMPANY SHALL
INDEMNIFY, PROTECT, DEFEND, RELEASE AND HOLD HARMLESS EACH
MANAGING-MEMBER INDEMNIFIED PARTY FROM AND AGAINST ANY CLAIMS ASSERTED
BY OR ON BEHALF OF ANY PERSON (INCLUDING ANOTHER MEMBER) THAT ARISE OUT
OF, RELATE TO OR ARE OTHERWISE ATTRIBUTABLE TO, DIRECTLY OR INDIRECTLY,
THE MANAGING-MEMBER INDEMNIFIED ACTS.
(e ) LIMITATION OF OTHER MEMBERS' AUTHORITY. Each Member, other
than the Managing Member, agrees that it will not exercise its
authority under the Act to bind or commit the Company to agreements,
transactions or other arrangements, or to hold itself out as an agent
of the Company.
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Exhibit No. 10.45
6.04 CONFLICTS OF INTEREST. Except as prohibited by the Non-Competition
Agreement, a Member or an Affiliate of a Member may engage in and possess
interests in other business ventures of any and every type and description,
independently or with others, including ones in competition with the Company,
with no obligation to offer to the Company, any other Member or any Affiliate of
another Member the right to participate therein. The Company may transact
business with any Member or an Affiliate thereof.
6.05 INDEMNIFICATION FOR BREACH OF AGREEMENT. Each Member shall
indemnify, protect, defend, release and hold harmless each other Member, its
Representative, its Affiliates, and its and their respective directors,
officers, trustees, employees and agents from and against any Claims asserted by
or on behalf of any Person (including another Member) that arise out of, relate
to or are otherwise attributable to, directly or indirectly, a breach by the
indemnifying Member of this Agreement; provided, however, that this Section 6.05
shall not apply to any Claim or other matter for which a Member (or its
Representative) has no liability or duty, or is indemnified or released,
pursuant to Section 6.02(a)(iii), 6.02(f)(ii) or 6.03(d) (in the case of the
Managing Member) or 6.04.
ARTICLE 7
TAXES
7.01 TAX RETURNS. The Managing Member shall prepare and timely file (on
behalf of the Company) all federal, state and local tax returns required to be
filed by the Company. Each Member shall furnish to the Managing Member all
pertinent information in its possession relating to the Company's operations
that is necessary to enable the Company's tax returns to be timely prepared and
filed. The Company shall bear the costs of the preparation and filing of its
returns.
7.02 TAX ELECTIONS. The Company shall make the following elections on
the appropriate tax returns:
(a) to adopt as the Company's fiscal year the calendar year;
(b) to adopt the accrual method of accounting;
(c) if a distribution of the Company's property as described in
Code Section 734 occurs or upon a transfer of Membership Interest as
described in Code Section 743 occurs, on request by notice from any
Member, to elect, pursuant to Code Section 754, to adjust the basis of
the Company's properties;
(d) to elect to amortize the organizational expenses of the
Company ratably over a period of 60 months as permitted by Section
709(b) of the Code; and
(e) any other election the Managing Member may deem appropriate.
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Exhibit No. 10.45
ARTICLE 8
BOOKS, RECORDS, REPORTS, BUDGETS AND BANK ACCOUNTS
8.01 MAINTENANCE OF BOOKS. (a) The Managing Member shall keep or cause
to be kept at the principal office of the Company or at such other location
selected by the Managing Member complete and accurate books and records of the
Company, supporting documentation of the transactions with respect to the
conduct of the Company's business and minutes of the proceedings of its Members
and the Management Committee, and any other books and records that are required
to be maintained by applicable Law.
(b) The books of account of the Company shall be (i) maintained on
the basis of a fiscal year that is the calendar year, (ii) maintained
on an accrual basis in accordance with generally accepted accounting
principles, consistently applied, and (iii) audited by the Certified
Public Accountants at the end of each calendar year.
8.02 REPORTS AND BUDGETS. (a) With respect to each calendar year, the
Managing Member shall prepare and deliver to each Member:
(i) Within 120 Days after the end of such calendar year, a
profit and loss statement and a statement of cash flows for such
year, a balance sheet and a statement of each Member's Capital
Account as of the end of such year, together with a report thereon
of the Certified Public Accountants; and
(ii) Such federal, state and local income tax returns and
such other accounting, tax information and schedules as shall be
necessary for the preparation by each Member on or before June 15
following the end of each calendar year of its income tax return
with respect to such year.
(b) Within 45 Days after the end of each calendar quarter, the
Managing Member shall cause to be prepared and delivered to each
Member, with an appropriate certificate of the Person authorized to
prepare the same:
(i) A profit and loss statement and a statement of cash
flows for such quarter (including sufficient information to permit
the Members to calculate their tax accruals), for the portion of
the calendar year then ended and for the 12-month period then
ended;
(ii) A balance sheet and a statement of each Member's
Capital Account as of the end of such quarter and the portion of
the calendar year then ended; and
(iii) A statement comparing the actual financial status and
results of the Company as of the end of or for such quarter and
the portion of the calendar year then ended with the budgeted or
forecasted status and results as of the end of or for such
respective periods.
(c) The Managing Member shall also cause to be prepared and
delivered to each Member an annual operating budget and capital
expenses budget, which budgets shall be delivered on or before December
1 of the previous calendar year.
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Exhibit No. 10.45
8.03 BANK ACCOUNTS. Funds of the Company shall be deposited in such
banks or other depositories as shall be designated from time to time by the
Managing Member. All withdrawals from any such depository shall be made only as
authorized by the Managing Member and shall be made only by check, wire
transfer, debit memorandum or other written instruction.
ARTICLE 9
BUYOUT OPTION
9.01 BUYOUT EVENTS. This Article 9 shall apply to any of the following
events (each a "BUYOUT Event"):
(a) Gateway shall be the subject of a Change of Member Control;
(b) Gateway shall have been reimbursed in full for all Operating
Losses, pursuant to Section 5.01(a)(i) or by payment from VALIC; or
(c) Two years shall have elapsed from the Effective Date.
9.02 PROCEDURE. Promptly following the occurrence of a Buyout Event,
Gateway shall give notice thereof to the Company and the other Members. VALIC
shall have the option to acquire the Membership Interest of Gateway, which
option may be exercised by providing 30 days' written notice (the "ACQUISITION
NOTICE") of such acquisition at any time following occurrence of such Buyout
Event.
9.03 PURCHASE PRICE. The purchase price for a Membership Interest being
purchased pursuant to this Article 9 (the "PURCHASE PRICE") shall be calculated
as follows:
(a) PRIOR TO REIMBURSEMENT OF OPERATING LOSSES. If the Buyout
Event occurs prior to reimbursement to Gateway of the Operating Losses,
then the Purchase Price shall equal:
(i) if less than 30 days has elapsed since the Effective
Date, zero;
(ii) if more than 30 days but less than one year has elapsed
since the Effective Date, (A) one twelfth of the Operating Losses
times the number of months fully elapsed since the Effective Date
MINUS (B) the amount of Operating Losses already reimbursed to
Gateway pursuant to Section 5.01(a)(i) or otherwise.
(iii) if more than one year has elapsed since the Effective
Date, (A) the total Operating Losses MINUS (B) the amount of
Operating Losses already reimbursed to Gateway pursuant to Section
5.01(a)(i) or otherwise.
(b) FOLLOWING REIMBURSEMENT OF OPERATING LOSSES. If the Buyout
Event occurs after reimbursement to Gateway of the Operating Losses,
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Exhibit No. 10.45
then the Purchase Price shall be an amount equal to Gateway's share of
the CalPERS Profits for the preceding 12 month period.
9.04 CLOSING. If an option to purchase is exercised in accordance with
the other provisions of this Article 9, the closing of such purchase shall occur
on the 30th Day after receipt by Gateway of an Acquisition Notice, and shall be
conducted in a manner substantively equivalent to that set forth in Section
3.03(b)(ii)(B).
9.05 TERMINATED MEMBER. Upon the occurrence of a closing under Section
9.04, the following provisions shall apply to Gateway (now a "TERMINATED
MEMBER"):
(a) The Terminated Member ceases to be a Member immediately upon
the occurrence of the closing.
(b) As the Terminated Member is no longer a Member, it will no
longer be entitled to receive any distributions (including liquidating
distributions) or allocations from the Company, and neither it nor its
Representative shall be entitled to exercise any voting or consent
rights or to receive any further information (or access to information)
from the Company.
(c) The Terminated Member must pay to the Company all amounts owed
to it by such Member.
(d) The Terminated Member shall remain obligated for all
liabilities it may have under this Agreement or otherwise with respect
to the Company that accrue prior to the closing.
(e) The Sharing Ratio of the Terminated Member shall be allocated
to VALIC.
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Exhibit No. 10.45
ARTICLE 10
DISPUTE RESOLUTION
10.01 DISPUTES. This Article 10 shall apply to any dispute arising
under or related to this Agreement (whether arising in contract, tort or
otherwise, and whether arising at law or in equity), including (a) any dispute
regarding the construction, interpretation, performance, validity or
enforceability of any provision of this Agreement or whether any Person is in
compliance with, or breach of, any provisions of this Agreement, and (b) the
applicability of this Article 10 to a particular dispute. Notwithstanding the
foregoing, this Article 10 shall not apply to any matters that, pursuant to the
provisions of this Agreement, are to be resolved by the Managing Member or by
vote of the Management Committee; provided, however, that if a vote, approval,
consent, determination or other decision must, under the terms of this
Agreement, be made (or withheld) in accordance with a standard other than Sole
Discretion (such as a reasonableness standard), then the issue of whether such
standard has been satisfied may be a dispute to which this Article 10 applies.
Any dispute to which this Article 10 applies is referred to herein as a
"DISPUTE." With respect to a particular Dispute, each Member that is a party to
such Dispute is referred to herein as a "DISPUTING MEMBER." The provisions of
this Article 10 shall be the exclusive method of resolving Disputes.
10.02 NEGOTIATION TO RESOLVE DISPUTES. If a Dispute arises, the
Disputing Members shall attempt to resolve such Dispute through the following
procedure, unless otherwise mutually agreed by the Disputing Members:
(a) first, an executive officer of each of the Disputing Members
shall promptly meet (whether by phone or in person) in a good faith
attempt to resolve the Dispute;
(b) second, if the Dispute is still unresolved after 20 Days
following the commencement by any Disputing Member of the negotiations
described in Section 10.02(a), then the chief executive officer (or his
designee) of the immediate parent company of each Disputing Member
shall meet (whether by phone or in person) in a good faith attempt to
resolve the Dispute; and
(c) third, if the Dispute is still unresolved after 10 Days
following the commencement by any Disputing Member of the negotiations
described in Section 10.02(b), then any Disputing Party may submit such
Dispute to binding arbitration under this Article 10 by notifying the
other Disputing Members (an "ARBITRATION NOTICE").
10.03 SELECTION OF ARBITRATOR. (a) Any arbitration conducted under this
Article 10 shall be heard by a sole arbitrator (the "ARBITRATOR") selected in
accordance with this Section 10.03. Each Disputing Member and each proposed
Arbitrator shall disclose to the other Disputing Members any business, personal
or other relationship or Affiliation that may exist between such Disputing
Member and such proposed Arbitrator, and any Disputing Member may disapprove of
such proposed Arbitrator on the basis of such relationship or Affiliation.
(b) The Disputing Member that submits a Dispute to arbitration
shall designate a proposed Arbitrator in its Arbitration Notice. If any
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Exhibit No. 10.45
other Disputing Member objects to such proposed Arbitrator, it may, on
or before the tenth Day following delivery of the Arbitration Notice,
notify all of the other Disputing Members of such objection. All of the
Disputing Members shall attempt to agree upon a mutually-acceptable
Arbitrator. If they are unable to do so within 20 Days following
delivery of the notice described in the immediately-preceding sentence,
any Disputing Member may request the American Arbitration Association
(or, if such Association has ceased to exist, the principal successor
thereto) (the "AAA") to designate the Arbitrator. If the Arbitrator so
chosen shall die, resign or otherwise fail or becomes unable to serve
as Arbitrator, a replacement Arbitrator shall be chosen in accordance
with this Section 10.03.
10.04 CONDUCT OF ARBITRATION. The Arbitrator shall expeditiously (and,
if possible, within 90 Days after the Arbitrator's selection) hear and decide
all matters concerning the Dispute. Any arbitration hearing shall be held in
Houston, Texas. The arbitration shall be conducted in accordance with the
then-current Commercial Arbitration Rules of the AAA (excluding rules governing
the payment of arbitration, administrative or other fees or expenses to the
Arbitrator or the AAA), to the extent that such Rules do not conflict with the
terms of this Agreement. Except as expressly provided to the contrary in this
Agreement, the Arbitrator shall have the power (a) to gather such materials,
information, testimony and evidence as it deems relevant to the dispute before
it (and each Member will provide such materials, information, testimony and
evidence requested by the Arbitrator, except to the extent any information so
requested is proprietary, subject to a third-party confidentiality restriction
or to an attorney-client or other privilege) and (b) to grant injunctive relief
and enforce specific performance. If it deems necessary, the Arbitrator may
propose to the Disputing Members that one or more other experts be retained to
assist it in resolving the Dispute. The retention of such other experts shall
require the unanimous consent of the Disputing Members, which shall not be
unreasonably withheld. Each Disputing Member, the Arbitrator and any proposed
expert shall disclose to the other Disputing Members any business, personal or
other relationship or Affiliation that may exist between such Disputing Member
(or the Arbitrator) and such proposed expert; and any Disputing Member may
disapprove of such proposed expert on the basis of such relationship or
Affiliation. The decision of the Arbitrator (which shall be rendered in writing)
shall be final, nonappealable and binding upon the Disputing Members and may be
enforced in any court of competent jurisdiction; provided that the Members agree
that the Arbitrator and any court enforcing the award of the Arbitrator shall
not have the right or authority to award punitive or exemplary damages to any
Disputing Member. The responsibility for paying the costs and expenses of the
arbitration, including compensation to the Arbitrator and any experts retained
by the Arbitrator, shall be allocated among the Disputing Members in a manner
determined by the Arbitrator to be fair and reasonable under the circumstances.
Each Disputing Member shall be responsible for the fees and expenses of its
respective counsel, consultants and witnesses, unless the Arbitrator determines
that the Dispute in question was frivolous, in which case all of such costs and
expenses shall be allocated to the Disputing Member who initiated such frivolous
Dispute.
10.05 IMMEDIATE INJUNCTIVE RELIEF. Notwithstanding anything to the
contrary in this Article 10, the Members agree that in those situations where a
Disputing Member makes a good faith determination that a breach (or potential
breach) of the confidentiality or other provisions of this Agreement by any
other party may result in damages or consequences that will be immediate,
severe, and incapable of adequate redress after the fact, so that a temporary
restraining order or other immediate injunctive relief is necessary for a
realistic and adequate remedy, the Disputing Member making such determination
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Exhibit No. 10.45
may seek such immediate injunctive relief from an appropriate court without
first following the procedures set forth in this Article 10. Whether or not the
immediate injunctive relief sought is granted, the litigation filed will be
stayed or dismissed, as appropriate, and the parties shall proceed with
arbitration of the dispute in accordance with this Article 10.
ARTICLE 11
DISSOLUTION, WINDING-UP AND TERMINATION
11.01 DISSOLUTION. (a) Subject to Section 11.01(b), the Company shall
dissolve and its affairs shall be wound up on the first to occur of the
following events (each a "DISSOLUTION EVENT"):
(i) the unanimous consent of the Members;
(ii) the dissolution, Withdrawal or Bankruptcy of a Member;
(iii) entry of a decree of judicial dissolution of the
Company under Section 18-802 of the Act; or
(iv) six months following the expiration or termination by
CalPERS of the CalPERS Contract or any amendment or renewal
thereof.
(b) If a Dissolution Event described in Section 11.01(a)(ii)
(affecting Gateway) or in Section 11.01(a)(iv) shall occur, then VALIC
(in its Sole Discretion) may elect that the Company shall not be
dissolved, and the business of the Company shall be continued as a
single member limited liability company of which VALIC is the sole
member (a "CONTINUATION ELECTION").
11.02 WINDING-UP AND TERMINATION. (a) On the occurrence of a
Dissolution Event, unless a Continuation Election is made, the Managing Member
shall act as liquidator; provided, however, that if a Dissolution Event
described in Section 11.01(a)(ii) has occurred to the Managing Member, then the
liquidator shall be another Member selected by the Management Committee. The
liquidator shall proceed diligently to wind up the affairs of the Company and
make final distributions as provided herein and in the Act. The costs of winding
up shall be borne as a Company expense. Until final distribution, the liquidator
shall continue to operate the Company properties with all of the power and
authority of the Members. The steps to be accomplished by the liquidator are as
follows:
(i) as promptly as possible after dissolution and again
after final winding up, the liquidator shall cause a proper
accounting to be made by a recognized firm of certified public
accountants of the Company's assets, liabilities, and operations
through the last calendar day of the month in which the
dissolution occurs or the final winding up is completed, as
applicable;
(ii) the liquidator shall discharge from Company funds all
of the Indebtedness and other debts, liabilities and obligations
of the Company (including all expenses incurred in winding up and
any loans described in Section 4.03) or otherwise make adequate
provision for payment and discharge thereof (including the
establishment of a cash escrow fund for contingent liabilities in
such amount and for such term as the liquidator may reasonably
determine); and
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Exhibit No. 10.45
(iii) all remaining assets of the Company shall be
distributed to the Members as follows:
(A) the liquidator may sell any or all Company
property, including to Members, and any resulting gain or
loss from each sale shall be computed and allocated to the
Capital Accounts of the Members in accordance with the
provisions of Article 5;
(B) with respect to all Company property that has not
been sold, the fair market value of that property shall be
determined and the Capital Accounts of the Members shall be
adjusted to reflect the manner in which the unrealized income,
gain, loss, and deduction inherent in property that has not
been reflected in the Capital Accounts previously would be
allocated among the Members if there were a taxable
disposition of that property for the fair market value of that
property on the date of distribution; and
(C) Company property (including cash) shall be
distributed among the Members in accordance with Section 5.02;
and those distributions shall be made by the end of the
taxable year of the Company during which the liquidation of
the Company occurs (or, if later, 90 Days after the date of
the liquidation).
(b) The distribution of cash or property to a Member in accordance
with the provisions of this Section 11.02 constitutes a complete return
to the Member of its Capital Contributions and a complete distribution
to the Member of its Membership Interest and all the Company's property
and constitutes a compromise to which all Members have consented
pursuant to Section 18-502(b) of the Act. To the extent that a Member
returns funds to the Company, it has no claim against any other Member
for those funds.
11.03 DEFICIT CAPITAL ACCOUNTS. No Member will be required to pay to
the Company, to any other Member or to any third party any deficit balance that
may exist from time to time in the Member's Capital Account.
11.04 CERTIFICATE OF CANCELLATION. On completion of the distribution of
Company assets as provided herein, the Members (or such other Person or Persons
as the Act may require or permit) shall file a certificate of cancellation with
the Secretary of State of Delaware, cancel any other filings made pursuant to
Section 2.05, and take such other actions as may be necessary to terminate the
existence of the Company. Upon the filing of such certificate of cancellation,
the existence of the Company shall terminate (and the Term shall end), except as
may be otherwise provided by the Act or other applicable Law.
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Exhibit No. 10.45
ARTICLE 12
GENERAL PROVISIONS
12.01 OFFSET. Whenever the Company is to pay any sum to any Member, any
amounts that Member owes the Company may be deducted from that sum before
payment.
12.02 NOTICES. Except as expressly set forth to the contrary in this
Agreement, all notices, requests or consents provided for or permitted to be
given under this Agreement must be in writing and must be delivered to the
recipient in person, by courier or mail or by facsimile or other electronic
transmission. A notice, request or consent given under this Agreement is
effective on receipt by the Member to receive it; provided, however, that a
facsimile or other electronic transmission that is transmitted after the normal
business hours of the recipient shall be deemed effective on the next Business
Day. All notices, requests and consents to be sent to a Member must be sent to
or made at the addresses given for that Member on Exhibit A or in the instrument
described in Section 3.04, or such other address as that Member may specify by
notice to the other Members. Any notice, request or consent to the Company must
be given to all of the Members. Whenever any notice is required to be given by
Law, the Delaware Certificate or this Agreement, a written waiver thereof,
signed by the Person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
12.03 ENTIRE AGREEMENT; SUPERSEDING EFFECT. This Agreement, the Master
Agreement, the documents identified as Transaction Documents in the Master
Agreement, and the Confidentiality Agreement constitute the entire agreement of
the Members and their Affiliates relating to the Company and the transactions
contemplated hereby and supersedes all provisions and concepts contained in all
prior contracts or agreements between the Members or any of their Affiliates
with respect to the Company and the transactions contemplated hereby, whether
oral or written, including the Preliminary Agreement.
12.04 EFFECT OF WAIVER OR CONSENT. Except as otherwise provided in this
Agreement, a waiver or consent, express or implied, to or of any breach or
default by any Member in the performance by that Member of its obligations with
respect to the Company is not a consent or waiver to or of any other breach or
default in the performance by that Member of the same or any other obligations
of that Member with respect to the Company. Except as otherwise provided in this
Agreement, failure on the part of a Member to complain of any act of any Member
or to declare any Member in default with respect to the Company, irrespective of
how long that failure continues, does not constitute a waiver by that Member of
its rights with respect to that default until the applicable
statute-of-limitations period has run.
12.05 AMENDMENT OR RESTATEMENT. This Agreement or the Delaware
Certificate may be amended or restated only by a written instrument executed
(or, in the case of the Delaware Certificate, approved) by all Members.
12.06 BINDING EFFECT. Subject to the restrictions on Dispositions set
forth in this Agreement, this Agreement is binding on and shall inure to the
benefit of the Members and their respective successors and permitted assigns.
-38-
<PAGE>
Exhibit No. 10.45
12.07 GOVERNING LAW; SEVERABILITY. THIS AGREEMENT IS GOVERNED BY AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE,
EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE
OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. In the
event of a direct conflict between the provisions of this Agreement and any
mandatory, non-waivable provision of the Act, such provision of the Act shall
control. If any provision of the Act provides that it may be varied or
superseded in a limited liability company agreement (or otherwise by agreement
of the members or managers of a limited liability company), such provision shall
be deemed superseded and waived in its entirety if this Agreement contains a
provision addressing the same issue or subject matter. If any provision of this
Agreement or the application thereof to any Member or circumstance is held
invalid or unenforceable to any extent, (a) the remainder of this Agreement and
the application of that provision to other Members or circumstances is not
affected thereby, and (b) the Members shall negotiate in good faith to replace
that provision with a new provision that is valid and enforceable and that puts
the Members in substantially the same economic, business and legal position as
they would have been in if the original provision had been valid and
enforceable.
12.08 FURTHER ASSURANCES. In connection with this Agreement and the
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
12.09 WAIVER OF CERTAIN RIGHTS. Each Member irrevocably waives any
right it may have to maintain any action for dissolution of the Company or for
partition of the property of the Company.
12.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all signing parties had signed the same
document. All counterparts shall be construed together and constitute the same
instrument.
-39-
<PAGE>
Exhibit No. 10.45
IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date first set forth above.
MEMBERS:
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
By:
Name:
Title:
GATEWAY INVESTMENT SERVICES, INC.
By:
Name:
Title:
-40-
<PAGE>
Exhibit No. 10.45
EXHIBIT A
Members
- ---------------------------- ------- ----------------- -------------------------
Name and Sharing Initial Representative and
Address Ratio Contribution Alternate Representative
- ---------------------------- ------- ----------------- -------------------------
The Variable Annuity Life 90% $152,141 Representative:
Insurance Company Richard Lindsey
P.O. Box 3206
2929 Allen Parkway Alternate:
Houston, Texas 77019-2256 Craig Rodby
Attn: Vice Chairman
Fax: (713) 831-4940
- ---------------------------- ------- ----------------- -------------------------
Gateway Investment Services, 10% CalPERS Contract Representative:
Inc. Tom Norwood
4565 Colorado Boulevard
Los Angeles, California Alternate:
90039 John Bettfreund
Attn: President
Fax: (818) 549-3543
- ---------------------------- ------- ----------------- -------------------------
<PAGE>
Exhibit No. 10.45
EXHIBIT B
GUIDELINES FOR MEASUREMENT OF CalPERS PROFITS
VALIC, as Managing Member, will apply the following principles in computing
CalPERS Profits:
1. REVENUES
a. Revenues of the Company will include all fees and commissions
from the sale of financial products by financial counselors
assigned to the Company, or by other VALIC agents selling as
the result of a referral of CalPERS member(s) by the Company.
b. Revenue will also include a "reallowance," credited at market
rates, for VALIC product sold by financial counselors assigned
to the Company or by other VALIC agents to CalPERS members
referred by the Company.
2. EXPENSES
a. Expenses for personnel, and all associated direct out of
pocket expenses of personnel assigned to the Company, will be
a direct expense of the Company.
b. Indirect expenses for services provided by VALIC employees not
assigned to the Company (including, but not limited to,
financial reporting, legal and facilities management) will be
charged to the Company on the basis of usage or time
allocations.
c. Corporate overhead from American General Corporation will be
charged to the Company at the same percentage of revenue as
such overhead is charged to VALIC.
d. Expenses associated with the intercompany use of resources,
such as Company employees producing financial plan reports or
VALIC agents meeting with CalPERS members after a referral,
will be charged based on the percentage of output attributable
to the Company's business. For example, if Company employees
generated 100 financial plan reports in a month, and 50 of
those reports were generated in connection with Company
business and the remaining 50 were generated in connection
with VALIC business not relating to the Company, then the
Company would be charged for 50% of the expenses associated
with the generation of those reports for that month.
Furthermore, if a VALIC agent executed 100 trades in a month,
50 of which were for CalPERS members, then the Company would
be charged for 50% of that agent's expenses for that month.
<PAGE>
EXHIBIT 11
<TABLE>
BANK PLUS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(Dollars in thousands, except per common share data)
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
(Loss) earnings available for common stockholders............$ (56,328) $ 12,653 $ (15,642)
============ ============ ===========
Weighted average of common shares outstanding:
Basic.................................................... 19,395,337 18,794,887 18,242,887
Effect of dilutive securities-- stock options............ -- 348,152 --
Effect of dilutive securities-- deferred stock awards.... -- 194 --
------------ ------------ -----------
Diluted.................................................. 19,395,337 19,143,233 18,242,887
============ ============ ===========
(Loss) earnings per share:
Basic....................................................$ (2.90) $ 0.67 $ (0.86)
Effect of dilutive securities-- stock options............ -- (0.01) --
Effect of dilutive securities-- deferred stock awards.... -- -- --
------------ ------------ -----------
Diluted..................................................$ (2.90) $ 0.66 $ (0.86)
============ ============ ===========
</TABLE>
<PAGE>
<TABLE>
Exhibit No. 12
BANK PLUS CORPORATION
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<CAPTION>
For the year ended December 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Earnings (loss) from continuing operations before
income taxes....................................... $ (52,430) $ 8,788 $ (10,525) $ (68,975) $ (144,968)
Add:
Interest on deposits.................................. 145,020 126,717 120,265 128,242 108,310
Interest on borrowings................................ 64,185 47,292 32,358 46,594 47,518
One-third of rents.................................... 1,230 870 990 930 870
------------ ------------ ------------ ------------ ------------
Earnings as adjusted (A)............................ $ 158,005 $ 183,667 $ 143,088 $ 106,791 $ 11,730
============ ============ ============ ============ ==========
Earnings as adjusted.................................... $ 158,005 $ 183,667 $ 143,088 $ 106,791 $ 11,730
Less:
Interest on deposits.................................. 145,020 126,717 120,265 128,242 108,310
------------ ------------ ------------ ------------ ------------
Adjusted earnings (loss) excluding interest on
deposits (B) $ 12,985 $ 56,950 $ 22,823 $ (21,451) $ (96,580)
============ ============ ============ ============ ============
Fixed Charges:
Interest on deposits.................................. $ 145,020 $ 126,717 $ 120,265 $ 128,242 $ 108,310
Interest on borrowings................................ 64,185 47,292 32,358 46,594 47,518
One-third of rents.................................... 1,230 870 990 930 870
Dividends on preferred stock of subsidiary............ 48 7,302 10,707 0 0
------------ ------------ ------------ ------------ ------------
Fixed charges (C)................................... $ 210,483 $ 182,181 $ 164,320 $ 175,766 $ 156,698
============ ============ ============ ============ ============
Fixed charges excluding interest on deposits (D).... $ 65,463 $ 55,464 $ 44,055 $ 47,524 $ 48,388
============ ============ ============ ============ ==========
Ratio of earnings to fixed charges (A)/(C).............. 0.75 1.01 0.87 0.61 0.07
============ ============ ============ ============ ==========
Ratio of earnings (loss) to fixed charges excluding
interest on deposits (B)/(D)... ...................... 0.20 1.03 0.52 (0.45) (2.00)
============ ============ ============ ============ ==========
Amount of coverage deficiency........................... $ (52,478) $ N/A $ (21,232) $ (68,975) $(144,968)
============ ============ ============ ============ ==========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF BANK PLUS CORPORATION
Bank Plus Credit Services Corporation
Fidelity Federal Bank, A Federal Savings Bank
Gateway Investment Services, Inc.
SUBSIDIARIES OF FIDELITY FEDERAL BANK, F.S.B.
Chino Equities, Inc.
Citadel Service Corporation
Gateway Mortgage Corporation
Hancock Service Corporation
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> OCT-01-1998 JAN-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 0 146,613
<INT-BEARING-DEPOSITS> 0 233,894
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 493,807
<INVESTMENTS-CARRYING> 0 1,084
<INVESTMENTS-MARKET> 0 494,906
<LOANS> 0 2,771,747
<ALLOWANCE> 0 106,171
<TOTAL-ASSETS> 0 3,712,059
<DEPOSITS> 0 2,922,531
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 0 25,390
<LONG-TERM> 0 636,478
0 0
0 0
<COMMON> 0 195
<OTHER-SE> 0 127,466<F1>
<TOTAL-LIABILITIES-AND-EQUITY> 0 3,712,059
<INTEREST-LOAN> 60,433 225,029
<INTEREST-INVEST> 10,380 71,618
<INTEREST-OTHER> 1,348 3,700
<INTEREST-TOTAL> 72,161 300,347
<INTEREST-DEPOSIT> 35,589 145,020
<INTEREST-EXPENSE> 10,002 64,184
<INTEREST-INCOME-NET> 26,570 91,143
<LOAN-LOSSES> 15,000 73,032
<SECURITIES-GAINS> 542 (860)
<EXPENSE-OTHER> 29,499 107,622
<INCOME-PRETAX> 1,105<F2> (52,430)<F3>
<INCOME-PRE-EXTRAORDINARY> 1,105<F2> (52,430)<F3>
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,098 (56,328)
<EPS-PRIMARY> .06 (2.90)
<EPS-DILUTED> .06 (2.90)
<YIELD-ACTUAL> 2.93 2.22
<LOANS-NON> 0 14,371
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 48,018
<LOANS-PROBLEM> 0 108,355
<ALLOWANCE-OPEN> 99,022 50,538
<CHARGE-OFFS> 11,280 25,366
<RECOVERIES> 524 5,062
<ALLOWANCE-CLOSE> 106,171 106,171
<ALLOWANCE-DOMESTIC> 106,171 106,171
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 98,229 98,229
<FN>
(1) Includes minority interest: preferred stock of consolidated subsidiary of
$272.
(2) Earnings before income taxes and $7 minority interest in subsidiary which
is included in [EXPENSE-OTHER]
(3) Earnings before income taxes and $28 minority interest in subsidiary which
is included in [EXPENSE-OTHER]
</FN>
</TABLE>
