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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(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
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to_____
Commission file number 333-28037
GOLDEN STATE BANCORP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4642135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 MAIN STREET, SAN FRANCISCO, CALIFORNIA 94105
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 415-904-1100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
New York Stock and Pacific Exchanges: Common Stock, Par Value $1.00
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Warrants to Purchase Common Stock
Litigation Tracking Warrants(TM)
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. X Yes
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 non-affiliates of
the registrant as of the close of business on February 28, 1999: $1,281,219,299
The number of shares outstanding of the registrant's $1.00 par value common
stock, as of the close of business on February 28, 1999: 134,287,092 shares of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the May 17, 1999 Annual Meeting of
Shareholders Part III Exhibit index
on page 92
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GOLDEN STATE BANCORP INC.
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
Page
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ITEM 1. Business......................................................................................3
General..............................................................................4
Lending Activities...................................................................9
Non-performing Assets...............................................................19
Investment Activities...............................................................23
Sources of Funds....................................................................27
Other Activities....................................................................38
Dividend Policy of the Bank.........................................................42
Employees...........................................................................42
Competition.........................................................................42
Regulation..........................................................................43
Regulation of Golden State..........................................................43
Regulation of the Bank..............................................................44
Taxation............................................................................50
ITEM 2. Properties...................................................................................51
ITEM 3. Legal Proceedings............................................................................52
ITEM 4. Submission of Matters to a Vote of Security Holders..........................................52
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters....................53
ITEM 6. Selected Financial Data......................................................................54
ITEM 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.........................................57
General.............................................................................57
Results of Operations...............................................................60
Provision for Federal and State Income Taxes........................................70
Tax Effects of Dividend Payments by the Bank........................................72
Provision for Loan Losses...........................................................72
Asset and Liability Management......................................................73
Liquidity...........................................................................75
Impact of Inflation and Changing Prices.............................................78
Problem and Potential Problem Assets................................................78
Mortgage Banking Operations.........................................................82
Capital Resources................................................................. 83
Year 2000...........................................................................85
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk...................................87
ITEM 8. Financial Statements and Supplementary Data..................................................88
ITEM 9. Changes in and Disagreements with Accountant
on Accounting and Financial Disclosure...................................................88
PART III
ITEM 10. Directors and Executive Officers of the Registrant...........................................89
ITEM 11. Executive Compensation.......................................................................91
ITEM 12. Security Ownership of Certain Beneficial Owners and Management...............................91
ITEM 13. Certain Relationships and Related Transactions...............................................91
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................92
Signatures. . . . . . . . . . . . . . . ......................................................................101
Audited Financial Statements..................................................................................F-1
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The statements contained in this Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, intentions,
beliefs or strategies regarding the future. Forward-looking statements include
the Company's statements regarding liquidity, provision for loan losses, capital
resources and anticipated expense levels in "Management's Discussion and
Analysis of Financial Condition and Results of Operations." In addition, in
those and other portions of this document, the words "anticipate," "believe,"
"estimate," "expect," "intend," and other similar expressions, as they relate to
the Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. It is important to note that the Company's actual
results could differ materially from those described herein as anticipated,
believed, estimated or expected. Among the factors that could cause results to
differ materially are the risks discussed in the "Risk Factors" section included
in the Registration Statement on Form S-1 filed by Golden State Holdings Inc. on
September 29, 1998 (File No. 333-64597) and declared effective on November 12,
1998. The Company assumes no obligation to update any such forward-looking
statement.
PART I
ITEM 1. BUSINESS
Golden State Bancorp Inc. ("Golden State" or the "Company") is a holding
company with no business operations of its own. Golden State's only significant
asset is its indirect ownership of Golden State Holdings Inc. ("GS Holdings"),
formerly First Nationwide Holdings Inc. ("FN Holdings"), which owns all of the
common stock of California Federal Bank, A Federal Savings Bank ("California
Federal" or "Bank"). On September 11, 1998, First Nationwide (Parent) Holdings
Inc. ("Parent Holdings"), which then owned all of the common stock of FN
Holdings as a result of the extinguishment of the Hunter's Glen (as defined
herein) minority interest, merged with and into Golden State. As such, the
principal business operations of Parent Holdings were, and the principal
business operations of Golden State are, conducted by the Bank and its
subsidiaries. Unless the context otherwise indicates, "California Federal" or
"Bank" refers to California Federal Bank, A Federal Savings Bank, as the
surviving entity after the consummation of the Golden State Merger (as defined
herein).
Pursuant to the Golden State Merger agreement, First Gibraltar Holdings
Inc. ("First Gibraltar"), parent company of Parent Holdings, and Hunter's
Glen/Ford Ltd. ("Hunter's Glen"), a limited partnership controlled by Gerald J.
Ford, Chairman of the Board, Chief Executive Officer and a Director of the
Company and a 20% minority shareholder of FN Holdings, received at the closing
of the Golden State Acquisition (as defined herein), in consideration of their
interests as stockholders of Parent Holdings and FN Holdings, 56,722,988 shares
of common stock, par value $1.00 (the "Golden State Common Stock"), that
constituted, in the aggregate, 47.9% of the common stock outstanding,
immediately after giving effect to the Golden State Acquisition. In connection
with the Golden State Merger, the Hunter's Glen minority interest in FN Holdings
was extinguished.
California Federal, formerly First Nationwide Bank, A Federal Savings Bank
("First Nationwide"), formerly First Madison Bank, FSB ("First Madison"), was
organized and chartered as a federal stock savings bank in December 1988 under
the Home Owners' Loan Act ("HOLA") to acquire substantially all of the assets
and to assume deposits, secured and certain other liabilities of five insolvent
Texas savings and loan associations ("Texas Closed Banks") from the FSLIC
Resolution Fund ("FSLIC/RF"), as successor to the Federal Savings and Loan
Insurance Corporation ("FSLIC").
On January 3, 1997, First Nationwide merged with and into California
Federal, pursuant to the Cal Fed Acquisition (as defined herein). Unless the
context otherwise indicates, (i) "Cal Fed" and "Old California Federal" refer to
Cal Fed Bancorp Inc. and the Bank, respectively, prior to the consummation of
the Cal Fed Acquisition and (ii) the "Bank" refers to California Federal Bank, A
Federal Savings Bank, as the surviving entity after the consummation of the Cal
Fed Acquisition, and to First Nationwide and its predecessors for periods prior
to the Cal Fed Acquisition.
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GENERAL
The Company's operations are significantly influenced by general economic
conditions in the markets and geographic areas in which the Company conducts its
business, the monetary and fiscal policies of the federal government and the
regulatory policies of certain governmental agencies. Deposit balances and the
cost of borrowings are influenced by interest rates on competing investments and
general market interest rates. The Company's loan volume and yields are also
impacted by market interest rates on loans, the supply of and demand for
housing, and the availability of funds.
The Company, which is headquartered in San Francisco, California, is a
diversified financial services company that primarily serves consumers in
California and to a lesser extent, in Nevada. The Company's principal business
consists of (i) operating retail deposit branches that provide retail consumers
and small businesses with deposit products such as demand, transaction and
savings accounts; investment products such as mutual funds, annuities and
insurance; and (ii) mortgage banking activities, including originating and
purchasing 1-4 unit residential loans for sale to various investors in the
secondary market or for retention in its own portfolio, and servicing loans for
itself and others. To a lesser extent, the Company originates and/or purchases
certain commercial real estate, commercial and consumer loans for investment.
These operating activities are financed principally with customer deposits,
secured short-term and long-term borrowings, including FHLB advances,
collections on loans, asset sales and retained earnings. Refer to note 25 of the
Company's consolidated financial statements for additional information about the
Company's business segments.
The Bank is chartered as a federal stock savings bank under the HOLA and
regulated by the Office of Thrift Supervision ("OTS") and the Federal Deposit
Insurance Corporation ("FDIC"), which, through the Savings Association Insurance
Fund ("SAIF"), insures the deposit accounts of the Bank, up to applicable
limits. The Bank is also a member of the Federal Home Loan Bank System
("FHLBS").
The Company's revenues are derived from interest earned on loans, interest
and dividends received on securities and mortgage-backed securities, gains on
sales of loans and other investments, fees received in connection with loan
servicing and securities brokerage and other customer service transactions.
Expenses primarily consist of interest on customer deposit accounts, interest on
short-term and long-term borrowings, general and administrative expenses
consisting of compensation and benefits, data processing, occupancy and
equipment, communications, deposit insurance assessments, advertising and
marketing, professional fees and other general and administrative expenses.
As of December 31, 1998, the Company had assets totalling $54.9 billion,
deposits totalling $24.6 billion and operated retail branch offices at 358
locations in two states.
On April 14, 1994, First Madison entered into the Asset Purchase Agreement
(the "Asset Purchase Agreement") with First Nationwide Bank, A Federal Savings
Bank ("Old FNB"), an indirect subsidiary of Ford Motor Company ("Ford Motor").
On October 3, 1994, effective immediately after the close of business on
September 30, 1994, First Madison acquired substantially all of the assets and
certain of the liabilities (the "FN Acquired Business") of Old FNB (the "FN
Acquisition"). Effective on October 1, 1994, First Madison changed its name to
First Nationwide Bank, A Federal Savings Bank.
Business Strategy
Since the FN Acquisition and through the consummation of the Golden State
Merger, the Company's business strategy was executed through three types of
transactions, as the information set forth below illustrates:
o Acquisitions which complemented the Company's geographic and
business line strategies, such as the Golden State
Acquisition;
o Divestitures of branches outside the Company's primary
geographic region; and
o Expansion of the Company's mortgage servicing operations.
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In December 1994, the Bank's wholly-owned mortgage bank operating
subsidiary, First Nationwide Mortgage Corporation ("FNMC"), entered into a
series of agreements with Standard Federal Savings Association ("StanFed"), to
acquire certain of StanFed's mortgage servicing assets and assume certain of
StanFed's mortgage servicing liabilities for approximately $178 million (the
"Maryland Acquisition"). As a result of the Maryland Acquisition, FNMC acquired
a 1-4 unit residential loan servicing portfolio of approximately $11.4 billion
(including $1.8 billion of mortgage servicing rights that are owned by third
parties who have subcontracted the servicing function to FNMC (a "sub-servicing
portfolio")) and certain other assets and liabilities. The transaction was
consummated on February 28, 1995. In connection with the Maryland Acquisition,
FNMC moved its mortgage servicing operations to Maryland from its former
location in Sacramento, California.
On October 2, 1995, FNMC purchased from Lomas Mortgage USA, Inc. ("LMUSA")
a 1-4 unit residential loan servicing portfolio of approximately $11.1 billion
(including a sub-servicing portfolio of $3.1 billion), a $2.9 billion master
servicing portfolio in which FNMC monitors the performance and consolidates the
reporting and remittances of multiple servicers for various investors (a "master
servicing portfolio") and other assets, for $100.9 million and the assumption of
certain indebtedness secured by the acquired loan portfolio (the "1995 LMUSA
Purchase").
On January 31, 1996, FNMC purchased LMUSA's remaining $14.1 billion loan
servicing portfolio (including a sub-servicing portfolio of $2.4 billion), a
master servicing portfolio of $2.7 billion, $5.9 million in foreclosed real
estate, $46.8 million in net other servicing receivables, $2.6 million in
mortgage loans, and $6.2 million in net other assets (including $1.4 million in
cash and cash equivalents) for a purchase price of approximately $160.9 million
(the "1996 LMUSA Purchase" and, together with the 1995 LMUSA Purchase, the
"LMUSA Purchases").
During the first six months of 1996, the Company consummated the sale of
its retail branches in Ohio, New York, New Jersey and Michigan, (the "Branch
Sales") at gross prices which represented an average premium of 7.96% of the
approximately $4.6 billion of deposits sold. The Company recorded a pre-tax gain
of $363.3 million in connection with the Branch Sales.
On February 1, 1996, the Company acquired SFFed Corp. ("SFFed"), a savings
and loan holding company, and its wholly owned federal savings association, San
Francisco Federal Savings and Loan Association ("San Francisco Federal"), (the
"SFFed Acquisition"), for approximately $264.2 million. San Francisco Federal
operated 35 branches in the Northern California area and, at February 1, 1996,
had approximately $4.0 billion in assets and approximately $2.7 billion in
deposits.
On June 1, 1996, the Company acquired Home Federal Financial Corporation
("HFFC") and its wholly owned federally chartered savings association
subsidiary, Home Federal Savings and Loan Association of San Francisco ("Home
Federal") (the "Home Federal Acquisition," and together with the SFFed
Acquisition, the "1996 Acquisitions"). The aggregate consideration paid in
connection with the Home Federal Acquisition was approximately $67.8 million. At
June 1, 1996, HFFC had approximately $717 million in assets and $632 million in
deposits.
In November 1996, the Bank formed California Federal Preferred Capital
Corporation ("Preferred Capital Corp."), a real estate investment trust
("REIT"), for the purpose of acquiring, holding and managing real estate
mortgage assets. All of Preferred Capital Corp.'s common stock is owned by the
Bank. Pursuant to a subservicing agreement with FNMC, FNMC services Preferred
Capital Corp.'s mortgage assets. On January 31, 1997, Preferred Capital Corp.
issued to the public $500 million of its 9 1/8% Noncumulative Exchangeable
Preferred Stock (the "REIT Preferred Stock"), which is reflected in the
Company's consolidated balance sheet as minority interest. Preferred Capital
Corp. used the proceeds from such offering to acquire mortgage assets from the
Bank.
On January 3, 1997, pursuant to an Agreement and Plan of Merger among FN
Holdings, Cal Fed and Old California Federal, First Nationwide merged with and
into Old California Federal and Cal Fed was liquidated. The aggregate
consideration paid under the merger agreement consisted of approximately $1.2
billion in cash and the issuance of litigation interests. Old California
Federal, at December 31, 1996, had total assets of approximately $14.1 billion
and deposits of $8.9 billion, and operated 119 branches in California and
Nevada. Effective with the merger, First Nationwide's name changed to California
Federal Bank, A Federal Savings Bank. In connection with the Cal Fed
Acquisition, FN Holdings made a capital contribution to the Bank on January 3,
1997 of approximately $685 million.
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On January 3, 1997 and prior to the consummation of the Cal Fed
Acquisition, First Nationwide Escrow Corp. ("FN Escrow"), an affiliate of FN
Holdings, was merged with and into FN Holdings, pursuant to a merger agreement
by and between FN Holdings and FN Escrow (the "FN Escrow Merger"). In connection
therewith, FN Holdings acquired the net proceeds from the issuance of FN
Escrow's $575 million of Senior Subordinated Notes due 2003 (the "FN Holdings
10 5/8% Notes") and assumed FN Escrow's obligations under such notes and
indenture.
FN Holdings financed the Cal Fed Acquisition with (i) the net proceeds of
approximately $555 million from the issuance of the FN Holdings 10 5/8% Notes,
(ii) net proceeds of $145 million from a newly formed Delaware corporation
("Special Purpose Corp."), all the common stock of which is owned by Gerald J.
Ford, the Chairman of the Board, Chief Executive Officer and a Director of the
Bank, in exchange for $150 million aggregate liquidation value of FN Holdings'
Cumulative Perpetual Preferred Stock ("FN Holdings Preferred Stock") and (iii)
existing cash.
Effective May 31, 1997, FNMC acquired a residential mortgage loan servicing
portfolio of approximately $3.2 billion from WMC Mortgage Corporation (the
"Weyerhaeuser Purchase") for $37.1 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Mortgage Banking
Operations."
On September 1, 1997, the Company acquired Auto One Acceptance Corporation
("Auto One") in a purchase transaction (the "Auto One Acquisition"). Auto One
primarily engages in indirect sub-prime auto financing activities, providing
loan processing, funding and loan servicing for over 800 franchised automobile
dealers. Auto One is a licensed lender in 47 states. Auto One is headquartered
in Dallas, Texas and operates as a subsidiary of the Bank.
On September 30, 1997, FNMC sold servicing rights for approximately 52,000
loans with an unpaid principal balance of approximately $2.3 billion,
recognizing a pre-tax gain of $14.0 million (the "Servicing Sale").
On December 12, 1997, the Company sold its retail deposits and all related
retail banking facilities in the state of Texas (consisting of three branches)
totalling $57.6 million at a gross price representing a deposit premium of 4.1%
(the "Texas Branch Sale"). The Company recorded a pre-tax gain of $2.5 million
in connection with the Texas Branch Sale.
On February 4, 1998, Auto One acquired 100% of the partnership interest of
Gulf States Acceptance Company, a Delaware limited partnership ("GSAC") and its
general partner, Gulf States Financial Services, Inc., a Texas corporation. GSAC
was liquidated and its assets and liabilities were transferred to Auto One (the
"GSAC Acquisition"). The aggregate consideration paid by Auto One in connection
with the GSAC Acquisition was approximately $13.6 million plus a 20% interest in
the common stock of Auto One. This interest is reflected in the Company's
consolidated balance sheet as minority interest.
On September 11, 1998, Parent Holdings and Hunter's Glen completed the
merger with Golden State, the publicly traded parent company of Glendale
Federal Bank, Federal Savings Bank ("Glendale Federal"), pursuant to which
Parent Holdings, Hunter's Glen and Golden State agreed to a tax-free exchange
of shares in a merger transaction (the "Golden State Merger"), accounted for
under the purchase method of accounting. Pursuant to the Golden State Merger
agreement, (i) FN Holdings contributed all of its assets (including all of the
common stock of the Bank) to GS Holdings (the "FN Holdings Asset Transfer"),
(ii) Parent Holdings, which then owned all of the common stock of FN Holdings
as a result of the extinguishment of the Hunter's Glen minority interest,
merged with and into Golden State, which indirectly owned 100% of the common
stock of Glendale Federal, (iii) FN Holdings merged with and into Golden State
Financial Corporation ("GS Financial"), which owned all of the common stock of
Glendale Federal (the "FN Holdings Merger" and together with the Golden State
Merger, "the Holding Company Mergers") and (iv) Glendale Federal merged with
and into the Bank (the "Glen Fed Merger"). The FN Holdings Asset Transfer, the
Holding Company Mergers and the Glen Fed Merger are referred to collectively as
the "Golden State Acquisition." At September 11, 1998, Glendale Federal had
total assets of approximately $18.9 billion and deposits of $11.3 billion, and
operated 181 branches and 26 loan offices in California.
On August 6, 1998, GS Escrow Corp. ("GS Escrow"), an affiliate of GS
Holdings, issued $2 billion in debt securities consisting of (i) $250 million
aggregate principal amount of its Floating Rate Notes Due 2003 (the "Floating
Rate Notes"), (ii) $350 million aggregate principal amount of its 6 3/4% Senior
Notes due 2001 (the "2001 Notes"), (iii) $600 million aggregate principal amount
of its 7% Senior Notes Due 2003 (the "2003 Notes") and (iv) $800 million
aggregate principal amount of its 7 1/8% Senior Notes Due 2005 (the "2005 Notes"
and, together with the 2001 Notes
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and the 2003 Notes, the "Fixed Rate Notes" and, together with the Floating Rate
Notes, the "GS Escrow Notes"). The GS Escrow Notes were issued to fund, in part,
the Refinancing Transactions (as defined herein) that occurred following the
Golden State Acquisition.
On August 17, 1998, FN Holdings commenced cash tender offers (the "Bank
Preferred Stock Tender Offers") for each of the Bank's two outstanding series of
Bank Preferred Stock (as defined herein), which together had a total aggregate
liquidation preference of $473.2 million. On September 14, 1998, GS Holdings
commenced cash tender offers (the "Debt Tender Offers" and together with the
Bank Preferred Stock Tender Offers and the Parent Holdings Defeasance (as
defined herein), and the issuance of the GS Escrow Notes, the "Refinancing
Transactions") for the FN Holdings 12 1/4% Senior Notes Due 2001 (the "FN
Holdings 12 1/4% Senior Notes"), the FN Holdings 9 1/8% Senior Subordinated
Notes Due 2003 (the "FN Holdings 9 1/8% Senior Sub Notes") and the FN Holdings
10 5/8% Notes (collectively, the "FN Holdings Notes"), which together had a
total aggregate principal amount of $915.0 million.
Concurrent with the closings of the Debt Tender Offers, GS Financial, as
the successor obligor, gave a 30-day notice of redemption for all of the
outstanding 12 1/2% Parent Holdings Notes (as defined herein), and irrevocably
deposited money or government obligations in trust in an amount sufficient to
pay the redemption price therefor, together with any accrued and unpaid interest
to the date of redemption, for the purpose of defeasing the 12 1/2% Parent
Holdings Notes (the "Parent Holdings Defeasance"). During 1998, all of the 12
1/2% Parent Holdings Notes were redeemed in connection with the Parent Holdings
Defeasance for an aggregate redemption price, including accrued interest
payable, of $553.7 million.
In total, $1.4 billion of long-term notes with an average cost of 11.33%
and $380.7 million of Bank Preferred Stock with an average dividend rate of
11.24% were purchased or redeemed in the Refinancing Transactions. The purchases
and redemptions were funded through the issuance of $2.0 billion in debt
securities with an average cost of 7.04%. The Company estimates the annual
after-tax savings as a result of the Refinancing Transaction approximates $61.2
million.
On September 14, 1998, GS Escrow was merged with and into GS Holdings,
pursuant to a merger agreement by and between GS Escrow and GS Holdings (the "GS
Escrow Merger"). In connection therewith, GS Holdings acquired the net proceeds
from the Refinancing Transactions and became successor obligor on the GS Escrow
Notes. GS Escrow was a newly formed subsidiary of First Gibraltar Holdings Inc.,
an indirect parent company of FN Holdings, and had no significant assets. GS
Escrow had not engaged in any business operations, acquired any assets nor
incurred any liabilities, other than in connection with the issuance of the GS
Escrow Notes.
On September 11, 1998, the Company consummated the sale of its 24 branch
banking offices in Florida to Union Planters Bank of Florida, with deposits
totalling $1.4 billion (the "Florida Branch Sale"). The Company recorded a
pre-tax gain of $108.9 million in connection with the Florida Branch Sale,
representing a deposit premium of approximately 7.92%.
On November 2, 1998, the Company signed definitive agreements to acquire
twelve retail branches located in Nevada (with deposits of approximately $637
million as of September 30, 1998) from Norwest Bank, Nevada, a subsidiary of
Norwest Corporation, and Wells Fargo Bank, N.A. This transaction is expected to
close in April 1999.
These transactions have expanded and strengthened the Company's presence in
the West Coast, providing additional economies of scale and diversity of
operations within its target markets. The Company believes that its strategic
acquisition and divestiture activity has enhanced the value of its franchise and
improved its operating efficiency through the consolidation or elimination of
duplicative back office operations and administrative and management functions.
This is evidenced, in part, by the significant improvement in the Bank's
efficiency ratio over the past four year period of acquisitions, divestitures
and consolidations. The Bank's efficiency ratio, which represents the ratio of
noninterest expense to net interest income and noninterest income (excluding
certain non-recurring items and goodwill amortization) for the year ended
December 31, 1995 was 63.47%, improving to 50.32% for the year ended December
31, 1998. Further, because the Company had excess servicing capacity and
existing servicing expertise, it was able to accommodate the loan servicing
portfolios acquired in these transactions without the need for significant
additional investment. Since the FN Acquisition, the Company's mortgage
servicing portfolio (including loans serviced by the Bank and its subsidiaries,
excluding loans serviced for the Bank by FNMC) increased from $6.7 billion to
$68.8 billion at December 31, 1998.
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The Company's strategic plan aims at achieving increased profitability,
revenue diversity and growth while preserving credit quality. Key elements of
the business plan include:
o California Federal will continue its transition toward a more
"bank-like" institution. In particular, the traditional savings bank
activities of the Bank will be supplemented and expanded by the
following initiatives:
-- Continue to market demand deposit and transaction accounts as the
primary account relationship. The corollary reduction in emphasis
on certificates of deposits will contribute to a lower overall
cost of funds. Transaction account relationships also tend to
generate greater fee income.
-- Offer a broader range of retail products. Mutual funds, insurance
and annuity products, mortgage and home equity loans are
currently available to Bank customers. The Bank has only recently
begun a concentrated marketing effort to realize the opportunity
to sell more products and services to its customers through a
convenient array of distribution channels. The successful
marketing of products and services and increased functionality of
distribution channels will enhance customer fulfillment,
retention, and profitability.
-- Expand small business and middle market lending. The Bank
generally ranks as one of the top four depository institutions in
most of the markets it serves. This high profile provides the
Bank with the opportunity to compete very effectively to provide
services to small businesses. Local, small business lending
generates wider margins than most of the Bank's current earning
assets and will help increase the Bank's demand deposits.
o Enhance operating efficiency by, among other things, further expanding
its customer base, increasing transaction volumes and reducing costs
through optimization of its distribution channels and consolidation of
administrative and managerial functions.
o FNMC will continue to increase noninterest income, provide a loan
production platform to generate Bank assets and augment portfolio
run-off, and obtain incremental efficiencies in its mortgage banking
operations. In particular, FNMC will seek to maintain servicing at a
level between 900,000 and 1.1 million mortgage loans in its Frederick,
Maryland facility.
o Focus on risk management by seeking to protect the credit quality of
its assets through, among other things, continuing to originate
residential loans and increase origination of small business and
commercial loans, while ensuring compliance with the Bank's carefully
developed underwriting standards, which have resulted in non-performing
assets of 0.57% of the Bank's total assets at December 31, 1998.
Non-performing assets as a percentage of total assets of the Bank was
0.87% and 1.36% at December 31, 1997 and 1996, respectively.
o Retain the best practices of the most recent merger partners.
California Federal contributes an efficient back office operation, a
large-scale mortgage banking business, and proven merger integration
skills. The merger with Glendale Federal offers complementary
attributes including consumer marketing skills, a growing small
business lending practice, and an attractive retail mortgage
origination network.
o Mitigate interest rate risk by adding primarily adjustable rate loans,
shorter duration loans and securities and floating rate consumer and
business loans to its earning assets portfolio, through growth in
demand deposit account balances. MSR (as defined herein) valuation
risk will be mitigated through an actively managed hedge program.
o Continue to support underserved communities located near its branch
network through lending initiatives, investment, and personal
involvement.
o Continue to evaluate external growth and revenue diversification
through selective acquisitions which are consistent with its business
strategy. The Company's primary focus will be the effective integration
of its recent acquisitions and continued migration of its products,
services, and balance sheet toward a community bank structure. This
growth may include acquisitions of businesses that management believes
offer the potential for higher growth and margin expansion.
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The implementation of the proceeding strategies is subject to numerous
contingencies beyond management's control. These contingencies include general
and regional economic conditions, competition and changes in regulation and
interest rates. Accordingly, no assurance can be given that any of the Company's
strategies will prove to be effective or that the Company's goals will be
achieved.
Ownership Structure
Prior to the Golden State Acquisition, FN Holdings was owned 80% by Parent
Holdings and 20% by Hunter's Glen. Pursuant to the Golden State Merger
agreement, Mafco Holdings Inc. ("Mafco Holdings"), a corporation which wholly
owns MacAndrews and Forbes Holdings Inc. ("MacAndrews Holdings," and together
with Mafco Holdings, "MacAndrews and Forbes"), which is controlled by Ronald O.
Perelman, and Hunter's Glen received 41,067,270 and 15,655,718 shares,
respectively, of Golden State common stock in consideration of their ownership
interests in Parent Holdings and FN Holdings. Immediately after the Golden State
Acquisition, Golden State's pre-merger stockholders owned approximately 52.1% of
the combined entity on a fully diluted basis. In addition, the Golden State
Merger agreement provided that Mafco Holdings and Hunter's Glen, or their
successors, were entitled to receive contingent additional shares of common
stock under certain circumstances, which contingent consideration could cause
the actual ownership percentages of Mafco Holdings and Hunter's Glen to change.
See "--Other Activities - Contingent Shares."
Immediately prior to the consummation of the Golden State Acquisition, the
charter of the Bank was amended to provide that each share of Bank Preferred
Stock is entitled to one vote and each CALGZ (as defined herein) and each CALGL
(as defined herein) has 1/5 of one vote with the holders of the common stock of
the Bank, the Bank Preferred Stock, the CALGZs and the CALGLs voting together as
a single class. In addition, after giving effect to a stock split of the common
stock of the Bank, GS Holdings' ownership of 100% of the common stock represents
approximately 90% of the total voting power of voting securities of the Bank. In
addition to its common stock ownership of the Bank, GS Holdings owns $380.7
million liquidation value of the Bank Preferred Stock purchased in the Bank
Preferred Stock Tender Offers.
LENDING ACTIVITIES
The Company's principal lending activity has been the origination of
adjustable and fixed-rate mortgage loans secured by residential real estate. To
a lesser extent, the Company also originates certain commercial real estate
loans as well as consumer loans, which principally consist of adjustable-rate
home equity lines of credit. In connection with the Glen Fed Merger, the Company
acquired a portfolio of business banking loans, which primarily have adjustable
rates. Prior to 1997, the commercial real estate lending activity of the Company
had been limited to restructuring and refinancing existing portfolio loans, and
multi-family loans originated under its affordable housing program. The Company
commenced the origination of multi-family (5+ units) and commercial loans on a
limited basis during 1997. The Company also participates in a number of other
affordable housing programs and initiatives.
The Company's 1-4 unit residential loans are originated by FNMC. Throughout
this document, references to the Company and its 1-4 unit residential loan
production or servicing activities relate to functions performed by FNMC. The
Company originates 1-4 unit residential loans through three channels: (i)
retail, (ii) wholesale and (iii) correspondent. Since the Glen Fed Merger in
September 1998, the Company has a significant retail origination presence in
California. Wholesale originations (wherein loans are acquired from independent
loan brokers) are conducted through regional wholesale offices throughout the
United States. The Company also purchases newly originated loans from
correspondents throughout the United States and through contracts to administer
various housing bond and other private mortgage lending programs. The Company
originates adjustable rate mortgage ("ARM") loans on 1-4 unit residential real
estate which, in the case of ARMs originated after December 31, 1996, have
generally been held for investment, and fixed rate 1-4 unit residential loans,
which are generally held for sale to the secondary mortgage market.
The Company originates multifamily and commercial real estate loans through
its Commercial Real Estate Group which has loan production and asset management
offices located in San Francisco, Los Angeles, Dallas and Phoenix. New loan
originations are produced through several sources including (i) direct borrower
solicitation , (ii) mortgage brokerage referrals, (iii) real estate sales agent
referrals, and, to a lesser extent, (iv) loan purchases from other investors or
originators.
Page 9
<PAGE>
Loans are originated which meet stated underwriting guidelines and pricing
guidelines established by the Commercial Real Estate Subcommittee and approved
by the Credit Policy Committee of the Bank. Generally multifamily secured loans
have loan-to-value ratios ("LTVs") of 75% or below and debt coverage ratios
("DCRs") of 1.20 or above. Loans secured by commercial properties (shopping
centers, office buildings, warehouses, etc.) generally have LTVs of 70% or below
and DCRs of 1.25 and above. Loans are typically offered at either (i) adjustable
rates based on a negotiated margin over U.S. Treasury Bill or 11th District Cost
of Funds indices with terms of ten to 30 years with rates adjusted
semi-annually, or (ii) fixed rates or fixed/adjustable rates based on a
negotiated margin over the matching term U.S. Treasury Bond for terms of three
to ten years. Amortization periods are generally 20 to 25 years on commercial
loans and 25 to 30 years on multifamily loans.
The Company also offers lending and deposit products to its customer base,
focusing on small businesses located in the markets served by the Company's
retail banking offices. The Company offers revolving lines of credit, accounts
receivable and inventory financing, business checking accounts and cash
management services. In addition, the Company also originates variable-rate
agricultural and secured term loans with maturities of up to ten years. Through
its SBA (as defined herein) lending program, the Company provides long-term
financing to expanding small businesses.
The Company generates consumer loan applications at its retail branches. In
addition, the Company conducts direct-mail solicitations, principally of its
existing customers, for secured loans. All consumer loan processing, servicing
and collection operations were moved from a facility in Oak Brook, Illinois to
Sacramento, California, during the second quarter of 1997.
With its entry into the sub-prime automobile lending business, the Company
purchases loans in bulk from third parties and independent automobile dealers.
These loans typically have fixed interest rates with terms to maturity of up to
60 months.
The following table reflects activity related to loans receivable,
excluding loans held for sale:
Year Ended December 31,
------------------------
1998 1997
---- ----
(in millions)
Balance at beginning of period $19,921 $10,584
Originations 4,103 1,024
Purchases:
Cal Fed Acquisition -- 10,060
Glen Fed Merger 14,562 --
Auto One 317 221
GSAC Acquisition 112 --
Sales (11) (21)
Foreclosures (119) (178)
Payments, payoffs and other (8,122) (1,769)
------- --------
Balance at end of period $30,763 $19,921
======= ========
Interest Rates, Terms and Fees
The Company offers a variety of ARM products, generally with the objectives
of (i) matching, as closely as possible, the interest rate sensitivity of its
interest-earning assets with the interest rate sensitivity of its
interest-bearing liabilities and (ii) maintaining a relatively stable net
interest margin in varied interest rate environments. In response to consumer
demand, and in order to diversify its loan portfolio and help to control its
future interest rate risk, the Company's loan portfolio includes several ARM
products which vary as to (i) the frequency and amount of periodic interest rate
changes and (ii) the minimum and maximum rates applied to a particular loan.
ARMs have the advantage of reducing the lending institution's sensitivity to
interest rate fluctuations. However, they also present certain risks not
associated with traditional fixed rate mortgages, such as adjustments in
interest rates which could cause payment increases that some borrowers might be
unable to service.
Page 10
<PAGE>
The Company also offers a variety of fixed rate products on 1-4
residential, multi-family and commercial loans. Such loans are generally
fixed/adjustable rate hybrid loan products which initially have a fixed rate
period ranging from three to ten years followed by an adjustable rate period
through the final maturity of the loan. Prepayment penalties vary depending on
the loan type and the length of the fixed rate period.
The Company attempts to mitigate the credit risks associated with mortgage
lending activities by the use of carefully developed underwriting standards.
Substantially all 1-4 unit residential loans originated are underwritten to
conform with standards adopted by Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"),
the Government National Mortgage Association ("GNMA"), or other secondary market
investors. Accordingly, the Company's underwriting standards include LTV ratios
and maximum loan amounts for both fixed rate loans and ARMs that closely mirror
secondary market requirements. Generally, when a loan is originated with an
exception to these standards, specific strong compensating factors are required.
With respect to ARMs, the Company underwrites the borrower's ability to pay at
the maximum second year payment rate, consistent with secondary market
requirements.
In addition to the interest earned on its loans, the Company charges fees
for loan originations, prepayments, modifications, late payments, changes of
property ownership and other similar services. The amount of this fee income
varies with the volume of loan originations, prepayments, the general economic
conditions affecting the portfolio and other competitive factors affecting the
mortgage market.
Generally, late charges are assessed when payments are delinquent. On loans
secured by real estate, these charges are generally limited to 4% to 6% of the
overdue payment of principal and interest and cannot be imposed until the
payment is more than 15 days late, in accordance with the contractual terms of
the loans and regulatory requirements in effect when the loans were made.
Composition of Loan Portfolio
The composition of the Company's loan portfolio, excluding loans held for
sale and Covered Assets (as defined herein), is set forth in the following
table, at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in millions)
Real estate loans:
<S> <C> <C> <C> <C> <C>
1-4 unit residential $23,493 $14,071 $6,118 $5,423 $5,612
5+ unit residential 2,641 3,035 2,164 1,854 2,178
Commercial real estate 2,940 2,146 1,978 1,716 2,015
Land 33 5 11 9 15
Construction 22 1 6 -- 8
-------- ------- ------- ------- -------
Total real estate loans 29,129 19,258 10,277 9,002 9,828
-------- ------- ------- ------- -------
Equity-line loans 385 355 243 111 407
Other consumer loans 242 107 55 59 85
Purchased auto loans 465 171 -- -- --
Business banking loans 529 22 -- -- --
Commercial loans 13 8 30 2 1
-------- ------- ------- ------- -------
Total loans receivable 30,763 19,921 10,605 9,174 10,321
-------- ------- ------- ------- -------
Less:
Deferred loan fees, costs, discounts
and premiums, net (103) (47) (5) (19) --
Allowance for loan losses 589 419 247 210 203
Purchase accounting adjustments, net (4) 125 150 153 151
-------- ------- ------- ------- -------
Loans receivable, net $30,281 $19,424 $10,213 $8,830 $9,967
======= ======= ======= ======= =======
</TABLE>
Page 11
<PAGE>
The following table presents the Company's real estate loan portfolio
(excluding loans held for sale), by collateral type, interest rate type and
state concentration at December 31, 1998:
<TABLE>
<CAPTION>
1-4 unit 5+ unit Commercial
Residential Residential and Other Total Real
------------------ ------------------ ----------------- Estate % of
State Variable Fixed Variable Fixed Variable Fixed Loans Total
-------- ----- -------- ----- -------- ----- ----- -----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $13,550 $4,192 $2,237 $197 $2,330 $311 $22,817 78.33%
New York 344 228 25 14 23 22 656 2.25
Florida 687 321 66 11 78 29 1,192 4.09
Nevada 177 63 7 6 14 3 270 0.93
Illinois 196 126 8 1 25 17 373 1.28
Texas 181 170 3 7 3 3 367 1.26
Other states (1) 1,700 1,558 30 29 120 17 3,454 11.86
------- ------ ------ ---- ------ ---- ------- ------
Total $16,835 $6,658 $2,376 $265 $2,593 $402 $29,129 100.00%
======= ====== ====== ==== ====== ==== ======= ======
</TABLE>
------------------
(1) Real estate loans involving property located in 44 states, Puerto Rico
and the District of Columbia; not more than 1.0% of the total amount of
such loans are located in any one state.
The following table summarizes the Company's loan portfolio, excluding
loans held for sale, at December 31, 1998, based upon various contractually
scheduled principal payments allocated to the indicated maturity categories.
This table does not reflect expected prepayments.
<TABLE>
<CAPTION>
Due
Due Over One Due
Within But Within Over
One Year Five Years Five Years Total
-------- ---------- ---------- -----
(in millions)
Real estate loans:
<S> <C> <C> <C> <C>
1-4 unit residential
Fixed rate $ 2 $ 65 $ 6,591 $ 6,658
Variable rate 1 20 16,814 16,835
5+ unit residential
Fixed rate 57 54 154 265
Variable rate 95 462 1,819 2,376
Commercial real estate and other
Fixed rate 70 132 200 402
Variable rate 244 1,283 1,066 2,593
---- ------ ------- -------
Total 469 2,016 26,644 29,129
---- ------ ------- -------
Commercial and consumer loans:
Fixed rate 63 511 122 696
Variable rate 359 120 459 938
---- ------ ------- -------
Total 422 631 581 1,634
---- ------ ------- -------
Total loans receivable $891 $2,647 $27,225 $30,763
==== ====== ======= =======
</TABLE>
1-4 Unit Residential Lending
The Company currently offers four primary 1-4 unit residential ARM
programs, and a variety of 1-4 unit fixed rate programs with maturities ranging
from 15 to 30 years. Adjustable rate programs include loans which: (i) provide
for monthly interest rate adjustments after the third month or semi-annually
from inception of the loan, based on the Federal Home Loan Bank ("FHLB") 11th
District Cost of Funds index, (ii) provide for annual rate adjustments based
upon the weekly average yield on U.S. Treasury Securities adjusted to a constant
maturity of one year, (iii) provide for annual rate adjustments based upon the
weekly average yield on United States Treasury securities adjusted to a constant
maturity of one year after an initial fixed rate period of three, five, seven or
ten years, or (iv) provide for semi-annual
Page 12
<PAGE>
rate adjustments based on the weekly average of the secondary market rates on
six-month negotiable certificates of deposit. Some ARMs offer an option to
convert to a fixed rate after the first year through the fifth year of the loan
term. A variety of features are incorporated into ARM loans to protect borrowers
from unlimited adjustments in interest rates and payments. All ARMs have
lifetime caps which limit the amount of rate increases over the life of the
loan. ARMs whose rates adjust annually have rate caps which limit the amount
that rates can change to two percentage points per year. ARMs whose rates adjust
semi-annually have rate caps which limit the amount that rates can change to one
percentage point per rate change. Loans which adjust monthly based upon the FHLB
11th District Cost of Funds limit payment changes to no more than 7.5% of the
payment amount per year. This may lead to monthly payments which are less than
the amount necessary to amortize the loan to maturity at the interest rate in
effect for any particular month. In the event that the monthly payment is not
sufficient to pay interest accruing on the loan during the month, this
deficiency is added to the loan's principal balance (i.e., negative
amortization). The total outstanding principal balance for a particular loan is
generally not allowed to exceed 125% of the original loan amount as a result of
negative amortization. If the loan reaches its maximum amount, the loan payment
is recalculated to the payment sufficient to repay the unpaid principal balance
in full at the maturity date. As of December 31, 1998, the Company's capitalized
interest relative to such 1-4 unit residential loans was approximately $49.7
million. This amount represents approximately .50% of the approximately $9.9
billion of 1-4 unit residential ARMs that have the potential to experience
negative amortization. The Company also originates 15- and 30-year fully
amortizing 1-4 unit fixed rate residential loans under a variety of fixed rate
programs, primarily for resale in the secondary mortgage market. When 1-4 unit
residential loans are sold, FNMC normally retains the servicing of the loan. On
all ARM products except those with interest rates based on the FHLB 11th
District Cost of Funds index, the Company offers a three-year prepayment penalty
pricing option, wherein the borrower receives favorable pricing in exchange for
agreeing to pay a fee in the event that the borrower prepays more than 20% of
the original principal balance in any rolling twelve-month period during the
first three years after the inception of the loan. On all fixed rate products
except for 15-year conforming loans, the Company offers a similar prepayment
penalty pricing option that applies during the first five years after inception
of the loan. The penalty does not apply if the prepayment occurs in connection
with the sale of the property securing the loan. FNMC originated $2.6 billion of
loans with prepayment penalty options for the Company during 1998. See
"--Mortgage Banking Operations" for a further discussion of these activities.
Multi-family, Commercial and Other Real Estate Lending
While the Company has always originated multi-family, commercial and other
real estate loans as part of affordable housing programs, it began to originate
other commercial real estate loans during 1997 and 1998 on a limited basis. The
Company's loan portfolio includes loans principally acquired through
acquisitions which are secured by multi-family residential, commercial,
industrial, office and retail real estate properties. The Company's variable
rate multi-family and commercial real estate loans have a maximum amortized loan
term of 30 years with loans having balloon payments due in one to 15 years. ARMs
primarily adjust with the FHLB 11th District Cost of Funds or the six-month
Treasury Bill indices with a monthly or semi-annual rate adjustment. The terms
and characteristics of the ARMs originated for multi-family and commercial real
estate lending purposes are similar to those for residential lending. As such,
many of the same risks and protections related to residential borrowers are
present in the multi-family and commercial real estate portfolios, including the
potential for negative amortization. Negative amortization for multi-family and
commercial real estate loans is allowed to increase the outstanding principal
balance to 110% of the original loan amount. If the loan reaches 110% of the
original loan amount, all future interest rate increases will increase the
monthly payment to amortize the loan over the remaining life of the loan. At
December 31, 1998, the Company's capitalized interest relative to such loans was
approximately $1.0 million, which represents approximately .03% of the $3.5
billion of multi-family and commercial real estate loans that have the potential
to experience negative amortization.
Real estate loans secured by multi-family and commercial property represent
a significant portion of the Company's portfolio. Management periodically
reviews the multi-family and commercial real estate loan portfolio. At December
31, 1998 and 1997, the multi-family and commercial real estate loan portfolio
totalled $5.6 billion and $5.2 billion, respectively. At December 31, 1997,
there were $28.9 million of multi-family or commercial real estate loans with
credit enhancements wherein the lead participant subordinated its minority
interest in a pool of loans to the Company's interest in the corresponding pool
of loans. There were no such loan at December 31, 1998.
Page 13
<PAGE>
The Company's potential for loss on the multi-family and commercial loan
portfolio acquired from Old FNB and, to a lesser extent, the 1-4 unit
residential loan portfolio acquired from Old FNB, was mitigated by the terms of
the NonPerforming Asset Sale Agreement (the "Put Agreement") entered into by the
Company with Granite Management and Disposition, Inc. ("Granite"), an affiliate
of Old FNB, in connection with the FN Acquisition. The Put Agreement expired on
November 30, 1996, at which time it had been fully utilized by the Company. The
aggregate purchase price of assets which were put to Granite, representing the
outstanding principal balance, accrued interest and certain other expenses, was
$500 million, including assets put to Granite by Old FNB from January 1 through
October 1, 1994.
A portion of the Company's mortgage servicing rights ("MSRs"), which are
rights to service mortgages held by others, were acquired from Old FNB, Old
California Federal and Glendale Federal which had sold multi-family and
commercial real estate loans subject to certain recourse provisions. These
recourse liabilities were assumed by the Company in the FN Acquisition, the Cal
Fed Acquisition and the Glen Fed Merger. At December 31, 1998, the principal
balance of loans sold with recourse totalled $2.6 billion, of which $770.2
million related to the acquisitions noted above.
Consumer Lending
The Company's consumer loan originations are primarily concentrated in home
equity lending. The portfolio is geographically dispersed and correlates closely
to retail deposit branch distribution. At December 31, 1998, the home equity
portfolio totalled $385 million, or 61.40%, of the total consumer loan portfolio
of $627 million. At December 31, 1997, the home equity portfolio totalled $355
million, or 76.84%, of the total consumer loan portfolio of $462 million.
The Company offers a prime-based interest rate home equity line of credit
on owner-occupied residential and nonowner occupied properties. In determining
the amount of credit to be extended, all loans secured by the collateral
properties are aggregated and compared to the appraised value of the
properties. The Company's policy is to extend credit up to a maximum combined
LTV ratio of 100%.
Other consumer loan products include: fixed rate home equity installment
loans which, while secured, are based on repayment ability and credit history;
second trust deed residential loans; credit card and retail consumer loans;
mobile home loans and unsecured lines of credit.
It is the Company's strategic objective to increase the size of the home
equity loan portfolio over the next twelve months.
Sub-prime Auto Lending
The Company commenced purchases of sub-prime auto loans in connection with
the Auto One Acquisition. Auto One has been involved in the sub-prime auto
lending business for over ten years, and has an established servicing platform
for such loans. At December 31, 1998 and 1997, the Company's sub-prime auto
loan portfolio totalled $465 million and $171 million, respectively. Such loans
were purchased in bulk from a third party or from independent automobile
dealers after the consummation of the Auto One Acquisition. These purchased
loans have fixed interest rates, with terms to maturity based upon the mileage
on the collateral vehicle, up to a maximum of 60 months. Approximately 70% of
Auto One's current purchases are collateralized with vehicles two years old or
newer. Underwriting on loans purchased from dealers is performed by Auto One
personnel prior to the purchase.
Purchased sub-prime loans are grouped and accounted for in homogeneous
pools based upon certain common risk characteristics, including interest coupon
rate, credit quality, and period of origination. At acquisition, the Company
estimates the amount and timing of undiscounted expected future principal and
interest cash flows ("Expected Cash Flows") for each pool. For certain purchased
pools of loans, the amount paid reflects the Company's determination that it is
probable the Company will be unable to collect all amounts due according to the
contractual terms of the underlying loans in the pool. Accordingly, at
acquisition, the Company recognizes the excess of the pool's scheduled
contractual principal and contractual interest payments over its Expected Cash
Flows as an amount that should not be accreted ("Nonaccretable Difference"). The
remaining amount - representing the excess of the pool's Expected Cash Flows
over the amount paid - is accreted into interest income over the remaining life
of each pool ("Accretable Yield").
Page 14
<PAGE>
Over the life of each pool of loans, the Company continues to estimate
Expected Cash Flows. In the event a pool's actual cash flows plus the expected
future cash payments are less than the Expected Cash Flows estimated at the time
of purchase, the amount by which the current carrying value of the pool exceeds
the present value of the future expected cash flows discounted at the originally
estimated internal rate of return is considered an impairment and requires an
allocation of the allowance for loan losses established by provisions for loan
losses. If the present value of a pool's expected remaining cash flows
discounted at the originally estimated internal rate of return exceeds the
current carrying value of the pool, the amount of the Accretable Yield is
increased and the amount of the Nonaccretable Difference is decreased by the
amount the sum of a pool's expected remaining cash flows exceeds the sum of the
remaining payments less the Nonaccretable Difference. The adjusted Accretable
Yield is accreted into interest income over the pool's remaining life using the
interest method.
Activity related to purchased sub-prime loans for the years ended December
31, 1998 and 1997 is summarized as follows (in millions):
<TABLE>
<CAPTION>
Allocated
Contractual Allowance Purchased
Payments Nonaccretable Accretable for Loan Sub-Loans,
Receivable Difference Yield Losses net
---------- ---------- ----- ------ ---
<S> <C> <C> <C> <C> <C>
Purchases and acquisitions $ 272 $ (54) $(38) $-- $180
Repossessions & charge-offs (9) 6 -- -- (3)
Payments, payoffs & accretion (10) 1 3 -- (6)
Provision for loan losses -- -- -- -- --
Reclassifications -- -- -- -- --
------ ------ ---- --- ----
Balance, December 31, 1997 253 (47) (35) -- 171
Purchases and acquisitions 690 (136) (99) (5) 450
Repossessions & charge-offs (63) 43 -- -- (20)
Payments, payoffs & accretion (206) 17 48 -- (141)
Provision for loan losses -- -- -- (3) (3)
Reclassifications -- 2 (2) -- --
------ ------ ---- --- ----
Balance, December 31, 1998 $ 674 $ (121) $(88) $(8) $457
====== ====== ==== === ====
</TABLE>
Business Banking
The Company's business banking program has four components: community
business banking, commercial markets banking, agribusiness lending and Small
Business Administration ("SBA") lending. The Company's community business
banking product line includes, but is not limited to, business checking and
savings products of various types, cash management products and services,
account analysis, payroll services, electronic banking services, and merchant
draft services. Community business banking focuses primarily on businesses with
annual sales of less than $10 million located in the markets served by the
Company's retail banking offices. To meet the credit needs of these business
customers, the Company offers a wide variety of secured and unsecured
prime-based lines of credit and term loans. The Company offers credit-scored
lines of credit and term loans, as well as traditional lines of credit and term
loans with maturities up to ten years. The maximum credit commitment offered by
community business banking is $1 million. At December 31, 1998, total funded and
unfunded credit commitments under the community business banking group totalled
$267 million.
The Company, through its commercial markets group, accommodates businesses
with annual sales of up to $150 million, but focuses primarily on businesses
with annual sales between $10 million and $75 million. The Company offers its
commercial markets group customers products including business checking
accounts, various cash management services, revolving lines of credit, accounts
receivable, inventory financing and term loans. Specific loan terms are
determined based upon the financial strength of the borrower, the amount of
credit granted, and the type and quality of collateral available. At December
31, 1998, funded and unfunded credit commitments under the commercial markets
group totalled $131 million.
Page 15
<PAGE>
The Company's agribusiness lending program serves the southern half of the
Central Valley region of California from Bakersfield to Modesto and specializes
in production loans for crops such as cotton, grapes, nuts, stone fruit and
dairy operations, together with agricultural related businesses such as
processors and packers. At December 31, 1998, funded and unfunded credit
commitments under the agribusiness lending program totalled $230 million.
The SBA is a federal government agency created to assist small businesses
by providing guarantees of loans made to eligible small businesses. Through its
SBA lending program, the Company focuses on the long-term needs of small
businesses and provides long-term, variable and fixed-rate financing to
expanding small businesses. The Company has been granted statewide preferred
lender status by the SBA. This designation allows the Company to approve SBA
guaranteed loan applications without prior review from the SBA, thereby
accelerating the decision-making process for small business loan applications.
Preferred lenders, the highest lender status awarded by the SBA, enjoy priority
funding and service from the SBA. Loans approved through the preferred lender
program carry a maximum SBA guarantee of 75%. At December 31, 1998, funded and
unfunded credit commitments under the SBA lending program totalled $185 million.
Additionally, the servicing portfolio totalled $173 million.
At December 31, 1998, deposit relationships under the various business
banking product lines totalled $1.1 billion.
The Company's business banking loan products primarily have adjustable
interest rates that are indexed to the Prime Rate, as published in the Wall
Street Journal.
Loans Held for Sale
Activity related to loans held for sale for the years ended December 31,
1998 and 1997 is summarized as follows:
1998 1997
---- ----
(in millions)
Balance at beginning of period $1,483 $ 825
Purchases and originations 9,136 7,871
Sales (7,892) (5,511)
Payments, payoffs and other (360) (1,702)
------ ------
Balance at end of period $2,367 $1,483
====== ======
Loans held for sale are carried at the lower of aggregate amortized cost or
market value. The majority of ARMs originated are held by the Company for
investment.
Origination of 1-4 Unit Residential Loans
The Company originates 1-4 unit residential loans principally through the
efforts of wholesale origination offices through which loans are acquired from
independent loan brokers and, to a lesser degree, staff loan agents. To promote
continuity of customer service, help meet credit needs and to increase
opportunities to sell customer deposit and other financial services offered by
the Company and its subsidiaries, loan inquiries from retail branch customers
and "walk-in" applicants are encouraged. These inquiries are initially processed
by retail branch office personnel, with support provided by regional lending
offices. The 1-4 unit residential loan agents are compensated principally on a
commission basis. Closed 1-4 unit residential loans are also acquired by FNMC
through a correspondent lending operation.
The majority of 1-4 unit residential loans originated by the Company have
LTV ratios of 80% or less at the time of origination. The Company has originated
such loans with LTV ratios of up to 95%, with the portion of the loan exceeding
80% guaranteed by private mortgage insurance, the premiums of which are paid
monthly by the borrower. Certain exceptions to this guideline have been made for
low and moderate income borrowers. However, the amount of 1-4 unit residential
loans subject to such exceptions is not significant in terms of the Company's
total loan originations. The value of the property offered as security for a 1-4
unit residential loan is determined by a professionally qualified appraiser
approved by the Company, who may or may not be an employee of the Company. As
further security for its loan, the Company requires title insurance and fire and
casualty insurance on all loans secured by liens on real property. The Company
also requires flood insurance on any loan secured by real property if the
property lies within a U.S. Housing and Urban Development Department ("HUD")
designated flood hazard area.
Page 16
<PAGE>
The following table summarizes 1-4 unit residential loan originations for
the years ended December 31, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------
Production Channel ARM Fixed Total ARM Fixed Total
--- ----- ----- --- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Retail and portfolio retention $ 315.1 $1,434.5 $ 1,749.6 $ 74.4 $ 580.3 $ 654.7
Wholesale 2,325.5 4,166.3 6,491.8 635.3 3,438.8 4,074.1
Correspondent lending 680.7 1,776.3 2,457.0 1,420.0 1,321.0 2,741.0
Other 0.2 1,727.8 1,728.0 -- 1,040.3 1,040.3
-------- -------- --------- -------- -------- --------
$3,321.5 $9,104.9 $12,426.4 $2,129.7 $6,380.4 $8,510.1
======== ======== ========= ======== ======== ========
</TABLE>
Mortgage Banking Operations
Mortgage banking activities allow the generation of fee income without the
associated capital retention requirements attributable to traditional real
estate lending activities. Generally, the Company originates fixed rate 1-4 unit
residential loans for sale in the secondary mortgage market. ARMs originated
prior to September 30, 1995 and after December 31, 1996 have generally been held
by the Company for investment. During the last quarter of 1995 and in 1996,
however, substantially all of the fixed and variable rate 1-4 unit residential
loans originated were sold in the secondary market to provide funds for the
acquisition and divestiture activity occurring during the period. The Company
employs forward sale hedging techniques to minimize the interest rate and
pricing risks associated with the origination and sale of fixed rate 1-4 unit
residential loans. The Company has also entered into one-year flow agreements
with third party lenders whereby the Company has committed to purchase newly
originated mortgage loan servicing rights for quarterly deliveries up to an
agreed upon total principal amount.
At the time of origination, management identifies 1-4 unit residential
loans that are expected to be sold in the foreseeable future. At December 31,
1998, management had identified $2.4 billion of 1-4 unit residential loans as
held for sale. These loans have been classified as assets held for sale in the
consolidated balance sheet at December 31, 1998 and are recorded at the lower of
aggregate amortized cost or market value. At December 31, 1998, the Company had
forward and whole loan sale commitments to sell loans totalling $2.7 billion. In
addition, the Company had entered into commitments to originate and purchase
fixed and variable rate loans (mortgage loan pipeline) of $3.9 billion.
At December 31, 1998, the Company had $943.6 million in mortgage servicing
rights, an increase of $406.9 million from December 31, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Mortgage Banking Operations." The servicing portfolio of FNMC
(excluding loans serviced for the Bank) approximates $65.4 billion and 783,000
loans as of December 31, 1998. The servicing portfolio of FNMC, including loans
serviced for the Bank, approximates $87.7 billion and 954,000 loans as of
December 31, 1998. Substantially all of FNMC's loans are serviced in a 230,000
square-foot facility in Frederick, Maryland.
Mortgage loan sales, primarily fixed-rate loans sold to FNMA, FHLMC, GNMA
and private investors, totalled $7.9 billion and $5.5 billion in 1998 and 1997,
respectively.
Old FNB, Old California Federal and Glendale Federal occasionally sold 1-4
unit residential loans under recourse provisions; such liabilities were assumed
by the Company in the FN and Cal Fed Acquisitions, and in the Glen Fed Merger.
As of December 31, 1998, the balance of 1-4 unit residential loans sold with
certain recourse provisions totalled $778.0 million.
On September 30, 1997, the Company, through FNMC, sold servicing rights on
approximately 52,000 GNMA mortgage loans with unpaid principal balances of
approximately $2.3 billion, recognizing a pre-tax gain on sale of $14.0 million.
Additionally, during 1998, the Company sold servicing rights on approximately
3,527 loans serviced for private investors with unpaid principal balances of
approximately $144.2 million, recognizing a pre-tax gain on sale of $.3 million.
This portfolio was comprised of multiple private investor portfolios with small
loan counts. These sales were part of management's strategy to enhance the
profitability of the servicing portfolio and sell less profitable servicing.
Management expects to continue to execute similar sales in the future.
Page 17
<PAGE>
The Company, through FNMC, has generally retained the right to service the
loans it has sold. FNMC collects payments of principal and interest from the
borrower and, after retaining a servicing fee, remits the balance to the
investors. When a loan is sold and MSRs are retained, a portion of the cost of
originating the mortgage loan is allocated to the MSR based on its fair market
value. The servicing asset is amortized in proportion to, and over the period
of, estimated net servicing income. The Company monitors the prepayments on the
loans serviced for investors and reduces the balance of the asset if the actual
prepayments are in excess of the estimated prepayment trends used to record the
original asset. The Company's assumptions relative to the prepayment speed,
discount and servicing fee rates are reviewed periodically to reflect current
market conditions and regulatory requirements.
At December 31, 1998, the Company, through FNMC, owned rights to service
approximately $65.4 billion of whole loans, participation interests and
mortgage-backed securities for others. These loans had an average balance of
$82,129, a weighted average coupon rate of 7.74%, a weighted average maturity of
274 months and a service fee spread of .39%. The greater than 30 day delinquency
rate on these loans (including delinquent bankruptcies, foreclosed loans and
loans in foreclosure) at December 31, 1998 was 1.24%. For the year ended
December 31, 1998, gross revenue for servicing activities (residential loan
servicing and ancillary fees) totalled $264.2 million.
A decline in long-term interest rates generally results in an acceleration
of mortgage loan prepayments. Higher than anticipated levels of prepayments
generally cause the accelerated amortization of MSRs and generally will result
in a reduction of the market value of MSRs and in the Company's servicing fee
income. To reduce the sensitivity of its earnings to interest rate and market
value fluctuations, the Company is engaged in an active hedge program to
mitigate the impact of interest rate fluctuations on the value of its MSRs.
At December 31, 1998, the Company, through FNMC, was a party to several
interest rate floor contracts maturing through October 1, 2003. The Company paid
counterparties a premium in exchange for cash payments in the event that the
10-year Constant Maturity Swaps rate falls below the strike prices. At December
31, 1998, the notional amount of the interest rate floors was $2.1 billion and
the strike prices were between 5.2% and 5.6%. In addition, the Company, through
FNMC, entered into principal only swap agreements with a notional amount of $.2
billion and prepaymentlinked swap agreements with a notional amount of $1.9
billion. Further, at December 31, 1998, the Company, through FNMC, was a party
to swaption contracts in which the Company paid to the counterparties premiums
in exchange for the right, but not the obligation, to purchase an interest rate
swap. At December 31, 1998, the notional amount of the interest rate swap
agreement underlying the swaptions was $2.3 billion.
Prior to January 1, 1998, FNMC owned FNMC Mortgage Services, Inc. which was
a 33% owner of First Nationwide Mortgage Partnership LP ("FNMP") and its
managing general partner. FNMP owned the MSRs on approximately $2.3 billion of
loans serviced for FNMA, GNMA, FHLMC and private investors. FNMP's investment in
such MSRs and its other assets were partially funded by independent bank lines
of credit totalling approximately $24.8 million and its servicing duties were
performed by FNMC under a subservicing contract. As of January 1, 1998, FNMC
purchased the remaining 67% of FNMP. The outstanding balances of the line of
credit were repaid in full and the lines of credit were terminated during 1998.
Page 18
<PAGE>
NON-PERFORMING ASSETS
Non-performing assets consist of non-performing loans, foreclosed real
estate and repossessed assets. Total nonperforming assets as a percentage of
total assets declined to 0.57% at December 31, 1998 from 0.87% at December 31,
1997.
Classification of Assets
Savings associations are required to classify their assets on a regular
basis, establish prudent allowances for loan losses and make quarterly reports
of troubled asset classifications to the OTS. Assets must be classified as
"pass," "special mention," "substandard," "doubtful" or "loss." An asset is
generally designated as "special mention" if potential weaknesses are identified
that, if left uncorrected, would result in deterioration of the repayment
prospects for the asset. 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 association will sustain some loss if the deficiencies are not corrected. An
asset, or portion thereof, is classified as "doubtful" if identified weaknesses
make collectibility or liquidation in full highly questionable and improbable.
An asset, or a portion thereof, that is considered to be uncollectible is
classified "loss." It should be noted that the Company does not maintain assets
in a loss classification category; rather, the carrying value of all troubled
assets is reduced by any amount considered to be uncollectible. The OTS has the
authority to approve, disapprove or modify any asset classification or any
amount established as an allowance pursuant to such classification. Savings
associations must maintain adequate general valuation allowances in accordance
with generally accepted accounting principles and federal regulations for assets
classified as "substandard" or "doubtful" and either immediately write off
assets classified as "loss" or establish specific valuation allowances equal to
the amounts classified as "loss."
The Company has a comprehensive process for classifying assets, and asset
reviews are performed on a periodic basis. Such reviews are prioritized
according to an asset's risk characteristics, such as loan size, collateral type
and/or location, and potential loan performance problems. The objective of the
review process is to identify significant trends and determine the levels of
loss exposure to the Company that would require adjustments to specific and
general valuation allowances. If the quality of the Company's loans deteriorates
or if the allowance for loan losses is inadequate to absorb actual losses, a
material adverse effect on the Company's results of operations and financial
condition would be likely to result.
Loan Portfolio Risk Elements
When a borrower fails to make a contractually required payment on a loan,
the loan is characterized as delinquent. In most cases delinquencies are cured
promptly; however, foreclosure proceedings, and in some cases workout
proceedings, are generally commenced if the delinquency is not cured. The
procedures for foreclosure actions vary from state to state, but generally if
the loan is not reinstated within certain periods specified by statute, the
property securing the loan can be acquired through foreclosure by the lender.
While deficiency judgments against the borrower are available in some of the
states in which the Company originates loans, the value of the underlying
collateral property is usually the principal source of recovery available to
satisfy the loan balance.
In general, loans are placed on nonaccrual status after being contractually
delinquent for more than 90 days. When a loan is placed on nonaccrual status,
all interest previously accrued but not received is reversed and the loan is
considered non-performing. The Company may modify or restructure a loan as a
result of a borrower's inability to service the obligation under the original
terms of the loan agreement.
Page 19
<PAGE>
The following table indicates the carrying value of the Company's loans,
excluding Covered Assets, which have been placed on nonaccrual status, as well
as the carrying value of foreclosed real estate and repossessed assets, at the
dates indicated:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(dollars in millions)
Non-performing loans:
Real estate:
<S> <C> <C> <C> <C> <C> <C>
1-4 unit residential $190 $165 $146 $136 $133
5+ unit residential 16 12 13 23 24
Commercial and other 10 6 9 9 11
Land -- -- -- -- 7
Construction 1 2 1 -- 2
---- ---- ---- ---- ----
Total real estate 217 185 169 168 177
Equity-line and consumer 9 7 3 3 4
---- ---- ---- ---- ----
Total non-performing loans 226 192 172 171 181
Foreclosed real estate, net 80 77 52 49 37
Repossessed assets 4 3 -- -- --
---- ---- ---- ---- ----
Total non-performing assets $310 (a) $272 (b) $224 (c) $220 $218
==== ==== ==== ==== ====
Non-performing loans as a percentage
of loans receivable 0.75% 0.99% 1.69% 1.94% 1.81%
==== ==== ==== ==== ====
Non-performing assets as a percentage
of total assets 0.57% 0.87% 1.36% 1.50% 1.49%
==== ==== ==== ==== ====
</TABLE>
- ------------------
(a) Includes $111.7 million of assets acquired in the Glen Fed Merger.
(b) Includes $70.2 million of assets acquired in the Cal Fed Acquisition.
(c) Includes $74.5 million of assets acquired in the 1996 Acquisitions and in
the 1996 LMUSA Purchase.
Interest income of $9.7 million, $6.8 million and $4.9 million was received
and recognized by the Company for nonaccrual loans during the years ended
December 31, 1998, 1997 and 1996. Had the loans performed in accordance with
their original terms, $18.2 million, $15.9 million and $13.7 million would have
been recognized during December 31, 1998, 1997 and 1996, respectively. The
Company has had no loans contractually past due 90 days or more on accrual
status in the past five years.
The following table indicates loans classified by the Company as troubled
debt restructurings, net of purchase accounting adjustments, and excluding
Covered Assets, at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in millions)
Real estate:
<S> <C> <C> <C> <C> <C>
1-4 unit residential $ 4 $ 2 $ 3 $ 8 $ 19
5+ unit residential 9 7 55 147 204
Commercial and other 19 24 29 79 110
--- --- ---- ---- ----
Total restructured loans $32 $33 $ 87 $234 $333
=== === ==== ==== ====
</TABLE>
For the year ended December 31, 1998, interest income of $3.0 million, $3.5
million and $13.0 million was recognized on restructured loans during the years
ended December 31, 1998, 1997 and 1996. Had the loans performed in accordance
with their original terms, $3.0 million, $3.6 million and $13.4 million would
have been recognized during December 31, 1998, 1997 and 1996, respectively.
There were no non-real estate restructured loans in any of the past five years.
Page 20
<PAGE>
Allowance for Loan Losses
The Company charges current earnings with a provision for estimated credit
losses on loan receivable to bring the total allowance to a level deemed
appropriate by management. The provision considers both specifically identified
problem loans and credit risks not specifically identified in the loan
portfolio. The allowance for loan losses is based on such factors as the
financial condition of the borrowers, the fair value of the loan collateral,
recourse to guarantors, analysis of delinquency trends, geographic and
collateral-type concentrations, past loss experience, regulatory policies, and
other factors related to the collectibility of the Company's loan portfolio.
The following table summarizes activity in the Company's allowance for loan
losses during the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $419 $247 $210 $203 $ 2
Purchases - Glen Fed Merger 170 -- -- -- --
Purchases - Cal Fed Acquisition -- 144 -- -- --
Purchases - SFFed Acquisition -- -- 40 -- --
Purchases - Home Federal Acquisition -- -- 5 -- --
Purchases - FN Acquisition -- -- -- -- 202
Provision for loan losses 40 80 40 37 6
Charge-offs:
1-4 unit residential (28) (38) (35) (28) (4)
5+ unit residential and commercial real estate (a) (10) (8) (4) -- (4)
Consumer and other (8) (10) (6) (5) (1)
---- ---- ---- ---- ----
Total charge-offs (46) (56) (45) (33) (9)
Recoveries 6 4 3 3 2
---- ---- ---- ---- ----
Net charge-offs (40) (52) (42) (30) (7)
Allowance for losses assigned to loans sold -- -- (6) -- --
---- ---- ---- ---- ----
Balance at end of period $589 $419 $247 $210 $203
==== ==== ==== ==== ====
</TABLE>
- ------------
(a) Reduced level of activity during 1996, 1995 and 1994 reflects the
utilization of the Put Agreement, which expired in November 1996.
The Company has increased its allowance for loan losses over the past five
years both through periodic provisions (and charges to income) of $203 million
and through balances of $561 million acquired in connection with the various
acquisitions which occurred during that time. Charge-offs during the five year
period totalled $189 million; however, it should be noted that the charge-off
activity related to predecessor institutions is not reflected in this table for
periods prior to acquisition by the Company. Losses charged by predecessor
institutions during the five years presented totalled $771 million. On a pro
forma basis, average annual chargeoffs for the five years ended December 31,
1998 were $192 million, which represents approximately three years of losses
based on the allowance for loan losses at December 31, 1998.
Although the general loan loss allowance has been allocated by type of loan
for internal valuation purposes, all such allowance is available to support any
losses which may occur, regardless of type, in the Company's loan portfolio.
Page 21
<PAGE>
The following table sets forth the allocation of the Company's allowance
for loan losses at the dates indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C>
Specific allowance:
Real estate loans:
1-4 unit residential $ -- $ -- $ -- $ 1 $ 4
5+ unit residential and
commercial real estate 17 8 6 -- --
---- ---- ---- ---- ----
Total specific allowance 17 8 6 1 4
---- ---- ---- ---- ----
General allowance:
Real estate loans:
1-4 unit residential 250 202 123 115 105
5+ unit residential and
commercial real estate 260 190 109 85 85
---- ---- ---- ---- ----
Total real estate loans 510 392 232 200 190
Equity-line and consumer loans 62 19 9 9 9
---- ---- ---- ---- ----
Total general allowance 572 411 241 209 199
---- ---- ---- ---- ----
Total allowance for
loan losses $589 $419 $247 $210 $203
==== ==== ==== ==== ====
</TABLE>
The table below provides the Company's ratios of net charge-offs on loans
during the period indicated to average outstanding loan balances for the years
indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate:
1-4 unit residential 0.11% 0.25% 0.55% 0.47% 0.06%
5+ unit residential and
commercial real estate 0.18 0.15 0.09 -- 0.10
Consumer and other 0.50 1.72 1.86 1.00 0.23
</TABLE>
Impaired Loans
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Problem and Potential Problem Assets" for a discussion of
the Company's impaired loans as of December 31, 1998 and 1997.
Page 22
<PAGE>
INVESTMENT ACTIVITIES
The Bank is required by OTS regulations to maintain a specified minimum
amount of liquid assets which may be invested in specified securities. The Bank
is also permitted to invest in certain other types of securities. Securities
balances (including cash equivalent securities) exceeding minimum federal
requirements are subject to change over time based on the Bank's asset/liability
funding needs and interest rate risk management objectives. The Bank's liquidity
levels take into consideration anticipated future cash flows and all available
sources of credit. Liquidity is maintained at levels management believes are
appropriate to assure future flexibility in meeting anticipated funding needs
including deposit withdrawal requests, loan funding commitments, and other
investment or restructuring requirements. See "Regulation of the Bank--Liquid
Assets."
Cash Equivalents
The Company sells federal funds, purchases securities under agreements to
resell, and invests in interest-bearing deposits in other banks from time to
time to help meet the Bank's regulatory liquidity requirements and as temporary
holdings until the funds can be otherwise deployed or invested.
Securities Available for Sale
The following summarizes the amortized cost and estimated fair value of the
Company's securities available for sale at the dates indicated (in millions):
<TABLE>
<CAPTION>
December 31, 1998
Gross Gross Net
Amortized Unrealized Unrealized Unrealized Carrying
Cost Gains Losses Gain Value
---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C>
Marketable equity securities $ -- $ 2 $ -- $ 2 $ 2
U.S. government and agency obligations 768 1 -- 1 769
---- ---- ----- --- ----
Total $768 $ 3 $ -- 3 $771
==== ==== ===== ====
Estimated tax effect (1)
---
Net unrealized holding gain
in stockholders' equity $ 2
===
<CAPTION>
December 31, 1997
Gross Gross Net
Amortized Unrealized Unrealized Unrealized Carrying
Cost Gains Losses Gain Value
---- ----- ------ ---- -----
Marketable equity securities $ -- $ -- $ -- $ -- $ --
U.S. government and agency obligations 813 1 (1) -- 813
---- ---- ---- ---- ----
Total $813 $ 1 $ (1) -- $813
==== ==== ==== ====
Estimated tax effect --
----
Net unrealized holding gain
in stockholders' equity $ --
====
<CAPTION>
December 31, 1996
Gross Gross Net
Amortized Unrealized Unrealized Unrealized Carrying
Cost Gains Losses Gain Value
---- ----- ------ ---- -----
Marketable equity securities $ 27 $35 $ -- $35 $ 62
U.S. government and agency obligations 480 1 (1) -- 480
---- --- ---- --- ----
Total $507 $36 $ (1) 35 $542
==== === ==== ====
Estimated tax effect (4)
---
Net unrealized holding gain
in stockholders' equity $31
===
</TABLE>
Page 23
<PAGE>
Marketable equity securities available for sale at December 31, 1998
represent Golden State's investment in Precept Business Services, Inc. acquired
by the Bank in a distribution from Affiliated Computer Services ("ACS") and
distributed by the Bank to GS Holdings as a dividend in kind during the second
quarter of 1998.
Marketable equity securities available for sale at December 31, 1996
represented approximately 5.93% of the outstanding stock of ACS, with a cost
basis of $27 million. The ACS stock represents the only marketable equity
security classified as available for sale at December 31, 1996. Pursuant to the
terms of a settlement agreement dated June 17, 1991, between the Bank, ACS, and
the Federal Deposit Insurance Corporation ("FDIC"), the FDIC was entitled to
share in a defined portion of the proceeds from the sale of the ACS common stock
owned by the Bank. On June 28, 1996, the Bank sold 2,000,000 shares of its
investment in common stock of ACS for gross proceeds totalling $92.3 million
from which it satisfied its full obligation to the FDIC and recognized a pre-tax
gain of $40.4 million. The Bank's remaining shares of ACS stock were sold in
October 1997, resulting in a pre-tax gain of approximately $25.0 million.
Securities Held to Maturity
The following summarizes the amortized cost and estimated fair value of the
Company's securities held to maturity at the dates indicated (in millions):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1998 1997 1996
----------------------- ---------------------- -----------------------
Estimated Estimated Estimated
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Municipal securities $ 84 $ 85 $-- $-- $ -- $ --
U. S. government and agency
obligations -- -- -- -- 4 4
Commercial paper 167 167 58 58 -- --
---- ---- --- --- ---- ----
Total $251 $252 $58 $58 $ 4 $ 4
==== ==== === === ==== ====
</TABLE>
The weighted average stated interest rate on the Company's securities held
to maturity was 4.77%, 5.32% and 6.85% at December 31, 1998, 1997 and 1996,
respectively.
Mortgage-Backed Securities Available for Sale
The following summarizes the amortized cost and estimated fair value of the
Company's mortgage-backed securities ("MBS") available for sale at the dates
indicated (in millions):
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------
Gross Gross Net
Amortized Unrealized Unrealized Unrealized Carrying
Cost Gains Losses Gain (Loss) Value
---- ----- ------ ----------- -----
<S> <C> <C> <C> <C> <C>
GNMA $ 762 $ 1 $ (5) $(4) $ 758
FNMA 2,897 12 (14) (2) 2,895
FHLMC 1,354 7 (5) 2 1,356
Other mortgage-backed securities 706 4 (5) (1) 705
Collateralized mortgage obligations 7,222 26 (14) 12 7,234
------- --- ---- ---- -------
Total $12,941 $50 $(43) 7 $12,948
======= === ==== =======
Estimated tax effect (3)
Net unrealized holding gain ----
in stockholders' equity $ 4
====
</TABLE>
Page 24
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------
Gross Gross Net
Amortized Unrealized Unrealized Unrealized Carrying
Cost Gains Losses Gain (Loss) Value
---- ----- ------ ---------- -----
<S> <C> <C> <C> <C> <C>
GNMA $ 249 $ 3 $ -- $ 3 $ 252
FNMA 2,408 17 (6) 11 2,419
FHLMC 1,198 20 -- 20 1,218
Other mortgage-backed securities 575 5 -- 5 580
Collateralized mortgage obligations 607 3 (2) 1 608
------ --- ---- --- ------
Total $5,037 $48 $(8) 40 $5,077
====== === ==== ======
Estimated tax effect (5)
---
Net unrealized holding gain
in stockholders' equity $35
===
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------
Gross Gross Net
Amortized Unrealized Unrealized Unrealized Carrying
Cost Gains Losses Gain (Loss) Value
---- ----- ------ ---------- -----
<S> <C> <C> <C> <C> <C>
GNMA $ 67 $ 1 $ -- $ 1 $ 68
FNMA 524 5 (5) -- 524
FHLMC 626 17 -- 17 643
Collateralized mortgage obligations 365 -- (1) (1) 364
------ --- --- --- ------
Total $1,582 $23 $(6) 17 $1,599
====== === === ======
Estimated tax effect (2)
---
Net unrealized holding gain
in stockholders' equity $15
===
</TABLE>
At December 31, 1998, 1997 and 1996, mortgage-backed securities available
for sale included securities totalling $1.1 billion, $1.4 billion and $53.0
million, respectively, which resulted from the securitization of certain
qualifying mortgage loans from the Bank's portfolio.
Mortgage-backed securities available for sale included $5.6 billion, $4.6
billion and $1.1 billion of variable-rate securities as of December 31, 1998,
1997 and 1996, respectively.
Golden State maintains a significant portfolio of mortgage-backed securities
as a means of investing in housing-related mortgage instruments without the
costs associated with originating mortgage loans for portfolio retention and the
credit risk of default which arises in holding a portfolio of loans to maturity.
By investing in mortgage-backed securities, management seeks to achieve a
positive spread over the cost of funds used to purchase these securities.
Mortgage-backed securities available for sale are carried at fair value, with
unrealized gains and losses excluded from earnings and reported in a separate
component of stockholders' equity. Premiums and discounts on the purchase of
mortgage-backed securities are amortized or accreted as a yield adjustment over
the life of the securities using the interest method, with the amortization or
accretion effect of prepayments being adjusted based on revised estimates of
future repayments.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings. Mortgage-backed securities issued or guaranteed by GNMA are
generally weighted at 0% for risk-based capital purposes. Mortgage-backed
securities issued or guaranteed by FNMA or FHLMC (except interest-only
securities or the residual interests in collateralized mortgage obligations
("CMOs")) are generally weighted at 20% for risk-based capital purposes,
compared to a weight of 50% to 100% for residential loans. See "--Regulation of
the Bank."
Page 25
<PAGE>
The Company held privately issued CMOs with an aggregate carrying value of
$7.2 billion at December 31, 1998. The following represents all such investments
with a carrying value in excess of ten percent of stockholders' equity (in
millions):
Aggregate Aggregate
Issuer Carrying Value Market Value
- ------ -------------- ------------
Residential Funding Mortgage $879 $882
Countrywide Home Loans 476 479
GE Capital Mortgage 446 446
Norwest Asset Securities Corp. 403 404
At December 31, 1998, all of the mortgage-backed securities held by the
Company had one of the two highest credit ratings from one or more of the
national securities rating agencies except for $179.0 million, of which $175.2
million are non-rated CMO residual class securities formed by Old California
Federal's and Glendale Federal's originations of residential mortgages. Such
credit rating, however, may be subject to revision or withdrawal at any time by
such rating agencies. The mortgage-backed securities which Golden State
purchases and maintains in its portfolio include certain CMOs. A CMO is a
special type of pay-through debt obligation in which the stream of principal and
interest payments on the underlying mortgages or mortgage-backed securities is
used to create classes with different maturities and, in some cases,
amortization schedules and a residual class of the CMO security being sold, with
each such class possessing different risk characteristics. The residual interest
sold represents any residual cash flows which result from the excess of the
monthly receipts generated by principal and interest payments on the underlying
mortgage collateral and any reinvestment earnings thereon, less the cash
payments to the CMO holders and any administrative expenses. As a matter of
policy, due to the risk associated with residual interests, the Company does not
invest in the residual interests of CMOs.
Mortgage-backed Securities Held to Maturity
A summary of the Company's mortgage-backed securities held to maturity at
the dates indicated is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1998 1997 1996
--------------------- -------------------- ---------------------
Estimated Estimated Estimated
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
FNMA $2,546 $2,595 $1,018 $1,038 $1,214 $1,232
FHLMC 223 228 318 333 406 420
Other mortgage-backed securities 2 2 2 2 2 2
------ ------ ------ ------ ------ ------
Total $2,771 $2,825 $1,338 $1,373 $1,622 $1,654
====== ====== ====== ====== ====== ======
</TABLE>
The weighted average stated interest rate on the Company's mortgage-backed
securities held to maturity was 7.22%, 7.33% and 7.27% at December 31, 1998,
1997 and 1996, respectively. At December 31, 1998, 1997 and 1996,
mortgage-backed securities held to maturity included variable rate securities
totalling $2.7 billion, $1.3 billion and $1.6 billion, respectively, which
resulted from the securitization with FNMA and FHLMC of certain qualifying
mortgage loans from the Company's loan portfolios with full recourse to the
Company.
During the years ended December 31, 1998, 1997 and 1996, the Company did not
sell any of its mortgage-backed securities held to maturity.
Mortgage-backed securities held to maturity are carried at amortized cost
unless there is evidence of a decline in value that is other than temporary.
Permanent declines in value are charged to income in the periods in which the
declines are determined. Premiums and discounts on the purchase of
mortgage-backed securities are amortized or accreted as a yield adjustment over
the life of the securities using the interest method, with the amortization or
accretion effect of prepayments being adjusted based on revised estimates of
future repayments.
Page 26
<PAGE>
SOURCES OF FUNDS
General
Deposits, sales of securities under agreements to repurchase, advances from
the FHLB of San Francisco, sales, maturities and principal repayments on loans
and mortgage-backed securities and issuances of debentures and preferred stock
have been the major sources of funds for use in the Company's lending and
investment activities and other general business purposes. Management closely
monitors rates and terms of competing sources of funds on a daily basis and
utilizes the source which is most cost-effective. The availability of funds from
sales of loans and securities is influenced by the levels of general interest
rates and other market conditions. For additional information regarding the
Company's sources of funds, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity" and the Company's
Consolidated Statements of Cash Flows set forth in the Consolidated Financial
Statements.
Loan principal and interest payments are a relatively stable source of
funds, while customer deposit inflows and outflows and loan repayments and
prepayments are influenced significantly by the levels of general interest rates
and money market conditions, and may fluctuate widely. Borrowings may be used to
compensate for reductions in normal sources of funds such as customer deposits.
Deposits
The Company offers a variety of deposit accounts designed to attract both
short-term and long-term deposits. There are no rate limitations on any type of
deposit account presently offered by the Company. The ability of the Company to
retain and attract new deposits is dependent upon the variety and effectiveness
of its customer account products, customer service and convenience, and
prevailing market conditions. The following table shows the distribution of
deposits by type of account at the dates indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ------------------------
Percent Percent Percent
Amount of Deposits Amount of Deposits Amount of Deposits
------ ----------- ------ ----------- ------ -----------
(dollars in millions)
Transaction accounts:
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts $ 3,372 13.7% $ 2,162 13.4% $ 841 10.0%
Demand deposits:
Interest-bearing 1,865 7.6 1,149 7.1 510 6.0
Noninterest-bearing 3,002 12.2 1,179 7.3 729 8.6
Money market deposit accounts 3,255 13.3 1,270 7.9 881 10.4
------- ----- ------- ----- ------ -----
Total transaction accounts 11,494 46.8 5,760 35.7 2,961 35.0
Term accounts 13,080 53.2 10,390 64.3 5,503 65.0
------- ----- ------- ----- ------ -----
24,574 100.0% 16,150 100.0% 8,464 100.0%
===== ===== =====
Accrued interest payable 39 52 32
Purchase accounting adjustments 7 1 6
------- ------- ------
Total $24,620 $16,203 $8,502
======= ======= ======
</TABLE>
Total deposits at December 31, 1998, 1997 and 1996 include escrow balances
for loans serviced for others of $1.5 billion, $702 million and $550 million,
respectively. Deposit balances, excluding purchase accounting adjustments,
averaged $18.8 billion, $16.7 billion and $9.2 billion during 1998, 1997 and
1996, respectively, with average interest rates of 4.17%, 4.55% and 4.66%,
respectively. The weighted average stated interest rates on deposits at December
31, 1998, 1997 and 1996 were 4.20%, 4.52% and 4.53%, respectively.
Page 27
<PAGE>
The following table presents the average balance and weighted average rate
paid on each deposit type of the Company for the periods indicated, excluding
the impact of purchase accounting adjustments:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------
1998 1997 1996
---------------------- --------------------- --------------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
------- --------- ------- --------- ------- ---------
(dollars in millions)
Transaction accounts:
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts $ 2,685 3.68% $ 1,874 3.65% $1,154 2.72%
Demand deposits:
Interest-bearing 1,352 1.00 1,150 1.07 289 1.87
Noninterest-bearing 1,899 -- 1,280 -- 825 --
Money market deposit accounts 1,680 3.61 1,408 3.56 946 3.39
Term accounts 11,151 5.46 11,008 5.73 6,032 6.00
------- ------- ------
Total $18,767 4.17% $16,720 4.55% $9,246 4.66%
======= ======= ======
</TABLE>
The following table sets forth the scheduled maturities of the Company's
term accounts by stated interest rate at December 31, 1998:
<TABLE>
<CAPTION>
2002 and
1999 2000 2001 thereafter Total
---- ---- ---- ---------- -----
(in millions)
<S> <C> <C> <C> <C> <C>
3.00% or less $ 1 $ -- $ -- $ -- $ 1
3.01 - 4.00% 390 26 12 1 429
4.01 - 5.00% 4,326 720 13 18 5,077
5.01 - 6.00% 5,972 438 131 142 6,683
6.01 - 7.00% 374 149 38 137 698
7.01 - 8.00% 54 76 38 11 179
8.01 - 9.00% 5 6 -- -- 11
9.01 - 10.00% 1 -- -- -- 1
Over 10.00% 1 -- -- -- 1
------- ------ ---- ---- -------
Total term accounts $11,124 $1,415 $232 $309 $13,080
======= ====== ==== ==== =======
</TABLE>
The following table sets forth remaining maturities for the Company's term
deposits in amounts of $100,000 or more at December 31, 1998 (in millions):
3 months or less $ 818
Over 3 months but within 6 months 577
Over 6 months but within 12 months 979
Over 12 months 492
------
$2,866
======
At December 31, 1998, the aggregate amount outstanding of certificates of
deposit of $100,000 or larger at the Company was $2.9 billion, compared with
$2.0 billion and $871 million at December 31, 1997 and 1996, respectively.
Deposits held by foreign investors at the Bank totalled $101 million, $93
million and $58 million at December 31, 1998, 1997 and 1996, respectively.
The Bank's deposit accounts are held primarily by individuals residing in
the vicinity of its retail branch offices located in California and Nevada. The
Bank has emphasized, and will continue to emphasize, a retail branch network for
attracting deposits. Key market areas, particularly the West Coast region, will
continue to be targeted for expansion of retail deposits and the cross-selling
of additional consumer products.
Page 28
<PAGE>
When cost-effective relative to other sources of funding, the Bank issues
certificates of deposit through direct placement programs and national
investment banking firms ("Brokered Deposits"). These deposits are usually in
amounts less than $100,000 and are obtained from a diverse customer base. While
these funds are generally more costly than traditional passbook and money market
deposits and more volatile as a source of funds because of their sensitivity to
the rates offered, they supplement retail customer deposits in raising funds for
financing and liquidity purposes. At December 31, 1998, California Federal had
$369 million of Brokered Deposits outstanding, representing 1.5% of total
deposits.
Borrowings
The Company and the Bank utilize various borrowings as alternative sources
of funds for its business needs. These sources have included securities sold
under agreements to repurchase, FHLB advances, senior and subordinated
debentures and the purchase of federal funds.
Short-term Borrowings
Short-term borrowings consist of (i) securities sold under agreements to
repurchase, (ii) federal funds purchased and (iii) short-term FHLB advances.
These instruments are discussed more fully in the subsequent sections.
The following table sets forth for the Company each category of borrowings
due within one year: (i) for the periods presented, the average amount
outstanding, the maximum amount outstanding at any month end and the average
interest rate paid, and (ii) at period end, the amount outstanding and average
interest rate paid. Amounts and rates reflected in the table exclude accrued
interest payable and purchase accounting adjustments.
<TABLE>
<CAPTION>
At or for the year ended December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
(dollars in millions)
Securities sold under agreements to repurchase:
<S> <C> <C> <C>
Average balance outstanding $2,766 $2,275 $1,931
Maximum amount outstanding at any
month end during the period 4,264 2,870 2,424
Balance outstanding at end of period 4,222 1,829 1,510
Average interest rate during the period 5.56% 5.68% 5.70%
Average interest rate at end of period 5.05 5.78 5.88
Federal funds purchased:
Average balance outstanding $ 76 $ 95 $ 65
Maximum amount outstanding at any
month end during the period 220 153 135
Balance outstanding at end of period 138 130 25
Average interest rate during the period 5.26% 5.59% 5.41%
Average interest rate at end of period 5.00 6.50 7.50
Short-term FHLB advances:
Average balance outstanding $5,577 $5,561 $2,455
Maximum amount outstanding at any
month end during the period 7,880 6,606 3,141
Balance outstanding at end of period 7,880 5,263 2,741
Average interest rate during the period 5.68% 5.76% 5.83%
Average interest rate at end of period 5.34 5.88 5.78
</TABLE>
At December 31, 1998, the Company had an estimated additional secured
borrowing capacity of $5.5 billion with the FHLB and other sources.
Page 29
<PAGE>
Securities Sold Under Agreements to Repurchase
The Company enters into reverse repurchase agreements whereby it sells
marketable U.S. government and mortgage-backed securities and CMOs with a
commitment to repurchase the securities at a specified price and on a specified
date. These agreements are recorded as financings, and the obligation to
repurchase assets sold is reflected as a liability on the consolidated balance
sheet. The dollar amount of assets underlying the agreements remains in the
asset accounts. The securities underlying the agreements are delivered to the
dealers who arranged the transactions. The counterparty to the repurchase
agreement may have loaned the securities to other parties in the normal course
of their operations; however, all agreements require that the identical
securities be resold to the Company at the maturity of the agreements. In order
to reduce possible risks associated with these borrowing transactions, the
reverse repurchase agreements are generally entered into with national
investment banking firms and major commercial banks which are primary dealers in
these securities.
Federal Funds Purchased
California Federal must meet legal reserve requirements on a daily basis by
(i) maintaining a specified total amount of deposits at the Federal Reserve Bank
and (ii) vault cash. Occasionally, the Bank may borrow funds from another bank
with excess reserves to meet its requirements for the day. These borrowings are
repaid with interest at maturity based on the federal funds rate.
FHLB Advances
The FHLB functions in a credit capacity for savings institutions and
certain other home financing institutions. A savings association may generally
borrow from its district FHLB through advances secured by its home mortgages and
other assets (principally securities which are obligations of, or guaranteed by,
the U.S. government). A savings association is required to hold a minimum amount
of capital stock of the FHLB based upon a percentage of its outstanding home
mortgage loans and similar obligations, a percentage of its outstanding advances
from the FHLB, or a certain percentage of total assets. Such advances may be
made pursuant to several different credit programs made available from time to
time by the FHLB to meet seasonal activity and other withdrawals of deposit
accounts and to expand lending, each of which has its own interest rate and
range of maturities. The FHLB prescribes the acceptable uses, as well as
limitations on the size of such advances. Depending on the program, such
limitations are based either on a fixed percentage of the institution's net
worth or on the FHLB's assessment of the institution's creditworthiness.
The following table presents the carrying value and weighted average rate
paid on FHLB advances for the periods indicated, excluding accrued interest
payable and the impact of purchase accounting adjustments (dollars in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------ ------------------
Carrying Average Carrying Average Carrying Average
Value Rate Value Rate Value Rate
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Fixed-rate borrowings $15,427 5.38% $5,447 5.88%% $3,565 5.93%
Variable-rate borrowings 4,571 5.53 4,074 5.95 854 5.67
------- ------ ------
Total FHLB advances $19,998 5.41% $9,521 5.91% $4,419 5.88%
======= ====== ======
</TABLE>
Page 30
<PAGE>
The following table sets forth remaining maturities and weighted average
stated interest rates of the Company's FHLB advances at December 31, 1998, not
including accrued interest payable or purchase accounting adjustments (dollars
in millions):
Balance Weighted
Maturing Average Rate
-------- ------------
1999 $ 7,880 5.34%
2000 4,820 5.50
2001 1,211 5.56
2002 685 5.69
2003 5,400 5.38
2004 and thereafter 2 7.83
-------
$19,998 5.41%
=======
Interest Rate Swap Agreements
The Company has used interest rate swap agreements to adjust its interest
rate risk exposure on fixed rate FHLB advances. There were no interest rate swap
agreements outstanding at December 31, 1998. The Company had interest rate swap
agreements with a notional principal amount of $400 million outstanding at
December 31, 1997. The notional amount does not represent amounts exchanged by
the parties and thus, is not a measure of the Company's exposure at that time.
The Company paid a variable rate based on LIBOR and received a fixed rate under
these agreements.
In order to reduce possible counterparty nonperformance risk, the Company
has entered into interest rate swap agreements only with primary dealers and the
FHLB of San Francisco.
GS Escrow Notes
On August 6, 1998, GS Escrow, which subsequently merged into GS Holdings,
issued $2 billion principal amount of fixed and floating rate notes, as
described below. The GS Escrow Notes are unsecured and unsubordinated
obligations of GS Holdings and rank in right of payment with all other
unsubordinated and unsecured indebtedness of GS Holdings. The terms and
conditions of the respective notes indentures impose restrictions that affect,
among other things, the ability of GS Holdings to incur debt, pay dividends or
make distributions, engage in a business other than holding the common stock of
the Bank and similar banking institutions, make acquisitions, create liens, sell
assets and make certain investments.
Floating Rate Notes Due 2003
----------------------------
On August 6, 1998, GS Escrow issued $250 million principal amount of the
Floating Rate Notes. The notes will mature on August 1, 2003 with interest
payable quarterly on February 1, May 1, August 1 and November 1. Interest on the
Floating Rate Notes is equal to three-month LIBOR plus 100 basis points per
annum, except that the initial rate was 6 3/4%, based on six-month LIBOR until
the first interest payment date on February 1, 1999. The interest rate on the
Floating Rate Notes reset on February 1, 1999 to 5.97%. Deferred costs
associated with the issuance of the Floating Rate Notes totaling $3.1 million
were recorded in other assets and are being amortized over the term of the
Floating Rate Notes.
The Floating Rate Notes are redeemable at the option of GS Holdings, in
whole or in part, after August 1, 2000, at a price of 101.5% of the outstanding
principal amount during the twelve-month period beginning August 1, 2000; at a
price of 101% of the outstanding principal amount during the twelve-month period
beginning August 1, 2001; and at a price of 100.5% of the outstanding principal
amount during the twelve-month period beginning August 1, 2002, including
accrued and unpaid interest, if any, to the date of redemption. In the event of
a change in control, the Floating Rate Notes are redeemable in whole at the
option of GS Holdings. The redemption price includes principal plus accrued and
unpaid interest, if any, to the date of redemption, plus the excess, if any, of
(i) the sum of the present value of the redemption price for the Floating Rate
Notes and the remaining scheduled interest payments over (ii) the outstanding
principal amount of the Floating Rate Notes to be redeemed.
Page 31
<PAGE>
Fixed Rate Notes
----------------
On August 6, 1998, GS Escrow issued $350 million principal amount of the
2001 Notes, $600 million principal amount of the 2003 Notes, and $800 million
principal amount of the 2005 Notes. The Fixed Rate Notes will mature on August 1
of the respective year, and interest is payable semiannually on February 1 and
August 1. Deferred costs associated with the issuance of the Fixed Rate Notes
totaling $3.5 million, $12.5 million and $19.5 million for the 2001 Notes, the
2003 Notes and the 2005 Notes, respectively, were recorded in other assets and
are being amortized over the term of the notes.
The Fixed Rate Notes are redeemable at the option of the Company, in whole
or in part, at a redemption price equal to principal plus accrued and unpaid
interest, if any, to the date of redemption, plus the excess, if any of (i) the
sum of the present values of the redemption price for the respective notes and
the remaining scheduled interest payments over (ii) the outstanding principal
amount of the notes to be redeemed.
12 1/2% Senior Notes Due 2003
On April 17, 1996, Parent Holdings issued $455 million of its 12 1/2% Senior
Notes due 2003 (the "12 1/2% Parent Holdings Notes").
Concurrent with the closings of the Debt Tender Offers, GS Financial, as the
successor obligor, gave a 30-day notice of redemption for all of the outstanding
12 1/2% Parent Holdings Notes, and irrevocably deposited in trust money or
government obligations in an amount sufficient to pay the redemption price
therefor, together with any accrued and unpaid interest to the date of
redemption, for the purpose of defeasing the 12 1/2% Parent Holdings Notes (the
"Parent Holdings Defeasance"). During 1998, all of the 12 1/2% Parent Holdings
Notes were redeemed in connection with the Parent Holdings Defeasance for an
aggregate redemption price, including accrued interest payable, of $553.7
million.
FN Holdings 12 1/4% Senior Notes Due 2001
In connection with the FN Acquisition, FN Holdings issued $200 million
principal amount of the FN Holdings 12 1/4% Senior Notes, including $5.5 million
principal amount of such notes to certain directors and officers of the Bank.
During 1998, a total of $199.8 million aggregate principal amount of the FN
Holdings 12 1/4% Senior Notes were repurchased in connection with the Debt
Tender Offers for an aggregate purchase price, including accrued interest
payable, of $228.3 million. At December 31, 1998, $.2 million of the FN Holdings
12 1/4% Senior Notes remained outstanding.
The notes mature on May 15, 2001 with interest payable semiannually on May
15 and November 15. The notes are redeemable at the option of FN Holdings, in
whole or in part, during the 12-month period beginning May 15, 1999, at a
redemption price of 106.125% plus accrued interest to the date of redemption,
and thereafter at 100% plus accrued interest. The notes are subordinated to all
existing and future liabilities, including deposits and other borrowings of the
Bank, and the Bank Preferred Stock (as defined herein).
FN Holdings 9 1/8% Senior Subordinated Notes Due 2003
On January 31, 1996, FN Holdings issued $140 million principal amount of the
FN Holdings 9 1/8% Senior Sub Notes.
During 1998, all of the FN Holdings 9 1/8% Senior Sub Notes were repurchased
in connection with the Debt Tender Offers for an aggregate purchase price,
including accrued interest payable, of $159.9 million.
FN Holdings 10 5/8% Senior Subordinated Notes Due 2003
In connection with the Cal Fed Acquisition, GS Holdings acquired the net
proceeds from the issuance of $575 million principal amount of FN Escrow's 10
5/8% Notes and assumed FN Escrow's obligations under such notes and indenture.
During 1998, a total of $574.8 million aggregate principal amount of the FN
Holdings 10 5/8% Notes were
Page 32
<PAGE>
repurchased in connection with the Debt Tender Offers for an aggregate purchase
price, including accrued interest payable, of $692.7 million. At December 31,
1998, $.3 million of the FN Holdings 10 5/8% Notes remain outstanding.
The FN Holdings 10 5/8% Notes are redeemable at the option of the Company,
in whole or in part, during the 12- month period beginning January 1, 2001, at a
redemption price of 105.313% plus accrued and unpaid interest to the date of
redemption, during the 12-month period beginning January 1, 2002 at a redemption
price of 102.656% plus accrued and unpaid interest to the date of redemption,
and thereafter at 100% plus accrued and unpaid interest to the date of
redemption.
The FN Holdings 10 5/8% Notes are subordinate in right of payment to all
existing and future subordinated debt, if any is issued, of GS Holdings. The FN
Holdings 10 5/8% Notes are subordinated to all existing and future liabilities,
including deposits, indebtedness and trade payables, of the subsidiaries of GS
Holdings, including the Bank Preferred Stock.
10% Subordinated Debentures Due 2006
As part of the FN Acquisition, California Federal assumed subordinated
debentures, which bear interest at 10% per annum and mature on October 1, 2006
(the "10% Subordinated Debentures Due 2006"). At December 31, 1998, the
outstanding balance of the 10% Subordinated Debentures Due 2006 was $92.1
million.
Events of Default under the indenture governing the 10% Subordinated
Debentures Due 2006 (the "Old FNB Indenture") include, among other things: (i) a
default in the payment of interest when due and such default continues for 30
days, (ii) a default in the payment of any principal when due, (iii) the failure
to comply with covenants in the Old FNB Indenture, provided that the trustee or
holders of at least 25% in principal amount of the outstanding 10% Subordinated
Debentures Due 2006 notify the Bank of the default and the Bank does not cure
the default within 60 days after receipt of such notice, (iv) certain events of
bankruptcy, insolvency or reorganization of the Bank, (v) the FSLIC/RF (or a
comparable entity) is appointed to act as conservator, liquidator, receiver or
other legal custodian for the Bank and (vi) a default under other indebtedness
of the Bank in excess of $10 million resulting in such indebtedness becoming due
and payable, and such default or acceleration has not been rescinded or annulled
within 60 days after the date on which written notice of such failure has been
given by the trustee to the Bank or by holders of at least 25% in principal
amount of the outstanding 10% Subordinated Debentures Due 2006 to the Bank and
the trustee.
11.20% Senior Notes Due 2004
As part of the SFFed Acquisition, California Federal assumed $50 million
principal amount of SFFed 11.20% Senior Notes due September 1, 2004 (the "11.20%
Senior Notes"). In connection with the assumption of the 11.20% Senior Notes,
the Bank and all of the holders of the 11.20% Senior Notes entered into an
agreement amending certain provisions of the note purchase pursuant to which the
11.20% Senior Notes were sold (as amended, the "Note Purchase Agreement"). On
September 12, 1996, the Bank repurchased $44.0 million aggregate principal
amount of the 11.20% Senior Notes at a price of approximately 116.45% of the
principal amount, plus the accrued interest thereon. The Bank recorded an
extraordinary loss, net of tax, of $1.6 million in connection with such
repurchase.
Events of Default under the note purchase agreement include, among other
things: (i) failure to make any payment of principal when due; (ii) any failure
to make any payment of interest when due and such payment is not made within 15
days after the date such payment was due; (iii) failure to comply with certain
covenants in the Note Purchase Agreement, provided that such failure continues
for more than 60 days; (iv) failure to deliver to holders a notice of default,
notice of event of default, or notice of claimed default as provided in the Note
Purchase Agreement; (v) failure to comply with any provision of the Note
Purchase Agreement, provided that such failure continues for more than 60 days
after notice is delivered to the Bank; (vi) a default under other indebtedness
provided that the aggregate amount of all obligations in respect of such
indebtedness exceeds $15 million; (vii) one or more final, non-appealable
judgments outstanding against the Bank or its subsidiaries for the payment of
money aggregating in excess of $15 million, any one of which has been
outstanding for 45 days and shall not have been discharged in full or stayed;
(viii) any warranty, representation or other statement contained in the Note
Purchase Agreement by the Bank or any of its subsidiaries being false or
misleading in any material respect when made; or (ix) certain events of
bankruptcy, insolvency or reorganization of the Bank or its subsidiaries.
Page 33
<PAGE>
As a result of the Cal Fed Acquisition, the Bank is obligated with respect
to the following three debt securities of Old California Federal:
10.668% Subordinated Notes Due 1998
The Company assumed $50 million of 10.668% unsecured senior subordinated
notes which matured and were repaid in full on December 22, 1998 (the "10.668%
Subordinated Notes").
6 1/2% Convertible Subordinated Debentures Due 2001
In 1986, Cal Fed Inc., Old California Federal's former parent company,
issued $125 million of 6.5% convertible subordinated debentures due February 20,
2001 (the "6 1/2% Convertible Subordinated Debentures"). As a result of a
corporate restructuring in December 1992, Cal Fed Inc. was merged with and into
XCF Acceptance Corporation ("XCF"), a subsidiary of Old California Federal. The
6 1/2% Convertible Subordinated Debentures are redeemable at the option of the
holders on February 20, 2000, at 123% of their principal amount. At December 31,
1998, $2.6 million of the 6 1/2% Convertible Subordinated Debentures were
outstanding. Due to the purchase of all the Cal Fed Stock by FN Holdings in the
Cal Fed Acquisition on January 3, 1997, the common stock conversion feature has
been eliminated.
Events of Default under the indenture governing the 6 1/2% Convertible
Subordinated Debentures include, among other things: (i) any failure to make any
payment of interest when due and such payment is not made within 30 days after
the date such payment was due; (ii) failure to make any payment of principal
when due; (iii) default in the performance, or breach, of any covenant or
warranty in the indentures, provided that such default or breach continues for
more than 60 days after notice is delivered to the Bank; or (iv) certain events
of bankruptcy, insolvency or reorganization of the Bank or its subsidiaries.
10% Subordinated Debentures Due 2003
On December 16, 1992, Old California Federal issued $13.6 million of 10.0%
unsecured subordinated debentures due 2003 (the "10% Subordinated Debentures Due
2003"). During 1996 and 1995, Old California Federal repurchased $0.6 million
and $8.7 million, respectively, of the debentures, leaving $4.3 million
outstanding at December 31, 1998.
Events of Default under the indenture governing the 10% Subordinated
Debentures Due 2003 include, among other things: (i) failure to make any payment
of principal when due; (ii) any failure to make any payment of interest when due
and such payment is not made within 30 days after the date such payment was due;
(iii) failure to comply with certain covenants in the indenture; (iv) failure to
comply with certain covenants in the indenture provided that such failure
continues for more than 60 days after notice is delivered to the Bank; (v)
certain events of bankruptcy, insolvency or reorganization of the Bank; or (vi)
the default or any event which, with the giving of notice or lapse of time or
both, would constitute a default under any indebtedness of the Bank and cause
such indebtedness with an aggregate principal amount exceeding $15 million to
accelerate.
FN Holdings Preferred Stock -- Minority Interest
On September 19, 1996, the Company issued 10,000 shares of preferred stock
("FN Holdings Preferred Stock") with a liquidation value of $150 million to
Special Purpose Corp. Cash dividends on the FN Holdings Preferred Stock were
cumulative and payable: (i) in cash at an annual rate of the cost of funds to an
affiliate of FN Holdings under such affiliate's bank credit facility (the "Cost
of Funds Rate") and (ii) in newly issued shares of another series of cumulative
perpetual preferred stock of FN Holdings ("Additional FN Holdings Preferred
Stock") at an annual rate of 2% of the stated liquidation value of the FN
Holdings Preferred Stock, if, when, and as declared by the Board of Directors of
FN Holdings. Dividends on the Additional FN Holdings Preferred Stock were
cumulative and accrued and were payable in shares of Additional FN Holdings
Preferred Stock at an annual rate equal to the Cost of Funds Rate plus 2% of the
stated liquidation value of the Additional FN Holdings Preferred Stock if, when,
and as declared by the Board of Directors of FN Holdings. Additional FN Holdings
Preferred Stock had substantially the same relative rights, terms and
preferences as the FN Holdings Preferred Stock, except as set forth above, with
respect to the payment of dividends. Dividends on the FN Holdings Preferred
Stock were payable quarterly each year, commencing January 1, 1997, out of funds
legally available therefor.
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In March 1998, the Company redeemed all remaining 1,666.7 outstanding
shares of the FN Holdings Preferred Stock. The redemption price was equal to the
liquidation value of $15,000 per share. Upon redemption of the FN Holdings
Preferred Stock, all remaining 52.5 shares of the Additional FN Holdings
Preferred Stock totalling $.8 million liquidation value were contributed to the
capital of the Company, without any payment therefor. Such shares were retired
and canceled.
Dividends on the FN Holdings Preferred Stock totalled $.6 million, $12.8
million and $4.8 million during 1998, 1997 and 1996, respectively, including the
issuance of Additional FN Holdings Preferred Stock of $.1 million, $2.2 million
and $.8 million, respectively.
11 1/2% Preferred Stock -- Minority Interest
In connection with the FN Acquisition, California Federal issued 3,007,300
shares of its 11 1/2% Noncumulative Perpetual Preferred Stock ("11 1/2%
Preferred Stock") with par value of $.01 per share, having a liquidation
preference of $300.7 million. The 11 1/2% Preferred Stock has a stated
liquidation value of $100 per share, plus declared and unpaid dividends, if any.
Cash dividends are noncumulative and are payable at an annual rate of 11 1/2%
per share if, when and as declared by the Board of Directors of the Bank.
The 11 1/2% Preferred Stock ranks prior to the common stock of the Bank and
to all other classes and series of equity securities subsequently issued, other
than any class or series expressly designated as being on a parity with or
senior to the 11 1/2% Preferred Stock as to dividends and liquidating
distributions. The 10 5/8% Preferred Stock (as defined herein) ranks on a parity
with the 11 1/2% Preferred Stock as to dividends and liquidating distributions.
The terms of the 11 1/2% Preferred Stock provide that the Bank may not
declare or pay any dividends or other distributions (other than in shares of
common stock of the Bank or other classes of equity securities of the Bank
ranking junior to the 11 1/2% Preferred Stock (collectively, "Junior Stock"))
with respect to any Junior Stock or redeem or otherwise acquire, or set apart
funds for the repurchase, redemption or other acquisition of any Junior Stock
(including the common stock held by GS Holdings), through a sinking fund or
otherwise, unless and until: (i) the Bank has paid full dividends on the 11 1/2%
Preferred Stock for the four most recent dividend periods, or funds have been
paid over to the dividend disbursing agent of the Bank for payment of such
dividends, and (ii) the Bank has declared a cash dividend on the 11 1/2%
Preferred Stock at the annual dividend rate for the current dividend period, and
sufficient funds have been paid over to the dividend disbursing agent of the
Bank for the payment of a cash dividend for such current dividend period. The
Bank is currently in compliance with both of such requirements.
Holders of the 11 1/2% Preferred Stock have one vote per share, and holders
thereof vote together as a single class with holders of the common stock of the
Bank, the 10 5/8% Preferred Stock, the CALGZs and the CALGLs.
In connection with the Bank Preferred Stock Tender Offers, 2,688,959 shares
of the 11 1/2% Preferred Stock were purchased by GS Holdings during the year
ended December 31, 1998. The stated liquidation value of the remaining 318,341
shares of 11 1/2% Preferred Stock not purchased by the Company at December 31,
1998 was $31.8 million. See note 5 to the Company's consolidated financial
statements. At or after September 1, 1999, the remaining shares of 11 1/2%
Preferred Stock are redeemable at the option of the Bank and/or GS Holdings, in
whole or in part, at $105.75 per share prior to September 1, 2000, and at prices
which will decrease annually thereafter to the stated liquidation value of $100
per share on or after September 1, 2004, plus declared but unpaid dividends.
Cash dividends on the 11 1/2% Preferred Stock are noncumulative and are payable
quarterly at an annual rate of 11.50% per share if, when and as declared by the
Bank's Board of Directors. Dividends paid on the 11 1/2% Preferred Stock for
each year ended December 31, 1998 and 1997 totalled $34.6 million, of which
$26.8 million and $34.6 million was included in minority interest in 1998 and
1997, respectively.
10 5/8% Preferred Stock -- Minority Interest
In connection with the Cal Fed Acquisition, California Federal assumed Old
California Federal's 10 5/8% Noncumulative Perpetual Preferred Stock with a
liquidation value of $172.5 million (the "10 5/8% Preferred Stock" and together
with the 11 1/2% Preferred Stock, the "Bank Preferred Stock"). The 10 5/8%
Preferred Stock has a stated liquidation value of $100 per share, plus declared
and unpaid dividends, if any, without interest. Cash dividends are
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noncumulative and are payable at an annual rate of 10 5/8% per share if, when
and as declared by the Board of Directors of the Bank.
The 10 5/8% Preferred Stock ranks prior to the common stock of the Bank and
to all other classes and series of equity securities subsequently issued,
other than any class or series expressly designated as being on a parity with
or senior to the 10 5/8% Preferred Stock as to dividends and liquidating
distributions. The 11 1/2% Preferred Stock ranks on a parity with the 10 5/8%
Preferred Stock as to dividends and liquidating distributions.
The terms of the 10 5/8% Preferred Stock provide that the Bank may not
declare or pay any full dividends with respect to any parity stock, such as
the 11 1/2% Preferred Stock, unless and until the Bank has paid full dividends
on the 10 5/8% Preferred Stock for the most recent dividend period.
The terms of the 10 5/8% Preferred Stock provide that the Bank may not
declare or pay any dividends or other distributions (other than in shares of
common stock of the Bank or other Junior Stock) with respect to any Junior
Stock or repurchase, redeem or otherwise acquire, or set apart funds for the
repurchase, redemption or other acquisition of, any Junior Stock through a
sinking fund or otherwise, unless and until: (i) the Bank has paid full
dividends on the 10 5/8% Preferred Stock for the four most recent dividend
periods, or funds have been paid over to the dividend disbursing agent of the
Bank for payment of such dividends, and (ii) the Bank has declared a cash
dividend on the 10 5/8% Preferred Stock at the annual dividend rate for the
current dividend period, and sufficient funds have been paid over to the
dividend disbursing agent of the Bank for the payment of a cash dividend for
such current period. The Bank is currently in compliance with both of such
requirements.
Holders of the 10 5/8% Preferred Stock have one vote per share, and holders
thereof vote together as a single class with holders of the common stock of
the Bank, the 11 1/2% Preferred Stock, the CALGZs and the CALGLs.
In connection with the Bank Preferred Stock Tender Offers, 1,117,701
shares of the 10 5/8% Preferred Stock were purchased by GS Holdings during the
year ended December 31, 1998. The stated value of the remaining 607,299 shares
of 10 5/8% Preferred Stock not purchased by GS Holdings at December 31, 1998
was $60.7 million. See note 5 to the Company's consolidated financial
statements. On February 5, 1999, the Board of Directors of the Bank resolved
to redeem all outstanding shares of the 10 5/8% Preferred Stock on April 1,
1999 at $105.313 per share plus declared and unpaid dividends. Dividends paid
on the 10 5/8% Preferred Stock for each year ended December 31, 1998 and 1997
totalled $18.3 million, of which $15.3 million and $18.3 million was included
in minority interest in 1998 and 1997, respectively.
REIT Preferred Stock -- Minority Interest
On January 31, 1997, Preferred Capital Corp. issued 20,000,000 shares of
REIT Preferred Stock. The REIT Preferred Stock has a stated liquidation value
of $25 per share, plus declared and unpaid dividends, if any. Cash dividends
are noncumulative and are payable at an annual rate of 91/8% per share if,
when and as declared by the Board of Directors of Preferred Capital Corp.
The REIT Preferred Stock ranks prior to the common stock of Preferred
Capital Corp. and to all other classes and series of equity securities
subsequently issued, other than any class or series expressly designated as
being on a parity with or senior to the REIT Preferred Stock as to dividends
and liquidating distributions.
The terms of the REIT Preferred Stock provide that Preferred Capital Corp.
may not declare or pay any dividends or other distributions (other than in
shares of common stock of Preferred Capital Corp. or other classes of equity
securities of Preferred Capital Corp. ranking junior to the REIT Preferred
Stock) with respect to any Preferred Capital Corp. junior stock or repurchase,
redeem or otherwise acquire, or set apart funds for the repurchase, redemption
or other acquisition of any Preferred Capital Corp. junior stock (including
the common stock held by the Bank) through a sinking fund or otherwise, unless
and until: (i) Preferred Capital Corp. has paid in full dividends on the REIT
Preferred Stock for the four most recent dividend periods, or funds have been
paid over to the dividend disbursing agent of Preferred Capital Corp. for
payment of such dividends, and (ii) Preferred Capital Corp. has declared a
cash dividend on the REIT Preferred Stock at the annual dividend rate for the
current dividend period, and sufficient funds have been paid over to the
dividend disbursing agent of Preferred Capital Corp. for the payment of a cash
dividend for such current dividend
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period. The initial dividend payment date was March 31, 1997. Preferred
Capital Corp. is currently in compliance with both such requirements.
Holders of the REIT Preferred Stock have no voting rights, except as
required by law or in certain limited circumstances.
Except in the event of a change of control or upon certain tax events, the
REIT Preferred Stock is not redeemable prior to January 31, 2002. The REIT
Preferred Stock is redeemable solely at the option of Preferred Capital Corp.
or its successor or any acquiring or resulting entity with respect to
Preferred Capital Corp. (including by any parent or subsidiary of Preferred
Capital Corp., any such successor or any such acquiring or resulting entity),
as applicable, at any time on and after January 31, 2002 in whole or in part,
at $26.14 per share on or after January 31, 2002 and prior to January 31,
2003, and at prices decreasing pro rata annually thereafter to the stated
liquidation value of $25 per share on or after January 31, 2007, plus declared
and unpaid dividends, if any, without interest. Upon a change of control, the
REIT Preferred Stock is redeemable on or prior to January 31, 2002 at the
option of Preferred Capital Corp. or its successor or any acquiring or
resulting entity with respect to the Bank (including by any parent or
subsidiary of Preferred Capital Corp., any such successor or any such
acquiring or resulting entity), as applicable, in whole, but not in part, at a
price per share equal to: (i) $25, plus (ii) an amount equal to declared and
unpaid dividends, if any, to the date fixed for redemption; without interest
and without duplication, an additional amount equal to the amount of dividends
that would be payable on the REIT Preferred Stock in respect of the period
from the first day of the dividend period in which the date fixed for
redemption occurs to the date fixed for redemption (assuming all such
dividends were to be declared), plus (iii) a specified make whole premium.
Each share of REIT Preferred Stock will be exchanged automatically for one
newly issued share of preferred stock of the Bank having substantially the
same terms as the REIT Preferred Stock (the "9 1/8% Preferred Stock") if the
appropriate federal regulatory agency directs in writing such exchange because
(i) the Bank becomes "undercapitalized" under prompt corrective action
regulations, (ii) the Bank is placed into conservatorship or receivership or
(iii) the appropriate federal regulatory agency, in its sole discretion,
anticipates the Bank becoming "undercapitalized" in the near term. If issued,
the 9 1/8% Preferred Stock will rank on a parity with the Bank Preferred Stock.
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OTHER ACTIVITIES
Goodwill Litigation
In July 1995, Old California Federal distributed to its common
shareholders its Contingent Litigation Recovery Participation Interests (the
"CALGZs" or "Litigation Interests"), each entitling the holder thereof to
receive an amount (the aggregate of such payments being referred to as the
"Recovery Payment") equal to five millionths of one percent (0.000005%) of the
cash payment (the "Cash Payment"), if any, actually received by the Bank
pursuant to a final, nonappealable judgment in or final settlement of its
claim against the United States Government (the "Government") in the lawsuit,
California Federal Bank v. United States, Civil Action No. 92-138C (the
"California Federal Litigation"), after deduction of (i) the aggregate
expenses incurred by the Bank in prosecuting the California Federal Litigation
and obtaining such Cash Payment including, but not limited to, a portion of
the annual salaries in the aggregate amount of $1,000,000, an incentive fee in
the amount of 0.25% of the aggregate value of the pre-tax recovery from the
California Federal Litigation, annual pension benefits aggregating $1,325,000,
and certain medical benefits and expenses, for Messrs. Trafton and Fink under
the Litigation Management Agreement (as defined herein), (ii) any income tax
liability of the Bank, computed on a pro forma basis, as a result of the
Bank's receipt of such Cash Payment (net of any income tax benefit to the Bank
from making the Recovery Payment, and disregarding for purposes of this clause
(iii) the effect of any net operating loss carryforwards or other tax
attributes held by the Bank or any of its subsidiaries or affiliated entities)
and (iv) the expenses incurred by the Bank in connection with the creation,
issuance and trading of the Litigation Interests, including without
limitation, legal and accounting fees and the fees and expenses of the
interest agent.
Pursuant to the merger agreement, Cal Fed distributed to common
shareholders entitled to receive the merger consideration one-tenth of a
Secondary Contingent Litigation Recovery Participation Interest (each a
"CALGL" or "Secondary Litigation Interest") for each share of Cal Fed common
stock held. Each Secondary Litigation Interest will entitle the holder thereof
to receive an amount equal to twenty millionths of one percent (0.000020%) of
the "Secondary Recovery Payment," if any, as defined below. "Secondary
Recovery Payment" means sixty percent (60%) of the amount obtained from the
following equation: (A) the Cash Payment, if any, actually received by the
Bank in respect of a final, nonappealable judgment in or final settlement of
the California Federal Litigation, minus (B) the sum of the following: (i) the
aggregate expenses incurred by the Bank in prosecuting the California Federal
Litigation and obtaining such Cash Payment including, but not limited to, a
portion of the annual salaries in the aggregate amount of $1,000,000, an
incentive fee in the amount of 0.25% of the aggregate value of the pre-tax
recovery from the California Federal Litigation, annual pension benefits
aggregating $1,325,000, and certain medical benefits and expenses, for Messrs.
Trafton and Fink under the Litigation Management Agreement, (ii) any income
tax liability of the Bank, computed on a pro forma basis, as a result of the
Bank's receipt of such Cash Payment (net of any income tax benefit to the
Bank, computed on a pro forma basis, from the payment of a portion of the
Secondary Recovery Payment to the holders of Secondary Litigation Interests),
(iii) the expenses incurred by the Bank in connection with the creation,
issuance and trading of the Litigation Interests and the Secondary Litigation
Interests, including without limitation, legal and accounting fees and the
fees and expenses of the interest agent, (iv) the payment due to the holders
of the Litigation Interests and (v) one hundred twenty-five million dollars
($125,000,000). "Income tax liability of the Bank computed on a pro forma
basis" means the aggregate amount of any and all relevant items of income,
gain, loss, or deduction associated with the receipt by the Bank of the Cash
Payment multiplied by the highest, combined marginal rate of federal, state
and local income taxes in the relevant year and disregarding for purposes of
such computation the effect of any net operating loss carryforwards or other
tax attributes of the Bank or any of its subsidiaries or affiliated entities.
"Income tax benefit to the Bank computed on a pro forma basis" means the
aggregate amount of any and all relevant items of income, gain, loss, or
deduction associated with the payment by the Bank of the Secondary Recovery
Payment multiplied by the highest, combined marginal rate of federal, state
and local income taxes in the relevant year and disregarding for purposes of
such computation the effect of any net operating loss carryforwards or other
tax attributes of the Bank or any of its subsidiaries or affiliated entities.
Any distribution with respect to the Litigation Interests will be subject to
the OTS capital distribution regulations.
Holders of the CALGZs and the CALGLs are entitled to vote together as a
single class with the holders of the common stock of the Bank and the Bank
Preferred Stock, with each CALGZ and CALGL entitling the holder thereof to 1/5
of one vote.
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In the California Federal Litigation, the Bank alleges, among other
things, that the Government breached certain contractual commitments regarding
the computation of its regulatory capital for which the Bank seeks damages and
restitution. The Bank's claims arose from changes, mandated by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), with
respect to the rules for computing Old California Federal's regulatory
capital.
On July 1, 1996, the United States Supreme Court issued its opinion for
United States v. Winstar Corporation, No. 95-865, which affirmed the decisions
of the United States Court of Appeals for the Federal Circuit and the United
States Court of Federal Claims in various consolidated cases (the "Winstar
Cases") granting summary judgment to the plaintiff thrift institutions on the
liability portion of their breach of contract claims against the Government.
The Supreme Court held that the Government breached certain express contracts
when Congress enacted FIRREA, and the Supreme Court remanded the proceedings
for a determination of the appropriate measure and amount of damages, which to
date have not been awarded.
On October 30, 1996, Old California Federal filed a motion for partial
summary judgment as to the Government's liability to the Bank for breach of
contract, which has been opposed by the Government in briefs filed on December
30, 1996 and February 27, 1997. On December 22, 1997, a U.S. Claims Court
Judge ruled in favor of this motion to establish the Government's liability,
and a formal order in that regard was subsequently issued on July 16, 1998. On
November 12, 1998, a U.S. Claims Court Judge ruled that California Federal
cannot meet its burden for proving lost profits damages and ordered that the
case proceed to trial beginning December 7, 1998 on the damages issue of
restitution and reliance. The trial began January 11, 1999 and concluded March
3, 1999, and California Federal is currently awaiting the Claims Court's
decision in the California Federal Litigation.
In connection with the Glen Fed Merger, the Bank is a plaintiff in a claim
against the United States in the lawsuit, Glendale Federal Bank, Federal
Savings Bank v. United States, No. 90-772C (the "Glendale Goodwill
Litigation"). In the Glendale Goodwill Litigation, Glendale Federal sued the
Government contending that FIRREA's treatment of supervisory goodwill
constituted a breach by the Government of its 1981 contract with the Bank,
under which the Bank had merged with a Florida thrift and was permitted to
include the goodwill resulting from the merger in its regulatory capital. In
July 1992, the United States Court of Federal Claims (the "Claims Court")
found in favor of Glendale Federal's position, ruling that the Government
breached its express contractual commitment to permit Glendale Federal to
include supervisory goodwill in its regulatory capital and that Glendale
Federal is entitled to seek financial compensation.
The trial to determine damages commenced in the Claims Court on February
24, 1997 and the taking of testimony in the trial was completed on April 9,
1998. In lieu of traditional closing briefs, the Claims Court requested the
parties to respond to a series of written questions posed by the Court
regarding factual and legal issues raised in the damages trial. Responses to
those questions, as well as each party's reply to the other's responses, have
been filed with the Court and final arguments were held on September 11, 1998.
The Claims Court decision is currently expected on April 9, 1999.
In connection with the Cal Fed Acquisition, the Bank recorded as an asset
part of the estimated after-tax cash recovery from the California Federal
Litigation that will inure to the Bank, net of amounts payable to holders of
the Litigation Interests and the Secondary Litigation Interests in any such
recovery (the "Goodwill Litigation Asset"). In connection with the Glen Fed
Merger, the Bank recorded a second Goodwill Litigation Asset related to the
estimated after-tax cash recovery from the Glendale Goodwill Litigation that
will inure to the Bank, net of amounts payable to the holders of the
Litigation Tracking Warrants(TM). The Goodwill Litigation Asset related to the
California Federal Litigation was recorded at its estimated fair value of $100
million, net of estimated tax liabilities, as of January 3, 1997. The Goodwill
Litigation Asset related to the Glendale Goodwill Litigation was recorded at
its estimated fair value of $60 million, net of estimated tax liabilities, as
of September 11, 1998. Both Goodwill Litigation Assets are included in the
consolidated balance sheet as of December 31, 1998.
Litigation Tracking Warrants(TM)
In connection with the Glendale Goodwill Litigation, Golden State
distributed Litigation Tracking Warrants(TM) ("LTW(TM)s") to its security
holders representing the right to receive, upon exercise of the LTW(TM)s,
Golden State common stock equal in value to 85% of the net after-tax
proceeds, if any, from the Glendale Goodwill Litigation. The
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LTW(TM)s would be exercisable after notification by Golden State of its
receipt of proceeds from a final judgement in or settlement of the litigation.
The LTW(TM)s would expire 60 days after such notice is given.
Golden State distributed LTW(TM)s on May 29, 1998, to holders of Golden
State common stock of record on May 7, 1998, on the basis of one LTW(TM) for
each share held as of the close of business on that date. The Board of
Directors also reserved additional LTW(TM)s for future issuance in connection
with conversions or exercises of the Company's outstanding Series A Preferred
Stock, its two outstanding classes of common stock purchase warrants and
employee stock options. The total number of LTW(TM)s issued to holders of
common stock and reserved for such future issuances is approximately 85
million.
The LTW(TM)s trade on the NASDAQ national market system under the ticker
symbol "GSBNZ."
Warrants
The Company has a class of common stock purchase warrants outstanding (the
"Warrants"), totalling 12,776 at December 31, 1998, that were issued by Golden
State in March 1993 in connection with an exchange of preferred stock for
outstanding subordinated debentures and capital notes. Each Warrant entitles
the registered holder thereof to receive from the Company one share of common
stock and one LTW(TM) for ten Warrants for no additional consideration at any
time until the expiration of the Warrants on March 10, 1999. The number of
shares of common stock for which a Warrant may be exercised is subject to
adjustment from time to time upon the occurrence of certain events. No
Warrants have been exercised since September 11, 1998.
The Company has also issued transferable Standby Warrants, of which 10.77
million were outstanding at December 31, 1998. No Standby Warrants have been
exercised since September 11, 1998. Each Standby Warrant entitles the holder
thereof to purchase one share of common stock and one LTW(TM) for a purchase
price of $12.00 per share. The Standby Warrants are exercisable at any time
through August 21, 2000.
Contingent Shares
The Golden State Merger agreement provides that Mafco Holdings and
Hunter's Glen will be entitled to receive contingent consideration, through
the issuance by Golden State of additional shares of Golden State Common Stock
("Contingent Shares") to Mafco Holdings and Hunter's Glen, based on (i) the
use by the combined company of certain potential tax benefits resulting from
certain net operating loss carryforwards of the consolidated group of which
Parent Holdings is a part, and the realization of certain other potential tax
assets and liabilities of Golden State and Parent Holdings and (ii) California
Federal's net after-tax recovery in certain specified litigation, including a
percentage of the net after-tax recovery, if any, in the California Federal
Litigation (following payment by California Federal of all amounts due, if
any, to the holders of the CALGZs and the CALGLs and the retention of certain
amounts of such recovery by the Bank). The Golden State Merger agreement
provides generally that the amount of the net after-tax recovery, if any,
resulting from the California Federal Litigation which will be excluded in
determining the number of Contingent Shares issuable in respect of the
California Federal Litigation will be based on 15% of the value of the net
after-tax recovery in the Glendale Goodwill Litigation to be excluded for
purposes of determining the number of shares of Golden State Common Stock
issuable upon exercise of the LTW(TM)s, adjusted to reflect the pro forma
ownership interest of Mafco Holdings and Hunter's Glen in Golden State at the
time of the Golden State Merger.
The number of Contingent Shares cannot be determined at the present time,
as such number depends upon factors that are not subject to determination at
this time. These factors include, among other things, the net value to the
Company of certain contingent assets and liabilities of Golden State and
Parent Holdings (including potential recoveries in the Glendale Goodwill
Litigation, the California Federal Litigation and certain other litigation to
which affiliates of Parent Holdings are parties, and potential tax benefits
resulting from the use of certain net operating loss carryforwards of the
consolidated group of which Parent Holdings is a part and the realization of
certain other contingent tax assets and liabilities of Golden State and Parent
Holdings) and the market price of the common stock of Golden State at such
time as issuance of Contingent Shares is required under the Golden State
Merger agreement.
During 1998, net tax benefits totalling $102.7 million were realized by
California Federal with respect to its gain from the Florida Branch Sale and
the receipt of a federal income tax refund in excess of the amount reflected
on the Company's consolidated balance sheets. Consistent with the terms of the
Golden State Merger agreement, a total of
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5,687,996 shares of Golden State Common Stock, valued at $102.7 million, are
to be issued to Mafco Holdings and Hunter's Glen as a result of these
benefits. On January 21, 1999, a total of 5,540,319 shares of common stock,
valued at $100 million, were issued (4,432,255 shares to Mafco Holdings and
1,108,064 shares to Hunter's Glen). The remaining 147,677 common shares,
valued at $2.7 million, are expected to be issued at a future date. Such
contingent shares are included, to the extent appropriate, in the 1998 basic
and diluted EPS calculations.
The Put Agreement
In connection with the FN Acquisition, Granite and the Bank entered into
the Put Agreement. Pursuant to the Put Agreement, the Bank had the right, on a
quarterly basis (the "Put Option"), to require Granite to purchase certain
commercial real estate loans, commercial real estate loans serviced by others
and 1-4 unit residential loans with an original principal balance greater than
$250,000, and to take certain actions to protect the Bank from losses with
respect to certain Letters of Credit ("LOC") transactions, in each case, only
if such asset was purchased by the Bank from Old FNB pursuant to the Asset
Purchase Agreement. The Put Option expired on November 30, 1996. The balance
available under the Put Agreement ($500 million) was fully utilized by the
Bank prior to the expiration of the Put Option.
The Assistance Agreement
The Texas Closed Banks were purchased effective December 28, 1988 pursuant
to five acquisition agreements and an assistance agreement among the FSLIC/RF,
the Bank, and certain affiliates of the Bank (the "Assistance Agreement"). The
Assistance Agreement generally provided for guaranteed yield amounts to be
paid on the book value of the assets subject to the Assistance Agreement
("Covered Assets"), and paid for 90% of the losses incurred upon disposition
of the Covered Assets. The remaining 10% not reimbursed, net of 10% of all
asset recoveries and certain agreed-upon Covered Asset disposition fees, was
remitted quarterly to the FSLIC/RF.
In 1995, the FDIC, acting as manager for the FSLIC/RF, exercised its right
under the Assistance Agreement to purchase substantially all of the remaining
Covered Assets at the fair market value of such assets (the "FDIC Purchase").
Under the terms of the Assistance Agreement, losses sustained by the Bank from
the FDIC Purchase were reimbursed by the FSLIC/RF. There was no material
impact on the consolidated financial statements of the Company as a result of
the FDIC Purchase.
On August 19, 1996, the Bank and the FSLIC/RF executed an agreement which
resulted in the termination of the Assistance Agreement. As a result of the
agreement, the FSLIC/RF paid the Bank the remaining Covered Asset balance of
$39 million and, among other things, assumed the responsibility for the
disposition of several litigation matters involving Covered Assets which had
been retained by the Bank following the FDIC Purchase. The Company recorded a
gain of $25.6 million as a result of this settlement.
FNMA Letters of Credit
On September 28, 1994, the Company entered into an agreement with FNMA
pursuant to which FNMA provided credit enhancements for certain bond-financed
real estate projects originated by Old FNB. The agreement requires that the
Company pledge to FNMA collateral in the form of certain eligible securities
which are held by a third party trustee. The collateral requirement varies
based on the balance of the bonds outstanding, losses incurred (if any), as
well as other factors. At December 31, 1998, the Company had pledged as
collateral certain securities available for sale and short-term investment
securities with a carrying value of $75.3 million, of which $71.4 million was
pledged as collateral to guarantee credit enhancements on loans securitized by
FNMA.
Cal Fed Investments
Cal Fed Investments ("CFI"), formerly FN Investment Center, a wholly owned
subsidiary of the Company which was acquired as part of the FN Acquisition,
offers securities and insurance products to both existing and prospective
customers of the Company. CFI is subject to the guidelines established by the
OTS for broker-dealer subsidiaries of savings associations, and is a member of
the National Association of Securities Dealers. In addition, CFI is registered
as a broker-dealer with the Securities and Exchange Commission and the
Securities Investor Protection Insurance Corporation. CFI receives commission
revenue for acting as a broker-dealer on behalf of its customers, but CFI does
not maintain customer accounts or take possession of customer securities.
Commission revenues of $34.4 million, $27.5
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million and $10.0 million for the years ended December 31, 1998, 1997 and
1996, respectively, are included in fees and service charges in the Company's
consolidated statements of income for such years.
DIVIDEND POLICY OF THE BANK
The dividend policy of the Bank complies with applicable legal and
regulatory restrictions. Before declaring any dividend, the directors of the
Bank consider the following factors: (i) the quality and stability of the
Bank's net income, (ii) the availability of liquid assets to make dividend
payments, (iii) the level of earnings retention as it impacts the Bank's
capital needs and projected growth and funding levels, both internal and
external, and (iv) the adequacy of capital after the payment of a dividend.
Under the Bank's dividend policy, a dividend will not be declared or paid
which would: (i) cause the capital level of the Bank to be reduced below
"adequately capitalized" levels, or (ii), together with any other dividends
declared during the same calendar year, exceed 100% of the net income to date
for that calendar year plus 50% of the Bank's surplus capital at the beginning
of that calendar year, so long as the Bank is a Tier 1 association (as defined
herein).
EMPLOYEES
At December 31, 1998, Golden State and its subsidiaries had 8,229
employees, compared to 5,235 employees at December 31, 1997. None of the
Company's employees is represented by any collective bargaining group and
management considers its relations with its employees to be good. The Company
maintains a comprehensive employee benefits program providing, among other
benefits, health and welfare benefits, long and short-term disability
insurance, and life insurance. Additionally, the Company offers employees a
defined contribution investment plan which is a qualified plan under Section
401(a) of the Internal Revenue Code.
COMPETITION
The Company experiences significant competition in both attracting and
retaining deposits and in originating real estate and consumer loans.
The Company, through the Bank, competes with other savings associations,
commercial banks, mortgage banking companies, finance companies, insurance
companies, credit unions, money market mutual funds and brokerage firms in
attracting and retaining deposits. Competition for deposits from large
commercial banks is particularly strong. Many of the nation's savings
associations and commercial banks have a significant number of branch offices
in the areas in which the Company operates.
In addition, there is strong competition in originating and purchasing
real estate and consumer loans, principally from other savings and loan
associations, commercial banks, mortgage banking companies, insurance
companies, consumer finance companies, pension funds and commercial finance
companies. The primary factors in competing for loans are the quality and
extent of service to borrowers and brokers, economic factors such as interest
rates, interest rate caps, rate adjustment provisions, loan maturities, LTV
ratios, loan fees, and the amount of time it takes to process a loan from
receipt of the loan application to date of funding. The Company's future
performance will depend on its ability to originate a sufficient volume of
mortgage loans in its local market areas and through its wholesale network
and, if it is unable to originate a sufficient volume of mortgage loans, to
purchase a sufficient quantity of high-quality mortgage-backed securities or
loans with adequate yields. There can be no assurance that the Company will be
able to effect such actions on satisfactory terms.
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REGULATION
General
Golden State is a savings and loan holding company within the meaning of
the HOLA and, as such, is registered with the OTS and is subject to
comprehensive OTS regulation. The Bank is a federally chartered and insured
stock savings bank subject to extensive regulation and supervision by the OTS,
as the primary federal regulator of savings associations, and the FDIC, as the
administrator of the SAIF.
The federal banking laws contain numerous provisions affecting various
aspects of the business and operations of savings associations and savings and
loan holding companies. The following description of statutory and regulatory
provisions and proposals, which is not intended to be a complete description
of these provisions or their effects on Golden State or the Bank, is qualified
in its entirety by reference to the particular statutory or regulatory
provisions or proposals. The primary purpose of the statutory and regulatory
scheme is to protect depositors, the financial institutions and the financial
system as a whole.
REGULATION OF GOLDEN STATE
Holding Company Acquisitions
Golden State is a registered savings and loan holding company. The HOLA and
OTS regulations thereunder generally prohibit a savings and loan holding
company, without prior OTS approval, from acquiring, directly or indirectly,
the ownership or control of any other savings association or savings and loan
holding company, or all, or substantially all, of the assets or more than 5%
of the voting shares thereof. These provisions also prohibit, among other
things, any director or officer of a savings and loan holding company, or any
individual who owns or controls more than 25% of the voting shares of such
holding company, from acquiring control of any savings association not a
subsidiary of such savings and loan holding company, unless the acquisition is
approved by the OTS.
Holding Company Activities
Golden State currently operates as a unitary savings and loan holding
company. Generally, there are limited restrictions on the activities of a
unitary savings and loan holding company and its non-savings association
subsidiaries. If Golden State ceases to be a unitary savings and loan holding
company, by, for example, acquiring another savings association in a
non-supervisory transaction, the activities of Golden State and its
non-savings association subsidiaries would thereafter be subject to
substantial restrictions. In addition, proposed legislation could remove
protections from activity restrictions currently accorded a unitary savings
and loan holding company in the absence of appropriate "grandfather"
provisions. See "--Regulation of the Bank --Savings Association Charter."
Dividends
The HOLA requires every savings association subsidiary of a savings and
loan holding company to give the OTS at least a 30 day advance notice of any
proposed dividends to be made on its guarantee, permanent or other
non-withdrawable stock. Dividends declared in violation of such notice
requirement are invalid. See "--Regulation of the Bank--Capital Distribution
Regulation."
Affiliate Restrictions
Transactions between a savings association and its "affiliates" are subject
to quantitative and qualitative restrictions under Sections 23A and 23B of the
Federal Reserve Act. Affiliates of a savings association include, among other
entities, the savings association's holding company and non-banking companies
that are under common control with the savings association. In general, the
restrictions of Sections 23A and 23B do not apply to transactions between a
savings association and its parent, subsidiary or sister organizations that
themselves are banks or savings associations.
In general, Sections 23A and 23B and OTS regulations issued in connection
therewith limit the extent to which a savings association or its subsidiaries
may engage in certain "covered transactions" with affiliates to an amount
equal to 10% of the association's capital and surplus, in the case of covered
transactions with any one affiliate, and to an
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amount equal to 20% of such capital and surplus, in the case of covered
transactions with all affiliates. In addition, a savings association and its
subsidiaries may engage in covered transactions and certain other transactions
only on terms and under circumstances that are substantially the same, or at
least as favorable to the savings association or its subsidiary, as those
prevailing at the time for comparable transactions with nonaffiliated
companies. A "covered transaction" is defined to include a loan or extension
of credit to an affiliate; a purchase of investment securities issued by an
affiliate; with certain exceptions, a purchase of assets from an affiliate;
the acceptance of securities issued by an affiliate as collateral for a loan
or extension of credit to any party; or the issuance of a guarantee,
acceptance or letter of credit on behalf of an affiliate.
In addition, a savings association may not make a loan or extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for bank holding companies; a savings association may not purchase
or invest in securities of an affiliate other than shares of a subsidiary; a
savings association and its subsidiaries may not purchase a low-quality asset
from an affiliate; and covered transactions and certain other transactions
between a savings association or its subsidiaries and an affiliate must be on
terms and conditions that are consistent with safe and sound banking
practices. With certain exceptions, each loan or extension of credit by a
savings association to an affiliate must be secured by collateral with a
market value ranging from 100% to 130% (depending on the type of collateral)
of the amount of the loan or extension of credit.
REGULATION OF THE BANK
Regulatory System
As a federal savings bank, lending activities and other investments of the
Bank must comply with various statutory and regulatory requirements.
California Federal is regularly examined by the OTS and must file periodic
reports concerning its activities and financial condition.
Although the OTS is the Bank's primary regulator, the FDIC has "backup
enforcement authority" over the Bank. The Bank's eligible deposit accounts are
insured by the FDIC under the SAIF, up to applicable limits.
Federal Home Loan Banks
California Federal is a member of the FHLBS. Among other benefits, FHLB
membership provides the Bank with a central credit facility, from which it may
borrow generally on a secured basis in amounts determined by reference to
available collateral. The Bank is required to own capital stock in the FHLB in
an amount equal to the greater of: (i) 1% of its aggregate outstanding
principal amount of its residential mortgage loans, home purchase contracts
and similar obligations at the beginning of each calendar year, (ii) 0.3% of
total assets, or (iii) 5% of its FHLB advances (borrowings). The Bank
currently complies with FHLB stock ownership requirements.
Liquid Assets
Under OTS regulations, for each calendar quarter, a savings bank is
required to maintain an average daily balance of liquid assets (including
cash, certain time deposits and savings accounts, bankers' acceptances,
certain government obligations and certain other investments) not less than a
specified percentage of the average daily balance of its net withdrawable
accounts plus short-term borrowings (its liquidity base) during the preceding
calendar month. This liquidity requirement, which currently equals 4% (having
been lowered from 5% on November 24, 1997), may be changed from time to time
by the OTS to any amount between 4% and 10%, depending upon certain factors.
The Bank has maintained liquid assets in compliance with the regulations in
effect throughout 1998, 1997 and 1996.
Regulatory Capital Requirements
OTS capital regulations require savings banks to satisfy minimum capital
standards: risk-based capital requirements, a leverage requirement and a
tangible capital requirement. Savings banks must meet each of these standards
in order to be deemed in compliance with OTS capital requirements. In
addition, the OTS may require a savings association to maintain capital above
the minimum capital levels.
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All savings associations are required to meet a minimum risk-based capital
requirement of total capital (core capital plus supplementary capital) equal
to 8% of risk-weighted assets (which includes the credit risk equivalents of
certain off-balance sheet items). In calculating total capital for purposes of
the risk-based requirement, supplementary capital may not exceed 100% of core
capital. Under the leverage requirement, a savings association is required to
maintain core capital equal to a minimum of 4% of adjusted total assets. A
savings association is also required to maintain tangible capital in an amount
at least equal to 1.5% of its adjusted total assets.
Under OTS regulations, a savings association with a greater than "normal"
level of interest rate exposure must deduct an interest rate risk ("IRR")
component in calculating its total capital for purposes of determining whether
it meets its risk-based capital requirement. Interest rate exposure is
measured, generally, as the decline in an institution's net portfolio value
that would result from a 200 basis point increase or decrease in market
interest rates (whichever would result in lower net portfolio value), divided
by the estimated economic value of the savings association's assets. The
interest rate risk component to be deducted from total capital is equal to
one-half of the difference between an institution's measured exposure and
"normal" IRR exposure (which is defined as 2%), multiplied by the estimated
economic value of the institution's assets. In August 1995, the OTS
indefinitely delayed implementation of its IRR regulation; however, based on
internal measures of interest rate risk at December 31, 1998, the Bank would
not have been required to deduct an IRR component in calculating total
risk-based capital had the IRR component of the capital regulations been in
effect.
These capital requirements are viewed as minimum standards by the OTS, and
most institutions are expected to maintain capital levels well above the
minimum. In addition, the OTS regulations provide that minimum capital levels
higher than those provided in the regulations may be established by the OTS
for individual savings associations upon a determination that the savings
association's capital is or may become inadequate in view of its
circumstances. The OTS regulations provide that higher individual minimum
regulatory capital requirements may be appropriate in circumstances where,
among others: (i) a savings association has a high degree of exposure to
interest rate risk, prepayment risk, credit risk, concentration of credit
risk, certain risks arising from nontraditional activities, or similar risks
or a high proportion of off-balance sheet risk; (ii) a savings association is
growing, either internally or through acquisitions, at such a rate that
supervisory problems are presented that are not dealt with adequately by OTS
regulations; and (iii) a savings association may be adversely affected by
activities or conditions of its holding company, affiliates, subsidiaries or
other persons or savings associations with which it has significant business
relationships. The Bank is not subject to any such individual minimum
regulatory capital requirement.
The Bank currently satisfies all applicable regulatory capital
requirements. California Federal's total capital to riskbased assets ratio was
11.69%, its core capital to risk-based assets ratio was 10.27%, its leverage
capital ratio was 5.29% and its tangible capital ratio was 5.29% at December
31, 1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Capital Resources."
Certain Consequences of Failure to Comply with Regulatory Capital
Requirements
A savings association's failure to maintain capital at or above the minimum
capital requirements may be deemed an unsafe and unsound practice and may
subject the savings association to enforcement actions and other proceedings.
Any savings association not in compliance with all of its capital requirements
is required to submit a capital plan that addresses the association's need for
additional capital and meets certain additional requirements. While the
capital plan is being reviewed by the OTS, the savings association must
certify, among other things, that it will not, without the approval of its
appropriate OTS Regional Director, grow beyond net interest credited or make
capital distributions. If a savings association's capital plan is not
approved, the association will become subject to additional growth and other
restrictions. In addition, the OTS, through a capital directive or otherwise,
may restrict the ability of a savings association not in compliance with the
capital requirements to pay dividends and compensation, and may require such
association to take one or more of certain corrective actions, including,
without limitation: (i) increasing its capital to specified levels, (ii)
reducing the rate of interest that may be paid on savings accounts, (iii)
limiting receipt of deposits to those made to existing accounts, (iv) ceasing
issuance of new accounts of any or all classes or categories except in
exchange for existing accounts, (v) ceasing or limiting the purchase of loans
or the making of other specified investments, and (vi) limiting operational
expenditures to specified levels.
The HOLA permits savings associations not in compliance with the OTS
capital standards to seek an exemption from certain penalties or sanctions for
noncompliance. Such an exemption will be granted only if certain strict
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requirements are met, and must be denied under certain circumstances. If an
exemption is granted by the OTS, the savings association still may be subject
to enforcement actions for other violations of law or unsafe or unsound
practices or conditions.
The Bank is not presently subject to any enforcement action or other
regulatory proceeding with respect to its compliance with regulatory capital
requirements. The Bank is currently in compliance with all applicable
regulatory capital requirements.
Prompt Corrective Action
The prompt corrective action regulation of the OTS, promulgated under
FDICIA, requires certain mandatory actions and authorizes certain other
discretionary actions to be taken by the OTS against a savings association
that falls within certain undercapitalized capital categories specified in the
regulation.
The regulation establishes five categories of capital classification: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." Under the regulation,
the ratio of total capital to risk-weighted assets, core capital to
risk-weighted assets and the leverage capital ratio are used to determine an
association's capital classification. The Bank met the capital requirements of
a "well capitalized" institution under the FDICIA prompt corrective action
standards as of December 31, 1998. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Capital Resources."
In general, the prompt corrective action regulation prohibits an insured
depository institution from declaring any dividends, making any other capital
distribution, or paying a management fee to a controlling person if, following
the distribution or payment, the institution would be within any of the three
undercapitalized categories. In addition, adequately capitalized institutions
may accept Brokered Deposits only with a waiver from the FDIC and are subject
to restrictions on the interest rates that can be paid on such deposits.
Undercapitalized institutions may not accept, renew or roll-over Brokered
Deposits.
Savings associations that are classified as undercapitalized are subject to
certain mandatory supervisory actions, including: (i) increased monitoring by
the appropriate federal banking agency for the association and periodic review
of the association's efforts to restore its capital, (ii) a requirement that
the association submit a capital restoration plan acceptable to the
appropriate federal banking agency and implement that plan, and that each
company having control of the association guarantee compliance with the
capital restoration plan in an amount not exceeding the lesser of 5% of the
association's total assets at the time it received notice of being
undercapitalized, or the amount necessary to bring the association into
compliance with applicable capital standards at the time it fails to comply
with the plan, and (iii) a limitation on the association's ability to make any
acquisition, open any new branch offices, or engage in any new line of
business without the prior approval of the appropriate federal banking agency
for the institution or the FDIC.
The regulation also provides that the OTS may take any of certain
additional supervisory actions against an undercapitalized association if the
agency determines that such actions are necessary to resolve the problems of
the association at the least possible long-term cost to the deposit insurance
fund. These supervisory actions include: (i) requiring the association to
raise additional capital or be acquired by another association or holding
company if certain grounds exist, (ii) restricting transactions between the
association and its affiliates, (iii) restricting interest rates paid by the
association on deposits, (iv) restricting the association's asset growth or
requiring the association to reduce its assets, (v) requiring replacement of
senior executive officers and directors, (vi) requiring the association to
alter or terminate any activity deemed to pose excessive risk to the
association, (vii) prohibiting capital distributions by bank holding companies
without prior approval by the Board of Governors of the Federal Reserve Board
(the "FRB"), (viii) requiring the association to divest certain subsidiaries,
or requiring the association's holding company to divest the association or
certain affiliates of the association, and (ix) taking any other supervisory
action that the agency believes would better carry out the purposes of the
prompt corrective action provisions of FDICIA.
Savings associations classified as undercapitalized that fail to submit a
timely, acceptable capital restoration plan or fail to implement such a plan
are subject to the same supervisory actions as significantly undercapitalized
associations. Significantly undercapitalized associations are subject to the
mandatory provisions applicable to undercapitalized associations. The
regulation also makes mandatory for significantly undercapitalized
associations certain of the supervisory actions that are discretionary for
associations classified as undercapitalized, creates a
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presumption in favor of certain discretionary supervisory actions, and
subjects significantly undercapitalized associations to additional
restrictions, including a prohibition on paying bonuses or raises to senior
executive officers without the prior written approval of the appropriate
federal bank regulatory agency. In addition, significantly undercapitalized
associations may be subjected to certain of the restrictions applicable to
critically undercapitalized associations.
The regulation requires that an association be placed into conservatorship
or receivership within 90 days after it becomes critically undercapitalized,
unless the OTS, with the concurrence of the FDIC, determines that other action
would better achieve the purposes of the prompt corrective action provisions
of FDICIA. Any such determination must be renewed every 90 days. A savings
association also must be placed into receivership if the association continues
to be critically undercapitalized, on average, during the fourth quarter after
the association initially became critically undercapitalized, unless the
association's federal bank regulatory agency, with the concurrence of the
FDIC, makes certain positive determinations with respect to the association.
Critically undercapitalized associations are also subject to the
restrictions generally applicable to significantly undercapitalized
associations and to a number of other severe restrictions. For example,
beginning 60 days after becoming critically undercapitalized, such
associations may not pay principal or interest on subordinated debt without
the prior approval of the FDIC. (However, the regulation does not prevent
unpaid interest from accruing on subordinated debt under the terms of the debt
instrument, to the extent otherwise permitted by law.) In addition, critically
undercapitalized associations may be prohibited from engaging in a number of
activities, including entering into certain transactions or paying interest
above a certain rate on new or renewed liabilities.
If the OTS determines that an association is in an unsafe or unsound
condition, or if the association is deemed to be engaging in an unsafe or
unsound practice, the OTS may, if the association is well-capitalized,
reclassify it as adequately capitalized; if the association is adequately
capitalized, require it to comply with restrictions applicable to
undercapitalized associations; and, if the association is undercapitalized,
require it to comply with certain restrictions applicable to significantly
undercapitalized associations.
The Bank is not presently subject to any enforcement action or other
regulatory proceeding with respect to the prompt corrective action regulation.
The Bank is currently qualified as a "well capitalized" institution under
prompt corrective action regulation.
Conservatorship/Receivership
In addition to the grounds discussed under "--Prompt Corrective Action,"
the OTS (and, under certain circumstances, the FDIC) may appoint a conservator
or receiver for a savings association if any one or more of a number of
circumstances exist, including, without limitation, the following: (i) the
association's assets are less than its obligations to creditors and others,
(ii) a substantial dissipation of assets or earnings due to any violation of
law or any unsafe or unsound practice, (iii) an unsafe or unsound condition to
transact business, (iv) a willful violation of a final cease-and-desist order,
(v) the concealment of the association's books, papers, records or assets or
refusal to submit such items for inspection to any examiner or lawful agent of
the OTS or FDIC, (vi) the association is likely to be unable to pay its
obligations or meet its depositors' demands in the normal course of business,
(vii) the association has incurred, or is likely to incur, losses that will
deplete all or substantially all of its capital, and there is no reasonable
prospect for the association to become adequately capitalized without federal
assistance, (viii) any violation of law or unsafe or unsound practice that is
likely to cause insolvency or substantial dissipation of assets or earnings,
weaken the association's condition, or otherwise seriously prejudice the
interests of the association's depositors or the federal deposit insurance
fund, (ix) the association consents to the appointment of the conservator or
receiver, (x) the association ceases to be an insured association, (xi) the
association is undercapitalized and the association has no reasonable prospect
of becoming adequately capitalized, fails to become adequately capitalized
when required to do so, fails to submit a timely and acceptable capital
restoration plan, or materially fails to implement an accepted capital
restoration plan, (xii) the association is critically undercapitalized or
otherwise has substantially insufficient capital, or (xiii) the association is
found guilty of certain criminal offenses related to money laundering. Neither
the OTS nor the FDIC has taken or has threatened to take any action with
respect to the appointment of a conservator or receiver for the Bank.
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Enforcement Powers
The OTS and, under certain circumstances, the FDIC, have substantial
enforcement authority with respect to savings associations, including
authority to bring various enforcement actions against a savings association
and any of its "institution-affiliated parties" (a term defined to include,
among other persons, directors, officers, employees, controlling stockholders,
agents and shareholders who participate in the conduct of the affairs of the
institution). This enforcement authority includes, without limitation: (i) the
ability to terminate a savings association's deposit insurance, (ii) institute
cease-and-desist proceedings, (iii) bring suspension, removal, prohibition and
criminal proceedings against institution-affiliated parties, and (iv) assess
substantial civil money penalties. As part of a cease-and-desist order, the
agencies may require a savings association or an institution-affiliated party
to take affirmative action to correct conditions resulting from that party's
actions, including to make restitution or provide reimbursement,
indemnification or guarantee against loss; restrict the growth of the
institution; and rescind agreements and contracts. The Bank is not currently
subject to any OTS or FDIC enforcement proceedings, actual or threatened.
Capital Distribution Regulation
In addition to the prompt corrective action restriction on paying dividends
described above, OTS regulations limit certain "capital distributions" by
savings associations. Capital distributions are defined to include, in part,
dividends and payments for stock repurchases and cash-out mergers.
Under the regulation, an association that meets its capital requirements
both before and after a proposed distribution and has not been notified by the
OTS that it is in need of more than normal supervision (a "Tier 1
association") may, after prior notice to but without the approval of the OTS,
make capital distributions during a calendar year up to the higher of: (i)
100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its surplus capital ratio at the beginning of the
calendar year, or (ii) 75% of its net income over the most recent four-quarter
period. A Tier 1 association may make capital distributions in excess of the
above amount if it gives notice to the OTS and the OTS does not object to the
distribution. A savings association that meets its regulatory capital
requirements both before and after a proposed distribution but does not meet
its capital requirement (a "Tier 2 association") is authorized, after prior
notice to the OTS but without OTS approval, to make capital distributions in
an amount up to 75% of its net income over the most recent four-quarter
period, taking into account all prior distributions during the same period.
Any distribution in excess of this amount must be approved in advance by the
OTS. A savings association that does not meet its current regulatory capital
requirements (a "Tier 3 association") cannot make any capital distribution
without prior approval from the OTS, unless the capital distribution is
consistent with the terms of a capital plan approved by the OTS.
The Bank's capital distributions have complied with the capital
distribution rule. At December 31, 1998, the Bank qualified as a Tier 1
association for purposes of the capital distribution rule. The OTS may
prohibit a proposed capital distribution that would otherwise be permitted if
the OTS determines that the distribution would constitute an unsafe or unsound
practice. The requirements of the capital distribution regulation supersede
less stringent capital distribution restrictions in earlier agreements or
conditions.
In January 1999, the OTS issued revised capital distribution rules to
conform its requirements to its prompt corrective action regulations. The new
rules take effect on April 1, 1999. Under the revised capital distribution
rules, a savings institution that is a subsidiary of a savings and loan
holding company must notify the OTS of a capital distribution at least 30 days
prior to the declaration of a capital distribution, provided the total of all
capital distributions made during that calendar year (including the proposed
distribution) does not exceed the sum of the institution's year-to-date net
income and its retained income for the preceding two years.
A dividend application to the OTS is required if: (a) the amount of the
proposed dividend exceeds the amount described in the preceding paragraph, (b)
the institution is not entitled to "expedited treatment" under OTS
regulations, (c) the institution would not be at least "adequately
capitalized" following the proposed capital distribution, or (d) the
distribution would violate an applicable statute, regulation, agreement, or
condition imposed on the institution by the OTS. As of December 31, 1998, the
Bank qualified for "expedited treatment" under OTS regulations.
The OTS may disapprove a capital distribution notice or application if it
determines that: (a) the institution would not be at least "adequately
capitalized" following the capital distribution, (b) the distribution raises
safety or soundness
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concerns, or (c) the distribution would violate an applicable statute,
regulation, agreement, or condition imposed on the institution by the OTS.
Qualified Thrift Lender Test
In general, savings associations are required to maintain at least 65% of
their portfolio assets in certain qualified thrift investments (which consist
primarily of loans and other investments related to residential real estate
and certain other assets). A savings association that fails the qualified
thrift lender test is subject to substantial restrictions on activities and to
other significant penalties.
Legislation permits a savings association to qualify as a qualified thrift
lender ("QTL") not only by maintaining 65% of portfolio assets in qualified
thrift investments (the "QTL test") but also, in the alternative, by meeting
the asset composition test under the Internal Revenue Code for a "domestic
building and loan association." The Bank currently is a domestic building and
loan association as defined in the Internal Revenue Code and, consequently is
a QTL for purposes of HOLA.
Legislation enacted in 1996 also expands the QTL test to provide savings
associations with greater authority to lend and diversify their portfolios. In
particular, credit card and educational loans may now be made by savings
associations without regard to any percentage-of-assets limit, and commercial
loans may be made in an amount up to 10 percent of total assets, plus an
additional 10 percent for small business loans. Loans for personal, family,
and household purposes (other than credit card, small business, and
educational loans) are now included without limit with other assets that, in
the aggregate, may account for up to 20% of total assets. At December 31, 1998
under the expanded QTL test, approximately 94.25% of the Bank's portfolio
assets were qualified thrift investments, satisfying the QTL test.
FDIC Assessments
The deposits of the Bank are insured by the SAIF of the FDIC, up to
applicable limits, and are subject to deposit premium assessments by the SAIF.
Under the FDIC's risk-based insurance system, SAIF-assessed deposits are
currently subject to insurance premiums of between 0 and 27 basis points,
depending upon the institution's capital position and other supervisory
factors. The rate applicable to the Bank at December 31, 1998 was 0 basis
points.
Since January 1997, institutions with Bank Insurance Fund ("BIF") deposits
have been required to share the cost of funding debt obligations issued by the
Financing Corporation ("FICO"), a corporation established by the federal
government in 1987 to finance the recapitalization of FSLIC. However, until
the earlier of December 31, 1999 or the date of elimination of the thrift
charter (see "--Savings Association Charter"), the FICO assessment rate for
BIF deposits is only one-fifth of the rate applicable to SAIF deposits.
Consequently, the annual FICO assessments to be added to deposit insurance
premiums, which may be periodically adjusted, are expected to equal
approximately 6.4 basis points for SAIF deposits and 1.3 basis points for BIF
deposits from January 1, 1997 through December 31, 1999. Since January 1,
1997, FICO payments have been paid directly by SAIF and BIF institutions in
addition to deposit insurance assessments. Recently proposed legislation would
extend the difference between the BIF and SAIF contributions for an additional
three years.
Savings Association Charter
Congress has been considering legislation in various forms that would
require federal thrifts, such as the Bank, to convert their charters to
national bank charters. In the absence of appropriate "grandfather"
provisions, legislation eliminating the savings association charter could have
a material adverse effect on the Bank and its parent holding companies
because, among other things, these holding companies engage in activities that
are not permissible for bank holding companies and the regulatory capital and
accounting treatment for banks and savings associations differs in certain
significant respects. The Company cannot determine whether, or in what form,
such legislation may eventually be enacted and there can be no assurance that
any legislation that is enacted would contain adequate grandfather rights for
the Bank and its parent holding companies.
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Non-Investment Grade Debt Securities
Savings associations and their subsidiaries are prohibited from investing
in any corporate debt security that, at the time of acquisition, is not rated
in one of the four highest rating categories by at least one nationally
recognized statistical rating organization. The Bank does not own any
non-investment grade debt securities.
Community Reinvestment Act and the Fair Lending Laws
Savings associations have a responsibility under the Community Reinvestment
Act ("CRA") and related regulations of the OTS to help meet the credit needs
of their communities, including low- and moderate-income neighborhoods. In
addition, the Equal Credit Opportunity Act and the Fair Housing Act (together,
the "Fair Lending Laws") prohibit lenders from discriminating in their lending
practices on the basis of characteristics specified in those statutes. An
association's failure to comply with the provisions of CRA could, as a
minimum, result in regulatory restrictions on its activities, and failure to
comply with the Fair Lending Laws could result in enforcement actions by the
OTS, as well as other federal regulatory agencies and the Department of
Justice. The Bank received an "Outstanding" rating in its most recently
completed March 1997 CRA examination.
Change of Control
Subject to certain limited exceptions, no company can acquire control of a
savings association without the prior approval of the OTS, and no individual
may acquire control of a savings association if the OTS objects. Any company
that acquires control of a savings association becomes a savings and loan
holding company subject to extensive registration, examination and regulation
by the OTS. Conclusive control exists, among other ways, when an acquiring
party acquires more than 25% of any class of voting stock of a savings
association or savings and loan holding company, or controls in any manner the
election of a majority of the directors of the company. In addition, a
rebuttable presumption of control exists if, among other things, a person
acquires more than 10% of any class of voting stock of the savings association
or savings and loan holding company (or 25% of any class of stock, whether or
not voting) and, in either case, any of certain additional control factors
specified in OTS regulations exist. Golden State is in compliance with these
requirements.
Under 1996 legislation, companies subject to the Bank Holding Company Act
that acquire or own savings associations are no longer defined as savings and
loan holding companies under the HOLA and, therefore, are not generally
subject to supervision and regulation by the OTS. OTS approval is no longer
required for a bank holding company to acquire control of an existing savings
association, although the OTS has a consultative role with the FRB in
examination, enforcement and acquisition matters. Golden State is not subject
to the Bank Holding Company Act.
TAXATION
Prior to the Golden State Acquisition, for federal income tax purposes,
Parent Holdings was included in the Mafco Group and accordingly, its federal
taxable income and loss was included in the consolidated federal income tax
return filed by Mafco Holdings. In connection with the Golden State
Acquisition, the tax sharing agreement with Mafco was assumed by the Company
for taxable periods ending after the acquisition. The Company, the successor
of Parent Holdings, is the parent corporation of the Golden State affiliated
group. Accordingly, after September 11, 1998, the Company and its
subsidiaries will file a consolidated federal income tax return. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Provision for Federal and State Income Taxes."
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ITEM 2. PROPERTIES
The executive offices of the Bank and of the Company are located at 135
Main Street, San Francisco, California, 94105, and its telephone number is
(415) 904-1100. The Bank leases approximately 97,000 square feet in the
building in which its executive offices are located, under a ten-year lease
expiring in 2001. In addition, the Bank leases two facilities near Sacramento,
California including approximately 216,000 square feet in a multiple-building
administrative facility under a ten-year lease expiring in 2001 and
approximately 46,000 square feet in another administrative facility under a
lease expiring in 2004. The Company and its subsidiaries lease additional
executive and administrative office space in Dallas which includes
approximately 51,000 square feet of space under leases expiring in 2000 and
2002.
As part of the Cal Fed Acquisition, the Bank assumed the lease on executive
offices and an office building of approximately 513,000 square feet. The Bank
vacated all but approximately 44,000 square feet of this facility during the
first half of 1997. The office lease was to expire in 2007, however, the Bank
terminated its remaining liability on all space other than approximately
44,000 square feet by payment of approximately $28 million. The lease on the
remaining 44,000 square feet terminates in 2003. In addition, Old California
Federal had certain operating and administrative departments in a leased
facility containing approximately 225,000 square feet located in Rosemead,
California. The Bank vacated and subleased the Rosemead facility during the
first half of 1997. The Rosemead lease expires in 2008.
As part of the Golden State Acquisition, the Company acquired ten office
buildings containing approximately 310,000 square feet of space. The Company
plans to utilize 210,000 square feet of this space for its call center and
loan servicing operations, and to sell the remaining 100,000 square feet.
Accordingly, such space has been recorded as held for sale in the Company's
accounting records. In addition, the Company assumed the lease on executive
offices and branch office buildings totalling approximately 330,000 square
feet. As of December 31, 1998, leases totalling 124,000 square feet expired.
Of the remaining 206,000 square feet, the Company vacated all but
approximately 15,000 square feet during the last quarter of 1998. It is the
Company's intent to sublease all office space not expiring within the next
year.
At December 31, 1998, the Bank operated a total of 358 retail branches and
maintained 69 vacant branch facilities which were consolidated as a result of
certain branch purchases, the 1996 Acquisitions, the Cal Fed Acquisition, the
Glen Fed Merger, and various consolidations of operations to West Sacramento.
Of the 358 total operating retail branches, 126 were owned and 232 were
leased. Some of these retail branches are multi-purpose facilities, housing
loan production and administrative facilities in addition to retail space. Of
the 69 vacant facilities (ten owned and 59 leased, all in California), 28
locations have been subleased.
At December 31, 1998, there were 15 separate loan production offices, of
which one was owned and 14 were leased, and which included three offices
housing operations acquired in the LMUSA Purchases. All offices house
wholesale lending operations. There were five vacant loan production
facilities at December 31, 1998, all of which were leased and two of which
have been subleased.
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In addition, the Bank operated 21 separate administrative facilities (8
owned and 13 leased) and maintained 14 vacant administrative facilities (2
owned and 12 leased). Of the 14 vacant administrative facilities, 10 were
subleased. The administrative facilities include a 230,000 square foot owned
building and an approximately 34,000 square foot leased building in Frederick,
Maryland, which houses FNMC's operations, and approximately 73,000 square feet
of leased space in two buildings in Dallas, which houses Auto One. A
state-by-state breakdown of all retail branches, administrative facilities and
loan production offices operated by the Bank at December 31, 1998 is shown in
the following table:
<TABLE>
<CAPTION>
Branches Administrative Facilities Loan Production Facilities
----------------------------- --------------------------------- ----------------------------
Owned Leased Vacant Owned Leased Vacant Owned Leased Vacant
----- ------ ------ ----- ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona -- -- -- -- -- -- -- 2 --
California 125 226 69 8 10 13 -- 7 2
Florida -- -- -- -- -- 1 -- -- --
Illinois -- -- -- -- -- -- -- -- 1
Maryland -- -- -- -- -- -- 1 1 1
Minnesota -- -- -- -- -- -- -- -- 1
Montana -- -- -- -- -- -- -- 1 --
Nevada 1 6 -- -- -- -- -- 1 --
Pennsylvania -- -- -- -- -- -- -- 1 --
Texas -- -- -- -- 3 -- -- -- --
Washington -- -- -- -- -- -- -- 1 --
--- --- -- -- -- -- -- -- --
Total 126 232 69 8 13 14 1 14 5
=== === == = == == = == =
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
In addition to the Glendale Goodwill Litigation and the California
Federal Litigation, Golden State and its subsidiaries are involved in other
legal proceedings on claims incidental to the normal conduct of its
businesses. See also "Business--Other Activities--Goodwill Litigation."
Although it is impossible to predict the outcome of any outstanding legal
proceedings, management believes that such legal proceedings and claims,
individually or in the aggregate, will not have a material effect on Golden
State, GS Holdings or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of Golden State trades on the New York Stock Exchange
("NYSE") under the symbol "GSB" and is also listed on the Pacific Exchange
("PE"). The following table sets forth, for the periods indicated, the range
of high and low sale prices of the Company's common stock:
<TABLE>
<CAPTION>
High Low
Year Ended December 31, 1998
<S> <C> <C>
First Quarter $ 39 3/8 $ 29 7/8
Second Quarter (a) 35 5/8 29 3/4
Third Quarter 32 5/8 15 9/16
Fourth Quarter 20 7/8 10
Year Ended December 31, 1997
First Quarter 28 1/8 22 1/2
Second Quarter 27 22 1/4
Third Quarter 31 7/8 26 1/8
Fourth Quarter 37 3/4 30 1/16
</TABLE>
---------------
(a) Golden State distributed its LTW(TM)s to its stockholders, on the
basis of one LTW(TM) for each outstanding share, on May 29, 1998. See
"Business--Other Activities--Litigation Tracking Warrants(TM)."
Second, third and fourth quarter 1998 high and low prices do not
include the separate values of the Litigation Tracking Warrants(TM).
At the close of business on February 28, 1999, the Company's common stock
price was $17 13/16.
Number of Holders of Common Stock
At February 28, 1999, 134,287,092 shares of Company common stock were
outstanding and held by 6,123 holders of record.
Dividends
During 1997 and 1996, dividends on Golden State's common stock totalled
$22.7 million and $375.8 million, respectively. No dividends were paid in
1998. See further discussion of dividend restrictions in Note 28 of Golden
State's 1998 consolidated financial statements.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The data presented below represents selected financial data relative to the
Company for, and as of the end of, each of the years in the five-year period
ended December 31, 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 (1) 1997 (2) 1996 1995 1994 (4)
---- ---- ---- ---- ----
(dollars in millions, except per share data)
SELECTED OPERATING DATA
<S> <C> <C> <C> <C> <C>
Interest income $2,549 $ 2,103 $1,234 $1,076 $293
Interest expense 1,820 1,499 848 735 200
Net interest income 729 604 386 341 93
Provision for loan losses 40 80 40 37 6
Noninterest income 477 365 654 151 42
Noninterest expense 764 651 492 333 96
Income before taxes, minority interest
and extraordinary item 402 238 508 122 33
Income tax expense (benefit) (5) (107) 41 (76) (58) 3
Income before minority interest
and extraordinary item 509 197 584 180 30
Minority interest (6) 111 102 48 35 --
Income before extraordinary item 398 95 536 145 30
Extraordinary item: (loss)/gain on early
extinguishment of debt, net (150) -- (2) 2 1
Net income available to common stockholders 248 95 534 147 31
Earnings per common share:
Basic:
Income before extraordinary
item $5.00 $ 1.67 $ 9.44 $ 2.56 $0.52
Net income 3.11 1.67 9.41 2.59 0.54
Diluted:
Income before extraordinary
item 4.88 1.67 9.44 2.56 0.52
Net income 3.04 1.67 9.41 2.59 0.54
SELECTED PERFORMANCE RATIOS
Return on average assets (7) 0.63% 0.31% 3.12% 1.00% 0.69%
Return on average common equity (8) 27.38 27.42 127.68 39.31 17.77
Average equity to average assets 2.30 1.13 2.44 2.54 3.90
Yield on interest-earning assets (9) 7.23 7.53 7.76 7.71 6.85
Cost of interest-bearing liabilities (10) 5.05 5.28 5.29 5.35 4.83
Net interest margin (11) 2.07 2.16 2.44 2.44 2.18
Efficiency ratio of the Bank (12) 50.32 51.16 54.88 63.47 N/A
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND MINORITY
INTEREST (13)
Excluding interest on deposits 1.25x 1.16x 1.95x 1.27x 1.32x
Including interest on deposits 1.15 1.08 1.51 1.11 1.16
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1998 (1) 1997 (2) 1996 (3) 1995 1994(4)
---- ---- ---- ---- ----
(dollars in millions, except per share data)
SELECTED FINANCIAL DATA
<S> <C> <C> <C> <C> <C>
Securities available for sale (14) $ 771 $ 813 $ 542 $ 349 $ 45
Securities held to maturity (14) 251 58 4 1 412
Mortgage-backed securities
available for sale 12,948 5,077 1,599 1,478 --
Mortgage-backed securities held
to maturity (14) 2,771 1,338 1,622 1,524 3,154
Loans receivable, net 30,281 19,424 10,213 8,830 9,967
Total assets 54,869 31,362 16,635 14,667 14,684
Deposits 24,620 16,203 8,502 10,242 9,157
Securities sold under agreements
to repurchase 4,238 1,842 1,583 970 1,883
Borrowings 22,376 11,233 5,365 2,393 2,809
Total liabilities 52,694 29,981 15,850 13,904 14,030
Minority interest 593 1,012 460 301 301
Stockholders' equity 1,582 369 325 424 353
Common shares outstanding 128,597,769 56,722,988 56,722,988 56,722,988 56,722,988
Diluted shares outstanding 139,427,759 56,722,988 56,722,988 56,722,988 56,722,988
Book value per diluted share $ 11.34 $ 6.51 $ 5.74 $ 8.14 $ 6.22
Tangible book value per diluted share 4.72 (5.40) 3.26 7.82 6.01
REGULATORY CAPITAL RATIOS OF THE BANK
Tangible capital 5.29% 5.65% 7.17% 5.84% 5.50%
Core capital 5.29 5.65 7.17 5.84 5.50
Risk-based capital:
Core capital 10.27 10.14 11.50 9.14 8.86
Total capital 11.69 11.93 13.62 11.34 11.01
SELECTED OTHER DATA
Number of full service customer
facilities 358 225 116 160 156
Loans serviced for others (15) $68,803 $47,933 $44,034 $27,901 $7,475
Number of employees 8,229 5,235 3,547 3,619 3,573
Non-performing assets as a
% of the Bank's total assets 0.57% 0.87% 1.36% 1.50% 1.49%
</TABLE>
- ------------------
(1) On September 11, 1998, the Company consummated the Glen Fed
Merger, acquiring assets with fair values totalling approximately
$18.8 billion and liabilities (including deposit liabilities) with
fair values totalling approximately $17.7 billion. In addition, on
September 11, 1998, the Company consummated the Florida Branch
Sale, with associated deposit accounts totalling $1.4 billion,
which resulted in a pre-tax gain of $108.9 million. Noninterest
expense for the year ended December 31, 1998 includes $59.2
million in merger and integration costs.
(2) On January 3, 1997, the Company acquired assets with fair values
totalling approximately $14.2 billion and liabilities (including
deposit liabilities) with fair values totalling approximately
$12.9 billion in the Cal Fed Acquisition. In addition, on May 31,
1997, the Company consummated the Weyerhaeuser Purchase, acquiring
a $3.2 billion loan servicing portfolio. Noninterest income for
the year ended December 31, 1997 includes pre-tax gains of $14.0
million on the sale of MSRs, $25 million on the sale of ACS stock,
and $3.6 million on the sale of deposits. Noninterest expense for
the year ended December 31, 1997, includes a $29.0 million
provision for professional fees and unreimbursable costs related
to the foreclosure of 1-4 unit residential loans serviced for
others.
(3) On January 31, 1996, FNMC consummated the 1996 LMUSA Purchase,
acquiring a $14.1 billion loan servicing portfolio. On February 1,
1996, the Company acquired SFFed, with assets at fair values
totalling approximately $4 billion and liabilities (including
deposit liabilities) with fair values totalling approximately $3.8
billion. During the year ended December 31, 1996, the Company
closed the Branch Sales, with associated deposit accounts
totalling $4.6 billion. Noninterest income for the year ended
December 31, 1996 includes pre-tax gains of $363.3 million related
to the Branch Sales. Noninterest expense for the year ended
December 31, 1996 includes a pre-tax charge of $60.1 million for
the Special SAIF Assessment (as defined herein).
(4) On October 3, 1994, effective immediately following the close of
business on September 30, 1994, the Company acquired assets with
fair values totalling approximately $14.1 billion and liabilities
(including deposit liabilities) with fair values totalling
approximately $13.4 billion from Old FNB.
(5) Income tax expense recorded in 1994 after the FN Acquisition
represents federal AMT reduced, to the extent of 90%, by net
operating loss carryovers, and state tax at an assumed rate of 8%.
Income tax benefit for 1996 and 1995 includes the recognition of a
deferred tax benefit of $125 million and $69 million,
respectively, offset by federal AMT tax reduced, to the extent of
90%, by net operating loss carryovers and state tax generally at
an assumed rate of 8%. Income tax expense for 1997 and the first
half of
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<PAGE>
1998 represents federal AMT reduced, to the extent of 90%, by net
operating loss carryovers, and state tax at an assumed rate of
11%. On June 30, 1998, the Bank recorded a $250 million reduction
of the valuation allowance related to its deferred tax asset.
Income tax expense for the second half of 1998 represents an
effective tax rate of 42%.
(6) Represents dividends on the REIT Preferred Stock, net of related
tax benefit, FN Holdings Preferred Stock and the Bank Preferred
Stock. The REIT Preferred Stock was issued on January 31, 1997.
Minority interest for the year ended December 31, 1998 also
includes a 20% minority interest in Auto One.
(7) Return on average assets represents net income as a percentage of
average assets for the periods presented.
(8) Return on average common equity represents net income available to
common stockholders as a percentage of average common equity for
the periods presented.
(9) Yield on interest-earning assets represents interest income as a
percentage of average interest-earning assets.
(10) Cost of interest-bearing liabilities represents interest expense
as a percentage of average interest-bearing liabilities.
(11) Net interest margin represents net interest income as a percentage
of average interest-earning assets.
(12) Efficiency ratio represents noninterest expense reduced by
goodwill amortization as a percentage of net interest income plus
noninterest income (adjusted for non-recurring items). The
efficiency ratio was not meaningful to the Bank's operations in
1994 due to the limited nature of such operations during the
period prior to the consummation of the FN Acquisition.
(13) Earnings used in computing the ratio of earnings to combined fixed
charges and minority interest consist of income before income
taxes, extraordinary item and minority interest and fixed charges
consist of interest expense on borrowings, the interest component
of lease expense and, where indicated, interest expense on
deposits.
(14) Fluctuation in securities and mortgage-backed securities held to
maturity and securities and mortgage-backed securities available
for sale from December 31, 1994 to December 31, 1995 resulted from
the reclassification of substantially all securities and
mortgage-backed securities (except for mortgage-backed securities
resulting from the securitization with recourse of certain of the
Bank's loans) from held to maturity to securities available for
sale on December 29, 1995.
(15) Includes loans serviced by the Bank and its subsidiaries,
excluding loans serviced for the Bank by FNMC.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Golden State is a holding company whose only significant asset is its
indirect ownership of all of the common stock of California Federal. As such,
Golden State's principal business operations are conducted by California
Federal and its subsidiaries.
The following discussion should be read in conjunction with the
Consolidated Financial Statements of Golden State and the notes thereto
included elsewhere in this Form 10-K. The following discussion includes
historical information relating to Golden State, including the effects of the
Golden State Acquisition and the Cal Fed Acquisition for the periods since
consummation on September 11, 1998 and January 3, 1997, respectively.
GENERAL
Golden State, which is headquartered in San Francisco, California, is a
diversified financial services company that primarily serves consumers in
California and to a lesser extent, in Nevada. The Company's principal business
consists of (i) operating retail deposit branches that provide retail
consumers and small businesses with deposit products such as demand,
transaction and savings accounts; investment products such as mutual funds,
annuities and insurance; and (ii) mortgage banking activities, including
originating and purchasing 1-4 unit residential loans for sale to various
investors in the secondary market and servicing loans for itself and others.
To a lesser extent, the Company originates and/or purchases certain commercial
real estate, commercial and consumer loans for investment. These operating
activities are financed principally with customer deposits, secured short-term
and long-term borrowings, collections on loans, asset sales and retained
earnings. Refer to note 25 of the Company's consolidated financial statements
for additional information about the Company's business segments.
The following is a description of the Company's two most significant
acquisitions which have occurred since the FN Acquisition. Each of the
acquisitions was recorded using the purchase method of accounting. Under this
method of accounting, the purchase price of the acquisition is allocated to
the assets and liabilities acquired based on their fair market values as of
the date of the acquisition. For further historical summary of the Company's
acquisition and divestiture activity, see "Business--General."
The Golden State Acquisition
On September 11, 1998, Parent Holdings and Hunter's Glen completed the
Golden State Merger in a tax-free exchange of shares, accounted for under the
purchase method of accounting. Pursuant to the Golden State Merger agreement,
(i) FN Holdings contributed all of its assets (including all of the common
stock of the Bank) to GS Holdings, (ii) Parent Holdings, which then owned all
of the common stock of FN Holdings as a result of the extinguishment of the
Hunter's Glen minority interest, merged with and into Golden State, which
indirectly owned 100% of the common stock of Glendale Federal, (iii) FN
Holdings merged with and into GS Financial, which owned all of the common
stock of Glendale Federal and (iv) Glendale Federal merged with and into the
Bank. At September 11, 1998, Glendale Federal had total assets of
approximately $18.9 billion and deposits of $11.3 billion and operated 181
branches and 26 loan offices in California.
At December 31, 1998, the parent company, Golden State, a publicly traded
company, had approximately 128.6 million common shares outstanding. As a
result of the Golden State Merger, California Federal is the fourth largest
insured depository institution headquartered in California. The transaction
combined Glendale Federal's lower-cost deposit generation ability with
California Federal's strong asset origination capability. Further, it
broadened the base from which to expand California Federal's consumer and
business banking franchise. The Golden State Acquisition is expected to result
in economies of scale with estimated pre-tax expense savings of $160 million
annually, after being fully phased in.
The Cal Fed Acquisition
On January 3, 1997, FN Holdings acquired Cal Fed and Old California
Federal for approximately $1.2 billion in cash and the issuance of the CALGLs.
At December 31, 1996, Old California Federal had approximately $14.1 billion
in assets, $8.9 billion in deposits and operated 119 branches in California
and Nevada. Upon consummation of the Cal Fed Acquisition, the Bank merged with
Old California Federal, with Old California Federal surviving. In connection
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with the financing of the Cal Fed Acquisition, the Bank received a capital
contribution of approximately $685 million from FN Holdings. In addition,
stockholders' equity increased $172.5 million due to the assumption by the
Bank of the 10 5/8% Preferred Stock.
As a result of the Cal Fed Acquisition, the Company gained a substantial
presence in Southern California. In order to realize economies of scale and
cost reduction opportunities presented by the Cal Fed Acquisition, the Company
began to consolidate or eliminate duplicative back office operations and
administrative and management functions. The Company presently estimates that,
as a result of these measures, it saved approximately $68 million in
noninterest expense during the first twelve months of operations following the
Cal Fed Acquisition as compared to operating Old California Federal on a
stand-alone basis.
As a result of the Cal Fed Acquisition, the Company became obligated with
respect to the following outstanding debt securities of Old California
Federal: (i) $50 million of the 10.668% Subordinated Notes, (ii) $2.6 million
of the 6 1/2% Convertible Subordinated Debentures and (iii) $4.3 million of
the 10% Subordinated Debentures Due 2003. See "Business--Sources of Funds."
Recent Accounting Changes
On June 28, 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. This
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125 ("SFAS No. 127"). SFAS
No. 127 defers for one year the effective date (i) of paragraph 15 of SFAS No.
125 and (ii) of paragraphs 9-12 and 237(b) of SFAS No. 125 for repurchase
agreement, dollar-roll, securities lending and similar transactions. SFAS No.
127 provides additional guidance on the types of transactions for which the
effective date of SFAS No. 125 has been deferred. It also requires that if it
is not possible to determine whether a transaction occurring during
calendar-year 1997 is part of a repurchase agreement, dollar-roll, securities
lending, or similar transaction, then paragraphs 9-12 of SFAS No. 125 should
be applied to that transfer. The Company adopted SFAS No. 125, as amended by
SFAS No. 127, on January 1, 1997. Such adoption did not have a material impact
on the Company's consolidated financial statements.
The Company has adopted SFAS No. 128, Earnings per Share. SFAS No. 128
established requirements for computing and presenting earnings per share that
require the presentation of earnings per common share and diluted earnings
per common share. Under the requirements, earnings per common share includes
the dilutive effect of contingently issuable shares, but excludes the
dilutive effect of stock options and warrants. The dilutive effect of stock
options, warrants and contingently issuable shares used to compute diluted
earnings per common share is based on the average market price of Golden
State's common stock and, where appropriate the LTW(TM)s, for the period. See
note 2(r) to the Company's consolidated financial statements. This statement
has no impact on the financial condition or results of operations of the
Company but does affect the Company's disclosure.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
About Capital Structure. SFAS No. 129 supersedes capital structure disclosure
requirements found in previous accounting pronouncements and conditions them
into one statement for ease of retrieval and greater visibility for non-public
entities. These disclosures are required for financial statements for periods
ending after December 15, 1997. As SFAS No. 129 makes no changes to previous
accounting pronouncements as those pronouncements applied to the Company, the
adoption of SFAS No. 129 had no impact on the Company's results of operations
and financial condition.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS No. 130
requires that all items that are
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required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in
that financial statement. This statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. This
statement, which the Company adopted effective October 1, 1997, had no impact
on the financial condition or results of operations of the Company, but did
impact the Company's disclosure requirements.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS No. 131
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This statement supersedes
SFAS No. 14, Financial Reporting for Segments of a Business Enterprise, but
retains the requirement to report information about major customers. It amends
SFAS No. 94, Consolidation of All Majority-Owned Subsidiaries, to remove the
special disclosure requirements for previously unconsolidated subsidiaries.
This statement is effective for fiscal years beginning after December 15,
1997. In the initial year of application, comparative information for earlier
years is to be restated. This statement need not be applied to interim
financial statements in the initial year of application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application. This statement has no impact on the financial condition or
results of operations of the Company, but has required changes in the
Company's disclosure requirements.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits ("SFAS No. 132"), an
amendment of FASB Statements No. 87, 88 and 106. SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful as they were when SFAS No. 87, Employers' Accounting for Pensions, SFAS
No. 88, Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, and SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, were
issued. SFAS No. 132 is effective for fiscal years beginning after December
15, 1997 and requires restatement of disclosures for earlier periods provided
for comparative purposes, if available. The Company has not experienced any
material revision in its disclosures as a result of the adoption of SFAS No.
132.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 establishes
standards for derivative instruments and for hedging activities, and requires
that an entity recognize all derivatives as either assets or liabilities in
the balance sheet and measure those instruments at fair value. Under SFAS No.
133, an entity that elects to apply hedge accounting is required to establish
at the inception of the hedge the method it will use for assessing the
effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. SFAS No. 133 applies to all
entities and amends SFAS Statements No. 107, Disclosures About Fair Values of
Financial Instruments, to include in Statement 107 the disclosure provisions
about concentrations of credit risk from Statement 105. SFAS No. 133
supersedes FASB Statements No. 80, Accounting for Futures Contracts, No. 105,
Disclosure of Information about Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentrations of Credit Risk, and No.
119, Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments. SFAS No. 133 also nullifies or modifies the consensuses
reached in a number of issues addressed by the Emerging Issues Task Force.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of this statement should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. Earlier application of all of the provisions of SFAS No. 133 is
encouraged, but is permitted only as of the beginning of any fiscal quarter
that begins after issuance of this statement. SFAS No. 133 should not be
applied retroactively to financial statements of prior periods. Management has
established a multi-disciplinary task force to assess the statement's effect
on the Company's consolidated financial statements and to coordinate its
implementation.
Page 59
<PAGE>
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, an amendment of SFAS No. 65.
SFAS No. 65 Accounting for Certain Mortgage Banking Activities, as amended by
SFAS No. 115 Accounting for Certain Investments in Debt and Equity Securities,
requires that after the securitization of a mortgage loan held for sale, an
entity engaged in mortgage banking activities classify the resulting
mortgage-backed security as a trading security. SFAS No. 134 amends SFAS No.
65 to require that after the securitization of mortgage loans held for sale,
an entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interests based on its ability
and intent to sell or hold those investments. SFAS No. 134 conforms the
subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the subsequent accounting
for securities retained after the securitization of other types of assets by a
nonmortgage banking enterprise. SFAS No. 134 is effective for the first fiscal
quarter after December 15, 1998. Early application is encouraged and is
permitted as of the issuance of this statement. The Company adopted SFAS No.
134 effective October 1, 1998. Such adoption did not have a material impact on
the Company's consolidated financial statements.
RESULTS OF OPERATIONS
Golden State reported net income for the year ended December 31, 1998 of
$247.8 million, or $3.04 per diluted share, compared with net income of $94.9
million in 1997, or $1.67 per diluted share. Net income for the year ended
December 31, 1998 included a $250 million reduction of the valuation allowance
related to the Company's deferred tax asset and pre-tax gains of $108.8
million on the sale of branches, partially offset by $150.3 million in
extraordinary loss, net of income taxes, related to expenses and tender
premiums paid in connection with the Debt Tender Offers and the Parent
Holdings Defeasance, $59.2 million in pre-tax merger and integration costs
related to the Golden State Acquisition and $36.9 million in minority interest
related to net premiums and expenses in connection with the Bank Preferred
Stock Tender Offers. Excluding these non-recurring items, net income for the
year ended December 31, 1998 totalled $156.2 million, or $1.92 per diluted
share.
The year-to-year comparisons set forth below, including the changes in
magnitude of the various items between periods, have been affected by the
acquisitions and dispositions described above and consummated during the
periods involved.
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<PAGE>
The following table sets forth, for the periods and at the dates
indicated, information regarding Golden State's consolidated average balance
sheets, together with the total dollar amounts of interest income and interest
expense and the weighted average interest rates for the periods presented.
Average balances are calculated on a daily basis. The information presented
represents the historical activity of Golden State.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1998 1997 1996
--------------------------- ---------------------------- -------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
(dollars in millions)
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets (1):
Securities and interest-bearing
deposits in banks (2) $ 1,121 $ 77 6.84% $ 1,015 $ 62 6.11% 56 $ 35 6.15%
Mortgage-backed securities
available for sale 7,952 483 6.07 4,485 298 6.64 1,697 116 6.83
Mortgage-backed securities
held to maturity 1,753 134 7.67 1,482 113 7.65 1,766 135 7.65
Loans held for sale 1,652 116 7.01 1,068 77 7.15 855 62 7.20
Loans receivable, net 22,772 1,739 7.64 19,859 1,553 7.82 10,994 885 8.05
Covered Assets, net -- -- -- -- -- 26 1 5.41
------- ----- ------ ----- ------ -----
Total interest-earning assets 35,250 2,549 7.23% 27,909 2,103 7.53% 15,904 1,234 7.76%
----- ----- -----
Noninterest-earning assets 4,047 2,865 1,223
------- ------ -------
Total assets $39,297 $30,774 $17,127
======= ======= =======
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits $18,856 $ 791 4.20% $16,728 $ 747 4.47% $9,360 $419 4.48%
Securities sold under agreements
to repurchase 2,805 154 5.40 2,512 141 5.52 2,109 120 5.70
Borrowings (3) 14,390 875 6.08 9,153 611 6.67 4,558 309 6.77
------- ----- ------- ----- ------ ----
Total interest-bearing liabilities 36,051 1,820 5.05% 28,393 1,499 5.28% 16,027 848 5.29%
----- ----- ----
Noninterest-bearing liabilities 1,463 1,030 298
Minority interest 878 1,004 384
Stockholders' equity 905 347 418
------- ------- ------
Total liabilities, minority
interest and stockholders'
equity $39,297 $30,774 $17,127
======= ======= =======
Net interest income $ 729 $ 604 $386
===== ===== ====
Interest rate spread 2.18% 2.25% 2.47%
==== ==== ====
Net interest margin 2.07% 2.16% 2.44%
==== ==== ====
Average equity to average assets 2.30% 1.13% 2.44%
==== ==== ====
</TABLE>
- ------------------
(1) Nonaccruing assets are included in the average balances for the periods
indicated.
(2) Includes interest-bearing deposits in other banks and securities purchased
under agreements to resell.
(3) Interest and average rate include the impact of interest rate swaps.
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<PAGE>
The following table presents certain information regarding changes in
interest income and interest expense of Golden State during the periods
indicated. The dollar amount of interest income and interest expense
fluctuates depending upon changes in the respective interest rates and upon
changes in the respective amounts (volume) of the Company's interest-earning
assets and interest-bearing liabilities. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to (i) volume (change in average outstanding balance multiplied
by the prior year's rate) and (ii) rate (change in average interest rate
multiplied by the prior year's volume). Changes attributable to both volume
and rate have been allocated proportionately.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- --------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(in millions)
INTEREST INCOME:
<S> <C> <C> <C> <C> <C> <C>
Securities and interest-bearing deposits in banks $ 7 $ 8 $ 15 $ 28 $ (1) $ 27
Mortgage-backed securities available for sale 209 (24) 185 185 (3) 182
Mortgage-backed securities held to maturity 21 -- 21 (22) -- (22)
Loans held for sale 40 (1) 39 15 -- 15
Loans receivable, net 221 (35) 186 692 (24) 668
Covered assets, net -- -- -- (1) -- (1)
---- ---- ---- ---- ---- ----
Total 498 (52) 446 897 (28) 869
---- ---- ---- ---- ---- ----
INTEREST EXPENSE:
Deposits 85 (41) 44 329 (1) 328
Securities sold under agreements to repurchase 16 (3) 13 24 (3) 21
Borrowings 312 (48) 264 306 (4) 302
---- ---- ---- ---- ---- ----
Total 413 (92) 321 659 (8) 651
---- ---- ---- ---- ---- ----
Change in net interest income $ 85 $40 $125 $238 $(20) $218
==== ==== ==== ==== ==== ====
</TABLE>
The volume variances in total interest income and total interest expense
for the year ended December 31, 1998 compared to 1997 are largely due to
increased purchases of mortgage-backed securities funded with FHLB advances,
the net impact of the Refinancing Transactions and the additional volume
related to the Golden State Acquisition, partially offset by $1.4 billion in
deposits sold in the Florida Branch Sale. The positive total rate variance of
$40 million is attributed to the lower cost of funds on deposits, lower
interest rates paid on new borrowings (including the Refinancing Transactions)
and the lower costing liabilities assumed in the Golden State Acquisition,
partially offset by the comparatively lower market rates on mortgage-backed
securities purchased in 1998 and 1997 and prepayments of higher rate
interest-earning assets.
The volume variances in total interest income and total interest expense
for the year ended December 31, 1997 compared to the corresponding period in
1996 were largely due to the additional $17.0 billion in interest-earning
assets acquired and $16.9 billion in interest-bearing liabilities assumed in
the Cal Fed Acquisition and the 1996 Acquisitions, as well as the assumption
of the FN Holdings 10 5/8% Notes. The negative total rate variance of $20
million was primarily attributable to assets from the Cal Fed Acquisition
generally having a lower yield than the rest of the portfolio, the assumption
of the FN Holdings 10 5/8% Notes, the issuances of the FN Holdings 9 1/8%
Senior Sub Notes and the 12 1/2% Parent Holdings Notes and the impact of the
additional wholesale borrowings used to finance the Branch Sales.
Page 62
<PAGE>
Year Ended December 31, 1998 versus Year Ended December 31, 1997
Interest Income. Total interest income was $2.5 billion for the year ended
December 31, 1998, an increase of $446.1 million from the year ended December
31, 1997. Total interest-earning assets for the year ended December 31, 1998
averaged $35.3 billion, compared to $27.9 billion for the corresponding period
in 1997. The yield on total interest-earning assets during the year ended
December 31, 1998 decreased to 7.23% from 7.53% for the year ended December
31, 1997, primarily due to the lower market rates on mortgage-backed
securities purchased in 1998 and 1997 and prepayments of higher rate
interest-earning assets.
Golden State earned $1.7 billion of interest income on loans receivable
for the year ended December 31, 1998, an increase of $186.1 million from the
year ended December 31, 1997. The average balance of loans receivable was
$22.8 billion for the year ended December 31, 1998, compared to $19.9 billion
for the same period in 1997. The weighted average rate on loans receivable
decreased to 7.64% for the year ended December 31, 1998, from 7.82% for the
year ended December 31, 1997, primarily due to declining market rates. The
increase in the average volume is primarily due to the addition of $14.6
billion in loans acquired in the Golden State Acquisition.
Golden State earned $115.7 million of interest income on loans held for
sale for the year ended December 31, 1998, an increase of $39.4 million from
the year ended December 31, 1997. The average balance of loans held for sale
was $1.7 billion for the year ended December 31, 1998, an increase of $584
million from 1997, primarily due to increased originations and longer holding
periods for jumbo loans during the year ended December 31, 1998. The weighted
average yield on loans held for sale decreased to 7.01% for the year ended
December 31, 1998, from 7.15% for the year ended December 31, 1997, primarily
due to declining market rates.
Interest income on mortgage-backed securities available for sale was
$482.6 million for the year ended December 31, 1998, an increase of $184.8
million from the year ended December 31, 1997. The average portfolio balances
increased $3.5 billion, to $8.0 billion, during the year ended December 31,
1998. The weighted average yield on these assets decreased from 6.64% for the
year ended December 31, 1997 to 6.07% for the year ended December 31, 1998.
The increase in the volume and decrease in the weighted average yield is
primarily due to purchases of $9.0 billion of mortgage-backed securities and
additions of $2.4 billion from the Golden State Acquisition, offset by
prepayments of higher rate mortgage-backed securities since December 31, 1997.
Additionally, the decline in yield was affected by a $19.8 million writedown
recorded in 1998 to the carrying value of mortgage-backed securities available
for sale determined to have an other-than-temporary impairment.
Interest income on mortgage-backed securities held to maturity was $134.5
million for the year ended December 31, 1998, an increase of $21.2 million
from the year ended December 31, 1997. The average portfolio balance increased
$271 million to $1.8 billion during the year ended December 31, 1998,
primarily attributed to the addition of $1.9 billion of the Company's
multi-family loans securitized with FNMA during September 1998, having a
weighted average rate of 7.39%. The weighted average rates for the years ended
December 31, 1998 and 1997, were 7.67% and 7.65%, respectively.
Interest income on securities and interest-bearing deposits in other
banks was $76.7 million for the year ended December 31, 1998, an increase of
$14.7 million from the year ended December 31, 1997. The average portfolio
balance increased from $1.0 billion for the year ended December 31, 1997 to
$1.1 billion for the year ended December 31, 1998, primarily due to the
proceeds received from the GS Escrow Notes, used to fund the Refinancing
Transactions during the third and fourth quarters of 1998. The increase in the
weighted average rate from 6.11% for the year ended December 31, 1997 to 6.84%
for the year ended December 31, 1998 is primarily due to $17.5 million in
interest income received on a $65 million federal income tax refund related
to Old California Federal and San Francisco Federal.
Interest Expense. Total interest expense was $1.8 billion for the year
ended December 31, 1998, an increase of $321.1 million from the year ended
December 31, 1997. The increase is primarily the result of increased
borrowings under FHLB advances, the additional deposits and borrowings assumed
in the Golden State Acquisition, and the issuance of the GS Escrow Notes.
Interest expense on customer deposits, including Brokered Deposits, was
$791.1 million for the year ended December 31, 1998, an increase of $44.1
million from the year ended December 31, 1997. The average balance of customer
deposits outstanding increased from $16.7 billion to $18.9 billion during
1998. The increase in the average
Page 63
<PAGE>
balance is primarily due to $11.3 billion in deposits assumed in the Golden
State Acquisition, partially offset by $1.4 billion in deposits sold in
Florida Branch Sale, both of which occurred late in the third quarter of 1998.
The overall weighted average cost of deposits decreased to 4.20% for the year
ended December 31, 1998 from 4.47% for the year ended December 31, 1997,
primarily due to the higher average balance of lower rate custodial
transaction accounts in 1998 and the lower cost of funds on deposits assumed
in the Golden State Acquisition.
Interest expense on securities sold under agreements to repurchase
totalled $153.7 million for the year ended December 31, 1998, an increase of
$13.2 million from the year ended December 31, 1997. The average balance of
such borrowings for the years ended December 31, 1998 and 1997, was $2.8
billion and $2.5 billion, respectively. The weighted average interest rate on
these instruments decreased to 5.40% during the year ended December 31, 1998,
from 5.52% for the year ended December 31, 1997, primarily due to a decrease
in rates on new borrowings compared to such borrowings during 1997.
Interest expense on borrowings totalled $874.7 million for the year ended
December 31, 1998, an increase of $263.9 million from the year ended December
31, 1997. The average balance outstanding for the years ended December 31,
1998 and 1997 was $14.4 billion and $9.2 billion, respectively. The weighted
average interest rate on these instruments decreased to 6.08% in 1998 from
6.67% in 1997, primarily due to declining market rates in 1998 and the net
impact of the Refinancing Transactions. The change in the volume includes the
net impact of the Refinancing Transactions and the addition of $5.4 billion in
FHLB advances assumed in the Golden State Acquisition as well as the increase
in FHLB advances used to fund the purchase of mortgage-backed securities and
to fund the sale of deposits in the Florida Branch Sale.
Net Interest Income. Net interest income was $729.3 million for the year
ended December 31, 1998, an increase of $125.0 million from the year ended
December 31, 1997. The interest rate spread decreased to 2.18% for the year
ended December 31, 1998 from 2.25% for the year ended December 31, 1997,
primarily as a result of prepayments of higher rate interest-earning assets
that were replaced with interest-earning assets having comparatively lower
yields. The effect of lower yielding assets was partially offset by lower
rates on interest-bearing liabilities in a declining rate environment.
Noninterest Income. Total noninterest income, consisting primarily of
loan servicing fees, customer banking fees, gains on sales of loans and
assets, dividends on FHLB stock and gain on sale of branches, was $477.0
million for the year ended December 31, 1998, an increase of $112.5 million
from the year ended December 31, 1997. Income for the year ended December 31,
1998 reflects a $108.8 million gain on sale of branches attributed primarily
to the Florida Branch Sale. Income for the year ended December 31, 1997
includes gains of $14.0 million from the Servicing Sale and $25.0 million from
the sale of ACS stock.
Loan servicing fees, net of amortization of mortgage servicing rights,
were $132.5 million for the year ended December 31, 1998, compared to $143.7
million for the year ended December 31, 1997. Although the single-family
residential loan servicing portfolio, excluding loans serviced for the Bank,
increased from $44.9 billion at December 31, 1997, to $65.4 billion at
December 31, 1998, loan servicing fees reflected a $16.7 million increase in
amortization of residential servicing rights, primarily due to increased
prepayments. During the year ended December 31, 1998, California Federal sold
$7.9 billion in single-family mortgage loans originated for sale as part of
its ongoing mortgage banking operations compared to $5.5 billion of such sales
for the corresponding period in 1997.
Customer banking fees were $121.3 million for the year ended December 31,
1998, compared to $100.3 million for the year ended December 31, 1997. The
increase is primarily attributed to the impact of increased revenues from the
retail banking operations acquired in the Golden State Acquisition, partially
offset by the impact of the Florida Branch Sale.
Gain on sale of branches was $108.8 million for the year ended December
31, 1998, compared to $3.6 million in 1997. The increase is primarily
attributed to the Florida Branch Sale in 1998.
Gain on sales of loans was $54.2 million for the year ended December 31,
1998, compared to $24.7 million for the year ended December 31, 1997. The
increase in 1998 is primarily attributed to $19.2 million in additional gains
from residential loan sales in 1998 and the effects of early payoffs of
commercial loans with unamortized discounts of $10.3 million.
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<PAGE>
Gain on sale of assets was $.2 million for the year ended December 31,
1998, compared to $38.2 million for the year ended December 31, 1997. The gain
in 1997 includes a $25 million gain on the sale of the Company's remaining
shares of ACS stock and a $14.0 million gain related to the Servicing Sale.
Dividends on FHLB stock were $36.0 million for the year ended December
31, 1998, an increase of $11.3 million from the year ended December 31, 1997,
reflecting an increase in the amount of such stock owned by the Company,
primarily as a result of an increase in borrowings on FHLB advances, including
the addition of $5.4 billion assumed in the Golden State Acquisition as well
as the advances used to fund the purchase of mortgage-backed securities and
the Florida Branch Sale.
Noninterest Expense. Total noninterest expense was $764.0 million for the
year ended December 31, 1998, an increase of $113.4 million from the year
ended December 31, 1997. The variance between the two periods is primarily
attributed to $59.2 million in merger and integration costs incurred in
connection with the Golden State Acquisition and increases of $37.5 million in
compensation and $17.8 million in occupancy and equipment primarily as a
result of the Golden State Acquisition and the Auto One and GSAC Acquisitions.
Partially offsetting these increases is a $29.0 million provision for
unreimbursable costs in 1997 related to the foreclosure of single-family loans
serviced for others (reflected as loan expense and professional fees).
Compensation and employee benefits expense was $294.0 million for the
year ended December 31, 1998, an increase of $37.5 million from the year ended
December 31, 1997. The increase is primarily attributed to the effect of the
Golden State Acquisition and the Auto One and GSAC Acquisitions.
Occupancy and equipment expense was $99.7 million in 1998 compared to
$81.9 million in 1997. This increase reflects the effects of the Golden State
Acquisition offset by the Florida Branch Sale.
Loan expense was $48.2 million for the year ended December 31, 1998, a
decrease of $12.3 million from the year ended December 31, 1997. The decrease
is primarily attributed to a $25.0 million provision for unreimbursable costs
related to the foreclosure of single-family loans serviced for others recorded
during the year ended December 31, 1997, partially offset by additional
expenses (such as outside appraisal fees, inspection fees and pass-through
interest expense) associated with higher volume of loans serviced.
Merger and integration costs, which include severance, conversion and
consolidation costs incurred in connection with the Golden State Acquisition,
were $59.2 million for the year ended December 31, 1998.
Provision for Income Tax. During the years ended December 31, 1998 and
1997, Golden State recorded an income tax benefit of $106.4 million and income
tax expense of $41.3 million, respectively. Based on resolutions of federal
income tax audits and favorable future earnings expectations, management
changed its judgment about the realizability of the Company's deferred tax
asset and reduced its valuation allowance by $250 million in the second
quarter of 1998 in addition to the amount used to offset income during the
period. Golden State's effective Federal tax rate was (36)% and 2% during the
years ended December 31, 1998 and 1997, respectively, while its statutory
Federal tax rate was 35% during both periods. The difference between the
effective and statutory rates was primarily the result of the reductions in
the deferred tax asset valuation allowance, partially offset by nondeductible
goodwill amortization. Golden State's effective state tax rate was 9% and 15%
during the years ended December 31, 1998 and 1997, respectively. Effective
July 1, 1998, the Company's marginal tax rate for future periods increased to
42%.
Minority Interest. Minority interest for the year ended December 31, 1998
includes $36.9 million in net premiums and expenses related to the Bank
Preferred Stock Tender Offers. Dividends on the Bank Preferred Stock, the FN
Holdings Preferred Stock and the REIT Preferred Stock totalling $42.1 million
(net of amounts paid to GS Holdings), $.6 million and $45.6 million,
respectively, were also recorded during the year ended December 31, 1998.
Minority interest relative to the REIT Preferred Stock is reflected on the
consolidated statements of income net of the income tax benefit of $12.5
million for the year ended December 31, 1998, which will inure to the Company
as a result of the deductibility of such dividends for income tax purposes.
Minority interest for the year ended December 31, 1998 also includes $2.2
million representing that portion of Auto One's loss attributable to the 20%
interest in the common stock of Auto One that was issued as part of the GSAC
Acquisition.
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<PAGE>
Dividends on the Bank Preferred Stock, the FN Holdings Preferred Stock
and the REIT Preferred Stock totalling $52.7 million, $12.8 million and $41.9
million, respectively, were recorded during the year ended December 31, 1997.
Minority interest relative to the REIT Preferred Stock is reflected on the
consolidated statements of income net of the income tax benefit of $5.3
million for the year ended December 31, 1997, which will inure to the Company
as a result of the deductibility of such dividends for income tax purposes.
Extraordinary Item. During the year ended December 31, 1998, the Company
defeased the 12 1/2% Parent Holdings Notes in the Parent Holdings Defeasance
for an aggregate purchase price, including accrued interest payable, of $553.7
million. During the year ended December 31, 1998, the Company also purchased
$914.5 million aggregate principal amount of the FN Holdings Notes in the Debt
Tender Offers for an aggregate purchase price, including accrued interest
payable, of $1.1 billion. The amount of expenses and tender premiums paid in
connection with such purchase totalled $150.3 million, net of income taxes and
is reflected as an extraordinary loss on early extinguishment of debt on
Golden State's consolidated statements of income for the year ended December
31, 1998.
Year Ended December 31, 1997 versus Year Ended December 31, 1996
Net Income. Golden State reported net income for the year ended December
31, 1997 of $94.9 million compared with net income of $533.7 million in 1996.
Net income for the year ended December 31, 1997 included pre-tax gains of
$25.0 million from the sale of the remaining ACS stock, $14.0 million on the
sale of mortgage servicing rights and $3.6 million on the sales of branches,
partially offset by a $29.0 million provision for professional fees and
additional unreimbursable costs related to the foreclosure of 1-4 unit
residential mortgage loans serviced for others. Net income for the year ended
December 31, 1996 included $363.3 million in pre-tax gains on sales of
branches, $40.4 million in pre-tax gains from the sale of ACS stock, $25.6
million in pre-tax income recognized in connection with the termination of the
Assistance Agreement and the recognition of a $125.0 million deferred tax
benefit, partially offset by a $60.1 million charge for the Special SAIF
Assessment. Excluding non-recurring and expected non-recurring items, net
income for the years ended December 31, 1997 and 1996 totalled $82.7 million
and $76.4 million, respectively.
Interest Income. Total interest income was $2.1 billion for the year
ended December 31, 1997, an increase of $869 million from the year ended
December 31, 1996. The interest-earning assets acquired in the Cal Fed
Acquisition and the 1996 Acquisitions resulted in total interest-earning
assets for the year of 1997 averaging $27.9 billion, compared to $15.9 billion
for the corresponding period in 1996. The weighted average yield on total
interest-earning assets during the year ended December 31, 1997 decreased to
7.53% compared to 7.76% for the year ended December 31, 1996, primarily due to
assets from the Cal Fed Acquisition generally having a lower yield than the
rest of the portfolio.
Golden State earned $1.6 billion of interest income on loans receivable
for the year ended December 31, 1997, an increase of $668 million from the
year ended December 31, 1996. The loans acquired in the Cal Fed Acquisition
and the 1996 Acquisitions contributed most of the additional interest income
in 1997 and resulted in an increase in the average balance of loans receivable
to $19.9 billion for the year ended December 31, 1997 from $11.0 billion for
the year ended December 31, 1996. The weighted average yield on loans
receivable decreased to 7.82% for the year ended December 31, 1997 from 8.05%
for the comparable period in 1996, due primarily to the addition of $10.1
billion in loans from the Cal Fed Acquisition generally having a lower yield
than the rest of the portfolio.
In addition, Golden State earned $76 million of interest income on loans
held for sale for the year ended December 31, 1997, an increase of $15
million from the year ended December 31, 1996. The average balance of loans
held for sale was $1.1 billion for the year ended December 31, 1997, an
increase of $213 million from the comparable period in 1996, due primarily to
increased originations. The weighted average yield on loans held for sale
decreased slightly to 7.15% for the year ended December 31, 1997 from 7.20%
for the year ended December 31, 1996, primarily due to the portfolio
consisting of a higher percentage of lower-rate adjustable rate loans in 1997
compared to a predominantly fixed-rate portfolio in 1996.
Interest income on mortgage-backed securities available for sale was $298
million for the year ended December 31, 1997, an increase of $182 million from
the year ended December 31, 1996. The average portfolio balances increased
$2.8 billion, to $4.5 billion, during the year ended December 31, 1997
compared to the same period in 1996. The weighted average yield on these
assets decreased from 6.83% for the year ended December 31, 1996 to 6.64% for
the year ended December 31, 1997. The increase in the volume and decrease in
the weighted average yield was primarily
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due to the acquisition of $2.0 billion in mortgage-backed securities from the
Cal Fed Acquisition and the purchase of $2.6 billion in other mortgage-backed
securities during 1997.
Interest income on mortgage-backed securities held to maturity was $113
million for the year ended December 31, 1997, a decrease of $22 million from
the year ended December 31, 1996. The average portfolio balance decreased $284
million, to $1.5 billion, during the year ended December 31, 1997 compared to
the same period in 1996.
There was no interest income from Covered Assets for the year ended
December 31, 1997, as a result of the disposal of all remaining Covered Assets
in August 1996.
Interest income from securities and interest-bearing deposits in banks
was $62 million for the year ended December 31, 1997, an increase of $27
million from the year ended December 31, 1996. The average portfolio balance
increased to $1.0 billion, an increase of $449 million from the year ended
December 31, 1996, primarily due to the assets acquired in the Cal Fed
Acquisition and purchases of short-term investment securities made by the
Company during 1997 to meet liquidity needs. The weighted average yield on
these assets decreased to 6.11% for the year ended December 31, 1997 from
6.15% for the year ended December 31, 1996, primarily due to a shift in the
mix to lower-rate interest-bearing deposits acquired in the Cal Fed
Acquisition, along with a decline in yields earned on interest-bearing
deposits in other banks.
Interest Expense. Total interest expense was $1.5 billion for the year
ended December 31, 1997, an increase of $651 million from the year ended
December 31, 1996. The increase was the result of additional interest-bearing
liabilities assumed in the Cal Fed Acquisition and the 1996 Acquisitions, the
assumption of the FN Holdings 10 5/8% Notes, the issuances of the FN Holdings
9 1/8% Senior Sub Notes and the 12 1/2% Parent Holdings Notes and incrementally
higher rates paid on the additional borrowings used to replace the retail
deposits sold in the Branch Sales.
Interest expense on customer deposits, including Brokered Deposits, was
$747 million for the year ended December 31, 1997, an increase of $328 million
from the year ended December 31, 1996. The average balance of customer
deposits outstanding increased from $9.4 billion to $16.7 billion for the
years ended December 31, 1996 and 1997, respectively, primarily due to $9.0
billion in deposits assumed in the Cal Fed Acquisition. The overall weighted
average cost of deposits was 4.47% for the year ended December 31, 1997 and
4.48% for the year ended December 31, 1996.
Interest expense on securities sold under agreements to repurchase
totalled $141 million for the year ended December 31, 1997, an increase of $21
million from the year ended December 31, 1996. The average balance of such
borrowings for the years ended December 31, 1997 and 1996 was $2.5 billion and
$2.1 billion, respectively. The increase in the average balance was primarily
attributable to $1.1 billion of such liabilities assumed in the Cal Fed
Acquisition and the 1996 Acquisitions, partially offset by maturities and
payoffs that were refinanced with FHLB advances and deposits acquired in the
Cal Fed and Home Federal Acquisitions. The weighted average interest rate on
these instruments decreased to 5.52% during the year ended December 31, 1997
from 5.70% for the year ended December 31, 1996, primarily due to a decrease
in rates on new borrowings compared to such borrowings during 1996.
Interest expense on borrowings totalled $611 million for the year ended
December 31, 1997, an increase of $302 million from the year ended December
31, 1996. The increase was attributable to the net effect of borrowings
assumed in the Cal Fed Acquisition and the 1996 Acquisitions, the assumption
of the FN Holdings 10 5/8% Notes, the issuances of the FN Holdings 9 1/8% Senior
Sub Notes and the 12 1/2% Parent Holdings Notes and additional borrowings to
replace deposits sold in the Branch Sales, partially offset by the impact of a
slight decrease in the rates paid on such borrowings. The average balance of
borrowings outstanding for the years ended December 31, 1997 and 1996 was $9.2
billion and $4.6 billion, respectively. The weighted average interest rate on
these borrowings decreased to 6.67% during the year ended December 31, 1997
from 6.77% for the year ended December 31, 1996, primarily due to the shorter
average maturity of the portfolio during the year ended December 31, 1997
compared to the corresponding period in 1996, partially offset by the higher
rates paid on the FN Holdings 10 5/8% Notes, the FN Holdings 9 1/8% Senior Sub
Notes and the FN Holdings 12 1/2% Notes.
Net Interest Income. Net interest income was $604 million for the year
ended December 31, 1997, an increase of $218 million from the year ended
December 31, 1996. The interest rate spread decreased to 2.25% for the year
ended December 31, 1997 from 2.47% for the year ended December 31, 1996.
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Noninterest Income. Total noninterest income, consisting primarily of
loan servicing fees, customer banking fees, management fees and gains on the
sales of branches and on sales of residential mortgage loans and MSRs, was
$364 million for the year ended December 31, 1997, a decrease of $289 million
from the year ended December 31, 1996. Income for the year ended December 31,
1997 included a $14.0 million gain from the Servicing Sale, a $25.0 million
gain from the sale of the remaining ACS stock and a $3.6 million gain on the
sales of branches. The activities in 1996 included (i) gains on the Branch
Sales of $363.3 million, (ii) gain from the sale of ACS stock of $40.4
million, (iii) income recognized in connection with the termination of the
Assistance Agreement of $25.6 million, and (iv) gain from the sale of consumer
loans of $7.5 million.
Loan servicing fees, net of amortization of mortgage servicing rights,
were $144 million for the year ended December 31, 1997, compared to $124
million for the year ended December 31, 1996. This increase was primarily due
to the addition of the mortgage servicing portfolios acquired in the Cal Fed
Acquisition, the 1996 Acquisitions, the 1996 LMUSA Purchase and the
Weyerhaeuser Purchase, as well as MSRs originated through the increased
origination capacity provided by the Cal Fed Acquisition, partially offset by
portfolio paydowns. The single-family residential loan servicing portfolio,
excluding loans serviced for the Bank, increased from $43.1 billion at
December 31, 1996 to $44.9 billion at December 31, 1997. During the year ended
December 31, 1997, the Company sold $5.5 billion in single-family mortgage
loans originated for sale as part of its ongoing mortgage banking operations
compared to $4.9 billion of such sales for the corresponding period in 1996.
Customer banking fees and service charges related to retail banking
operations, consisting of depositor fees for transaction accounts, overdrafts,
and miscellaneous other fees, were $100 million for the year ended December
31, 1997, compared to $45 million for the year ended December 31, 1996. The
increase was primarily attributable to the impact of increased revenues from
the retail banking operations acquired in the Cal Fed Acquisition and the 1996
Acquisitions, partially offset by the impact of the Branch Sales.
Management fees totalled $6 million for the year ended December 31, 1997,
compared to $10 million for the year ended December 31, 1996. The decrease was
attributable principally to the reduced number of commercial real estate
assets under management for others as a result of an increase in dispositions
of assets and contracts which have expired.
Gain on sales of loans was $25 million for the year ended December 31,
1997, compared to a gain of $18 million for the year ended December 31, 1996.
The increase was primarily attributed to early pay-offs of commercial loans
with unamortized discounts, partially offset by a $7.5 million gain from the
sale of $298.0 million of consumer loans during 1996.
Gain on sales of assets was $38 million for the years ended December 31,
1997 and 1996. The gain in 1997 was primarily attributable to a $14.0 million
gain related to the Servicing Sale and a $25.0 million gain on the sale of the
Bank's remaining shares of ACS stock. The gain in 1996 was primarily the
result of a $40.4 million gain from the sale of ACS stock, partially offset by
a permanent impairment charge in the mortgage-backed securities
available-for-sale portfolio.
Gain on sale of branches was $4 million for the year ended December 31,
1997, attributable primarily to the Texas Branch Sales. For information on the
1996 gain on the Branch Sales, see "Business--General."
Gain from the termination of the Assistance Agreement was $25.6 million
for the year ended December 31, 1996.
Dividends on FHLB stock were $25 million for the year ended December 31,
1997, an increase of $13 million from the year ended December 31, 1996,
representing an increase in the amount of such stock owned by California
Federal, primarily as a consequence of the Cal Fed Acquisition.
Other noninterest income was $23 million for the year ended December 31,
1997, an increase of $5 million from the year ended December 31, 1996. The
increase was primarily attributable to a settlement received related to the
condemnation of a building, an increase in disbursement float income and the
recognition of a previously deferred gain on sale of certain retail
operations, partially offset by the favorable outcome of an arbitration
hearing during the year ended December 31, 1996, related to the FN
Acquisition.
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Noninterest Expense. Total noninterest expense was $651 million for the
year ended December 31, 1997, an increase of $159 million from the year ended
December 31, 1996. The increase was principally due to the growth of the
Company through the Cal Fed Acquisition and the 1996 Acquisitions and a $29.0
million provision recorded in 1997 for professional fees and unreimbursable
costs related to the foreclosure of single-family loans serviced for others,
partially offset by a $60.1 million charge recorded in 1996 for the Special
SAIF Assessment.
Total compensation and employee benefits expense was $256 million for the
year ended December 31, 1997, an increase of $52 million from the year ended
December 31, 1996. The increase in expense was primarily attributable to the
presence of 1,688 additional employees at December 31, 1997 compared to
December 31, 1996 as a result of the Cal Fed Acquisition, partially offset by
a reduction in expense from December 31, 1996 to December 31, 1997 of $23.3
million related to a management incentive plan ("Incentive Plan") between FN
Holdings and certain executive officers of the Bank.
Occupancy and equipment expense was $82 million for the year ended
December 31, 1997, an increase of $30 million from the year ended December 31,
1996, attributable primarily to the Cal Fed Acquisition and the 1996
Acquisitions, partially offset by operations sold in the Branch Sales.
SAIF deposit insurance premiums decreased $70 million, to $11 million,
for the year ended December 31, 1997 compared to the corresponding period in
1996, due to a decrease in the quarterly assessment rate from 23 cents to 6.42
cents per $100 of deposits, partially offset by an increase in the deposit
assessment base as a result of the net impact of the Cal Fed Acquisition, the
1996 Acquisitions and the Branch Sales. In addition, the year ended December
31, 1996 included a $60.1 million charge for the Special SAIF Assessment.
On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (the "Reduction Act") was enacted. The Reduction Act
provided for a special assessment (the "Special SAIF Assessment"), which was
levied based on a rate of 65.7 cents per $100 of SAIF-insured domestic
deposits held as of March 31, 1995. As a result of the Reduction Act, SAIF
deposit insurance premiums included a $60.1 million pre-tax charge for the
Special SAIF Assessment for the year ended December 31, 1996. The portion of
the assessment related to deposits sold in Ohio, New York, New Jersey and
Michigan was borne, pursuant to each sales contract, by the respective
purchasers and accordingly, such amounts were not included in the expense
recorded by the Company.
Loan expense, including foreclosure costs and loan servicing expenses,
was $60 million for the year ended December 31, 1997, an increase of $29
million from the year ended December 31, 1996. The increase includes a $25.0
million provision for unreimbursable costs related to the foreclosure of
single family loans serviced for others. The increase was also attributed to
additional expenses associated with the higher volume of loans serviced, and
higher outside appraisal fees, inspection fees and provision for loss on FHA
and VA loans serviced.
Marketing expense was $20 million for the year ended December 31, 1997,
an increase of $9 million from the year ended December 31, 1996, attributed
primarily to the Cal Fed Acquisition and the 1996 Acquisitions, partially
offset by reduced nationwide marketing efforts as a result of the Branch
Sales.
Professional fees increased $30 million, to $49 million, for the year
ended December 31, 1997 compared to the corresponding period in 1996. This
increase included additional legal, consulting and audit expenses related to
the Cal Fed Acquisition and the 1996 Acquisitions, as well as $4.0 million in
higher fees paid to professional firms in connection with the foreclosure of
loans serviced for others.
Data processing expense was $12 million for the year ended December 31,
1997, an increase of $2 million from the year ended December 31, 1996,
attributed primarily to the Cal Fed Acquisition.
Foreclosed real estate operations, including gains on sales, resulted in
a net gain of $3 million for the year ended December 31, 1997 compared to a
net gain of $7 million for the same period in 1996. The change was primarily
attributable to an increase in post-foreclosure write-downs of residential and
commercial foreclosed real estate.
Amortization of intangible assets increased to $49 million for the year
ended December 31, 1997 from $9 million for the corresponding period in 1996,
primarily due to the amortization of additional intangible assets recorded in
connection with the Cal Fed Acquisition and the 1996 Acquisitions.
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Other noninterest expense was $114 million for the year ended December
31, 1997, an increase of $34 million from the year ended December 31, 1996,
primarily due to amortization of deferred issuance costs related to the FN
Holdings 10 5/8% Notes and an increase in provisions for telecommunications,
postage, office supplies, insurance, retail branch and subservicing losses,
OTS assessments and travel expenses, all of which are attributable primarily
to the Cal Fed Acquisition and the 1996 Acquisitions.
Provision for Income Tax. During the years ended December 31, 1997 and
1996, the Company recorded income tax expense of $41.3 million and income tax
benefit of $75.8 million, respectively. The Company's effective federal income
tax rate was 2% and (22)% during the years ended December 31, 1997 and 1996,
respectively, while its statutory federal income tax rate was 35% during both
periods. The difference between the effective and statutory rates was
primarily the result of the utilization of net operating loss carryforwards
for both periods and the recognition of a $125 million deferred tax benefit in
the second quarter of 1996. The Company's effective state income tax rate,
before extraordinary item and minority interest, increased to 15% from 8%
during the year ended December 31, 1997 compared to the corresponding period
in 1996, primarily as a result of the Company's increased presence in
California where the state tax rate is generally higher than in other states
and nondeductible goodwill amortization from the Cal Fed Acquisition and the
1996 Acquisitions.
Minority Interest. Minority interest includes dividends on the Bank
Preferred Stock, the FN Holdings Preferred Stock and the REIT Preferred Stock
totalling $52.8 million, $12.8 million and $41.9 million, respectively, during
the year ended December 31, 1997. Minority interest relative to the REIT
Preferred Stock is reflected on the consolidated statement of income net of
the income tax benefit of $5.3 million which will inure to the Company as a
result of the deductibility of such dividends for income tax purposes.
Minority interest includes dividends on the Bank Preferred Stock and the FN
Holdings Preferred Stock totalling $43.2 million and $4.8 million,
respectively, during the year ended December 31, 1996.
Extraordinary Item. During the year ended December 31, 1996, the Company
repurchased $44 million aggregate principal amount of the 11.20% Senior Notes,
resulting in a loss of $1.6 million, net of income taxes.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
During the years ended December 31, 1998, 1997 and 1996, Golden State
recorded income tax (benefit) expense, excluding the tax effects associated
with extraordinary items and minority interest in 1998, 1997 and 1996, of
$(106.4) million, $41.3 million, and $(75.8) million, respectively. The
Company's effective income tax rates were (26)%, 17% and (15)%, in 1998, 1997
and 1996, respectively. The Company's federal statutory income tax rate was
35% in each of 1998, 1997, and 1996. Based on resolutions of a federal tax
audit and favorable future earnings expectations, management changed its
judgment about the realizability of the Company's net deferred tax assets and
reduced the valuation allowance by $250 million in the second quarter of 1998
and $125 million in the second quarter of 1996. Management believes that the
realization of the resulting deferred tax asset is more likely than not, based
on the expectation that the Company will generate the necessary amount of
taxable income in future periods.
Prior to the Golden State Acquisition, for federal income tax purposes,
the Bank, FN Holdings and Mafco Holdings were parties to a tax sharing
agreement effective as of January 1, 1994 (the "Tax Sharing Agreement"),
pursuant to which (i) the Bank paid to FN Holdings amounts equal to the income
taxes that the Bank would be required to pay if it were to file a return
separately from the affiliated group of which Mafco Holdings is the common
parent (the "Mafco Group") and (ii) FN Holdings paid to Mafco Holdings amounts
equal to the income taxes that FN Holdings would be required to pay if it were
to file a consolidated return on behalf of itself and the Bank separately from
the Mafco Group. The Tax Sharing Agreement allowed the Bank to take into
account, in determining its liability to FN Holdings, any net operating loss
carryovers that it would have been entitled to utilize if it had filed
separate returns for each year since the formation of the Bank. The Tax
Sharing Agreement also allowed FN Holdings to take into account, in
determining its liability to Mafco Holdings, any net operating losses that it
would have been entitled to utilize if it had filed a consolidated return on
behalf of itself and the Bank for each year since the formation of the Bank.
Accordingly, pursuant to the Tax Sharing Agreement, the benefits of any net
operating losses generated by the Bank since its formation are retained by the
Bank and FN Holdings.
In connection with the Golden State Acquisition, for any taxable period
ending after September 11, 1998, (i) the Company replaced Mafco Holdings and
assumed all of the rights and obligations of Mafco Holdings under the Tax
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Sharing Agreement with respect to such taxable periods; (ii) GS Holdings
replaced FN Holdings under the Tax Sharing Agreement and assumed all of the
rights and obligations of FN Holdings under the Tax Sharing Agreement with
respect to such taxable periods; and (iii) California Federal continued to be
bound by the Tax Sharing Agreement. Mafco Holdings continued to be bound for
all obligations accruing for taxable periods on or prior to September 11,
1998.
The Bank had generated significant federal income tax net operating
losses since it was organized in December 1988. This is due, in part, to the
fact that, under applicable federal income tax law, certain financial
assistance received by the Bank pursuant to the Assistance Agreement was
excluded from the taxable income of the Bank. In addition to such tax-free
financial assistance, the Bank had been entitled to its normal operating
deductions, including interest expense and certain losses relating to its loan
portfolio. As a result, the Bank generated significant net operating losses
for federal income tax purposes even though its operations were profitable.
Furthermore, under the reorganization provisions of the Code, the Bank
succeeded to certain net operating loss carryovers of the Texas Closed Banks.
Under federal tax law, Parent Holdings, FN Holdings and the Bank are
subject to several liabilities with respect to the consolidated federal income
tax liabilities of the Mafco Group for any taxable period during which Parent
Holdings, FN Holdings or the Bank is, as the case may be, a member of such
group. Therefore, Parent Holdings, FN Holdings or the Bank may be required to
pay the Mafco Holdings consolidated federal tax liability notwithstanding
prior payments made under the Tax Sharing Agreement by FN Holdings or the Bank
to Mafco Holdings. Mafco Holdings has agreed, however, under the Tax Sharing
Agreement, to indemnify FN Holdings and the Bank for any such federal income
tax liability (and certain state and local tax liabilities) of Mafco Holdings
or any of its subsidiaries (other than FN Holdings and the Bank) that FN
Holdings or the Bank is actually required to pay.
In connection with the Golden State Acquisition, the Company
deconsolidated from the Mafco Group. As a result, only the amount of the net
operating losses ("NOLs") of the Company not utilized by the Mafco Group on or
before December 31, 1998 are available to offset taxable income of the Company
thereafter. At September 11, 1998, had the Company filed a consolidated
federal income tax return on behalf of itself and its subsidiaries for each of
the years since the formation of the Company, it would have had regular NOL
carryforwards, for federal income tax purposes, of approximately $1.8 billion.
Upon deconsolidation, the NOLs available to offset taxable income of the
Company are estimated to be reduced by $900 million. This reduction of NOLs
and other tax attributes (the "Deconsolidation Adjustment") resulted in a
$230.2 million reduction in retained earnings. The Deconsolidation Adjustment
may change based upon the actual filing of the Mafco Group 1998 consolidated
federal income tax return (including the Company's operations through
September 11, 1998) and the results of Internal Revenue Service ("IRS") audits
for all open years of Mafco and the Company. Any increase to the
Deconsolidation Adjustment will be recorded as an increase to income for the
additional federal income tax benefit resulting from the change in the
valuation allowance. Such increase to income will be offset by an increase in
minority interest since under the Golden State Merger agreement the tax
benefits from any NOLs and other tax attributes of Parent Holdings and
subsidiaries are retained by First Gibraltar and Hunter's Glen. Accordingly,
any change to the Deconsolidation Adjustment should have no significant impact
on total stockholders' equity. Any change will be recorded in the period
during which such change is determined.
At December 31, 1998, the Company had regular NOL carryforwards for
federal income tax purposes of approximately $1.1 billion which are available
to offset future federal taxable income, if any, through 2009. In addition,
the Company had alternative minimum tax credit carryforwards of approximately
$14.5 million which are available to offset future federal regular income
taxes, if any, over an indefinite period. Substantially all of the NOLs and
alternative minimum tax credits are subject to an annual Section 382
limitation on their usage. The NOL carryforwards are subject to review and
disallowance, in whole or in part, by the IRS.
On August 20, 1996, the Small Business Job Protection Act of 1996 ("the
Act"), was enacted into law generally effective for years beginning after
1995. One provision of the Act repealed the Section 593 reserve method of
accounting for bad debts by thrift institutions which are treated as large
banks. Another provision of the Act requires the Bank to take into income the
balance of its post-1987 bad debt reserves over a six year period beginning in
1996 subject to a two-year deferral if certain residential loan tests are
satisfied. The Bank had fully provided for the tax related to this recapture.
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In accordance with SFAS No. 109, Accounting for Income Taxes, a deferred
tax liability has not been recognized for the base year reserves of the Bank.
The base year reserves are generally the balance of the tax bad debt reserve
as of December 31, 1987 reduced proportionately for reductions in the Bank's
loan portfolio since that date. At December 31, 1998, the amount of those
reserves was $305 million. The amount of the unrecognized deferred tax
liability at December 31, 1998 was $107 million. Pursuant to the Act,
circumstances that may require an accrual of this unrecorded tax liability are
a failure to meet the definition of a "bank" for federal income tax purposes,
dividend payments in excess of tax earnings and profits, and other
distributions, dissolution, liquidation or redemption of stock, excluding
preferred stock meeting certain conditions.
The IRS is examining the 1993 through 1997 federal income tax returns of
Glendale Federal and has raised an issue regarding the limitation on built-in
losses that may have resulted from Glendale Federal's 1993 recapitalization.
The IRS position is preliminary and currently under discussion with the Bank.
The Bank believes that the IRS position is incorrect and intends to vigorously
defend itself. The outcome of this issue is uncertain and the amount of any
additional taxes, if any, cannot be determined at this time.
The Company is subject to taxation in certain states in which it
operates, including California. For California franchise tax purposes, savings
institutions are taxed as "financial corporations." Financial corporations are
taxed at the general corporate franchise tax rate plus an "in lieu" rate based
on their statutory exemption from local business and personal property taxes.
California has not adopted conforming federal tax law changes to the
computation of the bad debt deduction.
TAX EFFECTS OF DIVIDEND PAYMENTS BY THE BANK
Dividend distributions made to GS Holdings, as the sole owner of the
Bank's common stock, and to holders of the Bank Preferred Stock, in each case
in excess of the Bank's accumulated earnings and profits, as well as any
distributions in dissolution or in redemption or liquidation of stock, may
cause the Bank to recognize a portion of its tax bad debt reserves as income,
and accordingly, could cause the Bank to make payments to GS Holdings under
the Tax Sharing Agreement. As a result, GS Holdings may be required to make
payments to Mafco Holdings or the Company under the Tax Sharing Agreement.
PROVISION FOR LOAN LOSSES
The adequacy of the allowance for loan losses is periodically evaluated
by management in order to maintain the allowance at a level that is sufficient
to absorb expected loan losses. The allowance for loan losses is increased by
provisions for loan losses as well as by balances acquired through
acquisitions and is decreased by charge-offs (net of recoveries). The Company
charges current earnings with a provision for estimated credit losses on loans
receivable. The provision considers both specifically identified problem loans
as well as credit risks not specifically identified in the loan portfolio. The
Company established provisions for loan losses of $40 million, $79.8 million
and $39.6 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
The decrease in the provision for loan losses from 1997 to 1998 is the
result of management's evaluation of the adequacy of the allowance based on,
among other things, past loan loss experience and known and inherent risks in
the portfolio, evidenced in part by the continued decline in the Bank's level
of non-performing assets. The increase in the provision for losses from 1996
to 1997 is due to increased loan production activity (primarily 1-4 unit
residential) and loans acquired through acquisitions. In addition,
management's periodic evaluation of the adequacy of the allowance for loan
losses considers potential adverse situations that have occurred but are not
yet known which may affect the borrower's ability to repay, estimated value of
any underlying collateral, and economic conditions.
Although management believes that its present allowance for loan losses
is adequate, it will continue to review its loan portfolio to determine the
extent to which any changes in economic conditions or loss experience may
require further provisions in the future.
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ASSET AND LIABILITY MANAGEMENT
Banks and savings associations are subject to interest rate risk to the
degree that their interest-bearing liabilities, consisting principally of
deposits, securities sold under agreements to repurchase and FHLB advances,
mature or reprice more or less frequently, or on a different basis, than their
interest-earning assets. A key element of the banking business is the
monitoring and management of liquidity risk and interest rate risk. The
process of planning and controlling asset and liability mixes, volumes and
maturities to influence the net interest spread is referred to as asset and
liability management. The objective of the Company's asset and liability
management is to maximize the net interest income over changing interest rate
cycles within the constraints imposed by prudent lending and investing
practices, liquidity needs and capital planning.
Golden State, through the Bank, actively pursues investment and funding
strategies to minimize the sensitivity of its earnings to interest rate
fluctuations. The Company measures the interest rate sensitivity of its
balance sheet through gap and duration analysis, as well as net interest
income and market value simulation, and, after taking into consideration both
the variability of rates and the maturities of various instruments, evaluates
strategies which may reduce the sensitivity of its earnings to interest rate
and market value fluctuations. An important decision is the selection of
interest-bearing liabilities and the generation of interest-earning assets
which best match relative to interest rate changes. In order to reduce
interest rate risk by increasing the percentage of interest sensitive assets,
the Company has continued its emphasis on the origination of ARM products for
its portfolio. Where possible, the Company seeks to originate real estate and
other loans that reprice frequently and that on the whole adjust in accordance
with the repricing of its liabilities. At December 31, 1998, approximately
72.7% of the Company's loan portfolio consisted of ARMs.
ARMs have, from time to time, been offered with low initial interest
rates as marketing inducements. In addition, most ARMs are also subject to
periodic interest rate adjustment caps or floors. In a period of rising
interest rates, ARMs could reach a periodic adjustment cap while still at a
rate significantly below their contractual margin over existing market rates.
Since repricing liabilities are typically not subject to such interest rate
adjustment constraints, the Company's net interest margin would most likely be
negatively impacted in this situation. Certain ARMs now offered by the Company
have a fixed monthly payment for a given period, with any changes as a result
of market interest rates reflected in the unpaid principal balance through
negative amortization.
As a result of the FN and Cal Fed Acquisitions, the Company acquired the
rights and assumed obligations related to certain interest rate swap
agreements that were entered into to hedge certain FHLB advances. Under the
terms of these agreements, the Company paid a variable rate based on LIBOR and
received fixed rates. The Company had no interest rate swap agreements
outstanding at December 31, 1998. During 1998, 1997 and 1996, the Company's
net interest margin increased by $2.1 million, $.6 million and $.6 million,
respectively, as a result of these interest rate swap agreements, largely due
to the amortization of the premium assigned to these agreements in the FN and
Cal Fed Acquisitions.
One of the most important sources of a financial institution's net
income is net interest income, which is the difference between the combined
yield earned on interest-earning assets and the combined rate paid on
interest-bearing liabilities. Net interest income is also dependent on the
relative balances of interest-earning assets and interest-bearing liabilities.
A traditional measure of interest-rate risk within the savings industry
is the interest rate sensitivity gap, which is the sum of all interest-earning
assets minus the sum of all interest-bearing liabilities to be repriced within
the same period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds interest rate sensitive liabilities, while the
opposite results in a negative gap. During a period of rising interest rates,
a negative gap would tend to adversely affect net interest income, and a
positive gap would tend to result in an increase in net interest income, while
the opposite would tend to occur in a period of falling rates.
The following table sets forth the projected maturities based upon
contractual maturities as adjusted for projected prepayments and "repricing
mechanisms" (provisions for changes in the interest rates of assets and
liabilities). Prepayment rates are assumed in each period on substantially all
of the Company's loan portfolio based upon expected loan prepayments.
Repricing mechanisms on the Company's assets are subject to limitations such
as caps on the amount that interest rates and payments on its loans may adjust
and, accordingly, such assets may not respond in the
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same manner or to the same extent to changes in interest rates as the
Company's liabilities. In addition, the interest rate sensitivity of the
assets and liabilities illustrated in the table would vary substantially if
different assumptions were used or if actual experience differed from the
assumptions set forth. The Company's estimated interest rate sensitivity gap
at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Maturity/Rate Sensitivity
----------------------------------------------------
Within 1-5 Over 5 Noninterest
1 Year Years Years Bearing Total
------ ----- ------ ----------- -----
(dollars in millions)
INTEREST-EARNING ASSETS:
<S> <C> <C> <C> <C> <C>
Securities held to maturity, interest-bearing
deposits in other banks and short-term
investment securities (1) (2) $ 113 $ -- $ 251 $ -- $ 364
Securities available for sale (3) 771 -- -- -- 771
Mortgage-backed securities available 12,948 -- -- -- 12,948
for sale (3)
Mortgage-backed securities held 2,710 27 28 -- 2,765
to maturity (1) (4)
Loans held for sale, net (3)(5) 2,350 -- -- -- 2,350
Loans receivable, net (1)(6) 19,486 7,292 3,885 -- 30,663
Investment in FHLB 1,000 -- -- -- 1,000
--------- -------- ------ ------ -------
Total interest-earning assets 39,378 7,319 4,164 -- 50,861
Noninterest-earning assets -- -- -- 4,008 4,008
--------- -------- ------ ------ -------
$39,378 $ 7,319 $4,164 $4,008 $54,869
========= ======== ====== ====== =======
INTEREST-BEARING LIABILITIES:
Deposits (7) $22,640 $ 1,970 $ 10 $ -- $24,620
Securities sold under agreements to 4,238 -- -- -- 4,238
repurchase (1)
FHLB advances (1) 9,667 10,406 2 -- 20,075
Other borrowings (1) 141 367 1,793 -- 2,301
--------- -------- ----- ------ -------
Total interest-bearing liabilities 36,686 12,743 1,805 -- 51,234
Noninterest-bearing liabilities -- -- -- 1,460 1,460
Minority interest -- -- -- 593 593
Stockholders' equity -- -- -- 1,582 1,582
--------- -------- ----- ------ -------
$36,686 $12,743 $1,805 $3,635 $54,869
========= ======== ====== ====== =======
Gap $ 2,692 $(5,424) $2,359 $ (373)
========= ======== ====== =======
Cumulative gap $ 2,692 $(2,732) $ (373) $ (373)
========= ======== ====== =======
Gap as a percentage of total assets 4.91% (9.89)% 4.30 % (0.68)%
====== ===== ===== =====
Cumulative gap as a percentage of total assets 4.91% (4.98)% (0.68)% (0.68)%
====== ===== ===== =====
</TABLE>
- ---------------------------
(1) Based upon (a) contractual maturity, (b) instrument repricing date, if
applicable, and (c) projected repayments and prepayments of principal, if
applicable. Prepayments were estimated generally by using the prepayment
rates forecast by various large brokerage firms as of December 31, 1998.
The actual maturity and rate sensitivity of these assets could vary
substantially if future prepayments differ from prepayment estimates.
(2) Consists of $53 million of interest-bearing deposits in other banks, $60
million of short-term investment securities and $251million of securities
held to maturity.
(3) As securities and mortgage-backed securities available for sale and loans
held for sale may be sold within one year, they are considered to be
maturing within one year.
(4) Excludes underlying non-performing loans of $6 million.
(5) Excludes non-performing loans of $17 million.
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(6) Excludes allowance for loan losses of $589 million and non-performing
loans of $203 million, net of $4 million related to specific reserves.
(7) Fixed rate deposits and deposits with a fixed pricing interval are
reflected as maturing in the year of contractual maturity or first
repricing date. Money market deposit accounts, demand deposit accounts
and passbook accounts are reflected as maturing within one year.
At December 31, 1998, interest-bearing liabilities of Golden State exceeded
interest-earning assets by $373 million. At December 31, 1997,
interest-earning liabilities of Golden State exceeded interest-bearing assets
by $309 million. The change in the cumulative gap between the two periods was
due principally to the net impact of the Refinancing Transactions and the
Golden State Acquisition.
The maturity/rate sensitivity analysis is a static view of the balance
sheet with assets and liabilities grouped into certain defined time periods,
and thus only partially depicts the dynamics of the Company's sensitivity to
interest rate changes. Being at a point in time, this analysis may not fully
describe the complexity of relationships between product features and pricing,
market rates and future management of the balance sheet mix. The Company
utilizes computer modeling, under various interest rate scenarios, to provide
a dynamic view of the effects of the changes in rates, spreads, and yield
curve shifts on net interest income.
The Company's risk management policies are established by the
Asset/Liability Management Committee ("ALCO") of the Bank. ALCO meets monthly
to formulate the Bank's investment and risk management strategies. The basic
responsibilities of ALCO include management of net interest income and market
value of portfolio equity to measure the stability of earnings, management of
liquidity to provide adequate funding, and the establishment of asset product
priorities by formulating performance evaluation criteria, risk evaluation
techniques and a system to standardize the analysis and reporting of
originations, competitive trends, profitability and risk. On a quarterly
basis, the Board of Directors of the Bank is apprised of ALCO strategies
adopted and their impact on operations, and, at least annually, the Board of
Directors of the Bank reviews the Bank's interest rate risk management policy
statements. See "--Quantitative and Qualitative Disclosures About Market
Risk."
LIQUIDITY
The standard measure of liquidity in the savings industry is the ratio of
cash and short-term U.S. government and other specified securities to deposits
and borrowings due within one year. Effective November 24, 1997, the OTS
established a minimum liquidity requirement of 4.00%, a reduction from 5.00%
which had been in effect prior to that date in 1997. The Bank has been in
compliance with the liquidity regulations during 1998 and 1997.
A major source of the Company's funding is expected to be its retail
deposit branch network, which management believes will be sufficient to meet
its long-term liquidity needs. The ability of the Company to retain and
attract new deposits is dependent upon the variety and effectiveness of its
customer account products, customer service and convenience, and rates paid to
customers. The Company also obtains funds from the repayment and maturities of
loans and mortgage-backed securities, while additional funds can be obtained
from a variety of sources including customer and Brokered Deposits, loan
sales, securities sold under agreements to repurchase, FHLB advances, and
other secured and unsecured borrowings. It is anticipated that FHLB advances
and securities sold under agreements to repurchase will continue to be
important sources of funding, and management expects there to be adequate
collateral for such funding requirements.
The Company's primary uses of funds are the origination or purchase of
loans, the funding of maturing certificates of deposit, demand deposit
withdrawals and the repayment of borrowings. Certificates of deposit scheduled
to mature during the twelve months ending December 31, 1999 total $11.1
billion. The Company may renew these certificates, attract new replacement
deposits, replace such funds with other borrowings, or it may elect to reduce
the size of the balance sheet. In addition, at December 31, 1998, the Company
had FHLB advances, securities sold under agreements to repurchase and other
borrowings aggregating $14.0 billion maturing or repricing within twelve
months. The Company may elect to pay off such debt or to replace such
borrowings with additional FHLB advances, securities sold under agreements to
repurchase or other borrowings at prevailing rates.
During 1994, California Federal issued 3,007,300 shares of the 11 1/2%
Preferred Stock. Cash dividends on the 11 1/2% Preferred Stock are
noncumulative and are payable at an annual rate of 11 1/2% if, when, and as
declared by the Board of Directors of the Bank. The payment of dividends by
the Bank is subject to certain federal laws applicable to savings
associations. Dividends paid by the Bank on the 11 1/2% Preferred Stock for
each year ended December 31,
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1998 and 1997 totalled $34.6 million. However, GS Holdings purchased 2,688,959
shares of the 11 1/2% Preferred Stock in connection with the Bank Preferred
Stock Tender Offers, which reduced dividend expense on the 11 1/2% Preferred
Stock on a consolidated basis to $26.8 million for the year ended December 31,
1998. The annual dividends on the 11 1/2% Preferred Stock payable to third
parties approximate $3.7 million.
In the FN Acquisition, the Company assumed $92.1 million of Old FNB's 10%
Subordinated Debentures Due 2006 which have an annual interest cost of $9.2
million. In the SFFed Acquisition, the Company assumed $50 million of the
11.2% Senior Notes. On September 12, 1996, the Company repurchased $44 million
aggregate principal amount of the 11.2% Senior Notes at a price of
approximately 116.45% of the principal amount, plus the accrued interest
thereon. The $6.0 million of 11.2% Senior Notes that remain outstanding have
an annual interest cost of $.7 million.
In the Cal Fed Acquisition, the Company assumed certain indebtedness and
the 10 5/8% Preferred Stock, which have an annual interest cost of $.6 million
and an annual dividend cost of $18.3 million, respectively. Cash dividends on
the 10 5/8% Preferred Stock are noncumulative and are payable at an annual rate
of 10 5/8%, if, when, and as declared by the Board of Directors of the Bank.
Similar to the 11 1/2% Preferred Stock, the payment of dividends by the Bank
is subject to certain federal laws applicable to savings associations.
Dividends paid by the Bank on the 10 5/8% Preferred Stock, for each year ended
December 31, 1998 and 1997 totalled $18.3 million. However, GS Holdings
purchased 1,117,701 shares of the 10 5/8% Preferred Stock in connection with
the Bank Preferred Stock Tender Offers, which reduced dividend expense on the
10 5/8% Preferred Stock on a consolidated basis to $15.3 million for the year
ended December 31, 1998. The annual dividends on the 10 5/8% Preferred Stock
payable to third parties approximate $6.5 million.
The dividends, net of tax benefits, on the REIT Preferred Stock were $33.1
million and $36.6 million for the years ended December 31, 1998 and 1997,
respectively.
Interest on the GS Escrow Notes approximates $140.9 million per year.
Although GS Holdings expects that distributions from the Bank will be
sufficient to pay interest when due and the principal amount of its long-term
debt at maturity, there can be no assurance that earnings from the Bank will
be sufficient to make such distributions to GS Holdings. In addition, there
can be no assurance that such distributions will be permitted by the terms of
any debt instruments of GS Holdings' subsidiaries then in effect, by the terms
of any class of Preferred Stock issued by the Bank or its subsidiaries,
including the REIT Preferred Stock and the Bank Preferred Stock, or under
applicable federal thrift laws.
During the year ended December 31, 1998, $914.5 million of the FN Holdings
Notes have been purchased in connection with the Debt Tender Offers, with
related premiums, fees and other expenses totalling $98.7 million on an
after-tax basis. In addition, during the year ended December 31, 1998, $455
million of the 12 1/2% Parent Holdings Notes were defeased, with related
premiums, fees and other expenses totaling $51.6 million on an after-tax
basis. At December 31, 1998, only $.2 million of the FN Holdings 12 1/4% Notes
and $.3 million of the FN Holdings 10 5/8% Notes remain outstanding.
The Company anticipates that cash and cash equivalents on hand, the cash
flow from assets as well as other sources of funds will provide adequate
liquidity for its operating, investing and financing needs and the Bank's
regulatory liquidity requirements for the foreseeable future. See
"Business--Regulation of the Bank." In addition to cash and cash equivalents
of $968.0 million at December 31, 1998, the Company has substantial additional
secured borrowing capacity with the FHLB and other sources.
Net cash used in operating activities for the year ended December 31, 1998
totalled $572.2 million compared to net cash used of $431.8 million during the
year ended December 31, 1997. The change was principally due to the increase
in purchases and originations of loans held for sale, net of sales.
Net cash used in operating activities for the year ended December 31, 1997
totalled $431.8 million compared to net cash provided by operating activities
of $485.9 million during the year ended December 31, 1996. The change was
principally due to the increase in purchases and originations of loans held
for sale.
Net cash provided by operating activities for the year ended December 31,
1996 totalled $485.9 million, an increase of $902.7 million from the year
ended December 31, 1995. The increase was principally due to the increase
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in proceeds from the sale of loans held for sale. Substantially all loan
production in 1996 was sold in the secondary market, whereas variable rate
loans originated during the first nine months of 1995 were retained by the
Company.
Net cash used in investing activities for the year ended December 31, 1998
totalled $3.0 billion, an increase of $1.9 billion from the year ended
December 31, 1997. Cash flows used in investing activities included purchases
of securities of $892 million and purchases of $9.0 billion in mortgage-backed
securities. Cash flows provided by investing activities included a net
decrease in loans receivable of $1.7 billion, principal payments on
mortgage-backed securities totalling $3.8 billion and proceeds from maturities
of securities of $978.1 million.
Net cash used in investing activities for the year ended December 31, 1997
totalled $1.0 billion, a decrease of $3.2 billion from the year ended December
31, 1996. Cash flows used in investing activities included $198.3 million for
acquisitions, purchases of securities of $1.4 billion and purchases of $2.6
billion in mortgage-backed securities. Cash flows provided by investing
activities included a net decrease in loans receivable of $514.4 million,
principal payments on mortgage-backed securities totalling $1.4 billion and
proceeds from maturities of securities of $1.0 billion.
Net cash provided by investing activities for the year ended December 31,
1996 totalled $2.2 billion, an increase of $.4 billion from the year ended
December 31, 1995. Cash flows provided by investing activities included a net
decrease in loans receivable of $1.5 billion, principal payments on
mortgage-backed securities totalling $863.1 million and proceeds from
maturities of securities of $243.8 million. Cash flows used in investing
activities included a net $52.4 million from acquisitions, purchases of
securities of $507.3 million and purchases of $149.7 million in
mortgage-backed securities.
Net cash provided by financing activities for the year ended December 31,
1998 totalled $4.1 billion. Cash flows provided by financing activities
included additional borrowings of $25.6 billion and proceeds from the GS
Escrow Merger of $2.0 billion. Cash flows used in financing activities
included principal payments on borrowings totalling $20.5 billion, a decrease
in deposits of $1.4 billion, and funds used in the Parent Holdings Defeasance,
Debt Tender Offers and Bank Preferred Stock Tender Offers of $553.7 million,
$1.1 billion and $423.5 million, respectively. Additionally, $1.3 billion was
used in the Florida Branch Sale, $25.0 million was used in the redemption of
the FN Holdings Preferred Stock and dividends paid to minority stockholders,
totalled $80.5 million.
Net cash provided by financing activities for the year ended December 31,
1997 totalled $1.6 billion. Cash flows provided by financing activities
included additional borrowings of $19.6 billion, proceeds of $482.4 million
from the issuance of the REIT Preferred Stock and proceeds from the FN Escrow
Merger of $603.3 million. Cash flows used in financing activities included
principal payments on borrowings totalling $17.5 billion and a decrease in
deposits of $1.2 billion. Additionally, $142.3 million was used in the
redemption of the FN Holdings Preferred Stock and dividends on preferred and
common stock, including dividends paid to minority stockholders, totalled
$122.8 million.
Net cash used in financing activities for the year ended December 31, 1996
totalled $2.7 billion. Principal payments on borrowings totalled $8.5 billion,
funding of the Branch Sales totalled $4.6 billion and the net decrease in
securities sold under agreements to repurchase totalled $202.2 million.
Additionally, cash used in financing activities included a capital
distribution to parent of $227.1 million and dividends of $375.8 million. Cash
flows provided by financing activities included additional borrowings of $11.1
billion (including $455 million from the issuance of the 12 1/2% Parent
Holdings Notes) and proceeds from the issuance of FN Holdings Preferred Stock
of $144.2 million.
The terms of the Bank Preferred Stock provide that the Bank may not declare
or pay any dividends or other distributions (other than in shares of common
stock of the Bank or other Bank Junior Stock), with respect to any Bank Junior
Stock or repurchase, redeem or otherwise acquire, or set apart funds for the
repurchase, redemption or other acquisition of any Bank Junior Stock
(including the common stock held by GS Holdings) through a sinking fund or
otherwise, unless and until: (i) the Bank has paid in full dividends on the
Bank Preferred Stock for the four most recent dividend periods or funds have
been paid over to the dividend disbursing agent of the Bank for payment of
such dividends, and (ii) the Bank has declared a cash dividend on the Bank
Preferred Stock at the annual dividend rate for the current dividend period,
and sufficient funds have been paid over to the dividend disbursing agent of
the Bank for the payment of a cash dividend for such current dividend period.
The Bank is currently in compliance with such requirement.
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Similarly, the terms of the REIT Preferred Stock provide that Preferred
Capital Corp. may not declare or pay any dividends or other distributions
(other than in shares of common stock of Preferred Capital Corp. or other
Preferred Capital Corp. Junior Stock), with respect to any Preferred Capital
Corp. Junior Stock or repurchase, redeem or otherwise acquire, or set apart
funds for the repurchase, redemption or other acquisition of any Preferred
Capital Corp. Junior Stock (including the common stock held by the Bank)
through a sinking fund or otherwise, unless and until: (i) Preferred Capital
Corp. has paid full dividends on the REIT Preferred Stock for the four most
recent dividend periods or funds have been paid over to the dividend
disbursing agent of Preferred Capital Corp. for payment of such dividends, and
(ii) Preferred Capital Corp. has declared a cash dividend on the REIT
Preferred Stock at the annual dividend rate for the current dividend period,
and sufficient funds have been paid over to the dividend disbursing agent of
Preferred Capital Corp. for the payment of a cash dividend for such current
dividend period. Preferred Capital Corp. is currently in compliance with such
requirement.
IMPACT OF INFLATION AND CHANGING PRICES
Prevailing interest rates have a more significant impact on the
Company's performance than does the general level of inflation. While interest
rates may bear some relationship to the general level of inflation
(particularly in the long run), over short periods of time interest rates may
not necessarily move in the same direction or change in the same magnitude as
the general level of inflation. As a result, the business of the Company is
generally not affected by inflation in the short run, but may be affected by
inflation in the long run.
PROBLEM AND POTENTIAL PROBLEM ASSETS
Loans collectively reviewed for impairment by the Company include all
business banking loans, single-family loans and performing multi-family and
commercial real estate loans under $500,000, excluding loans which have
entered the workout process.
The Company considers a loan to be impaired when, based upon current
information and events, it is "probable" that it will be unable to collect all
amounts due (i.e., both principal and interest) according to the contractual
terms of the loan agreement. Any insignificant delay or insignificant
shortfall in amount of payments will not cause a loan to be considered
impaired. In determining impairment, the Company considers large
non-homogeneous loans including nonaccrual loans, troubled debt
restructurings, and performing loans that exhibit, among other
characteristics, high LTV ratios, low debt-coverage ratios or other
indications that the borrowers are experiencing increased levels of financial
difficulty.
The measurement of impairment may be based on (i) the present value of
the expected future cash flows of the impaired loan discounted at the loan's
original effective interest rate, (ii) the observable market price of the
impaired loan, or (iii) the fair value of the collateral of a
collateral-dependent loan. The Company bases the measurement of
collateral-dependent impaired loans on the fair value of the loan's
collateral. The amount, if any, by which the recorded investment of the loan
exceeds the measure of the impaired loan's value is recognized by recording a
valuation allowance. Large groups of smaller balance homogeneous loans are
collectively evaluated for impairment.
Cash receipts on impaired loans not performing according to contractual
terms are generally used to reduce the carrying value of the loan, unless the
Company believes it will recover the remaining principal balance of the loan.
Impairment losses are included in the allowance for loan losses through a
charge to the provision for loan losses. Adjustments to impairment losses due
to changes in the fair value of collateral of impaired loans are included in
the provision for loan losses. Upon disposition of an impaired loan, loss of
principal, if any, is recorded through a charge-off to the allowance for loan
losses.
At December 31, 1998 and 1997, the carrying value of loans that were
considered to be impaired totalled $135.2 million and $110.1 million,
respectively, (of which $32.5 million and $18.6 million, respectively, were on
nonaccrual status). The average recorded investment in impaired loans during
the years ended December 31, 1998 and 1997, was approximately $137.1 million
and $112.9 million, respectively. For the years ended December 31, 1998 and
1997, the Company recognized interest income on those impaired loans of $9.0
million and $10.5 million, respectively, which included $1.2 million and $.6
million, respectively, of interest income recognized using the cash basis
method of income recognition.
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The following table presents the amounts, net of specific allowances
for losses and purchase accounting adjustments, of the Company's
non-performing loans, foreclosed real estate, repossessed assets, troubled
debt restructurings, and impaired loans as of the dates indicated. These
categories are not mutually exclusive; certain loans are included in more than
one classification. Purchased sub-prime auto loans are reflected as
non-performing, impaired, or restructured using each individual loan's
contractual unpaid principal balance.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------------- -----------------------------------------
Non-performing Impaired Restructured Non-performing Impaired Restructured
-------------- -------- ------------ -------------- -------- ------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
1-4 unit residential $190 $ -- $ 4 $165 $ -- $ 2
5+ unit residential 16 55 9 12 43 7
Commercial and other 10 78 19 6 67 24
Land -- 1 -- -- -- --
Construction 1 1 -- 2 -- --
---- ---- --- ---- ---- ----
Total real estate 217 135 32 185 110 33
Non-real estate 9 -- -- 7 -- --
---- ---- --- ---- ---- ----
Total loans 226 (a) $135 (b) $32 192 (a) $110 (b) $ 33
==== === ==== ====
Foreclosed real estate, net 80 77
Repossessed assets 4 3
---- ----
Total non-performing assets $310 $272
==== ====
</TABLE>
- ------------------
(a) Includes loans securitized with recourse on non-performing status of
$6.0 million and $5.2 million at December 31, 1998 and 1997,
respectively, and loans held for sale on non-performing status of $17.0
million and $1.2 million at December 31, 1998 and 1997, respectively.
(b) Includes $32.5 million and $18.6 million of non-performing loans and
$16.4 million and $17.5 million of loans classified as troubled debt
restructurings at December 31, 1998 and 1997, respectively.
There were no accruing loans contractually past due 90 days or more at
December 31, 1998 or 1997.
The Company's non-performing assets, consisting of nonaccrual loans, net of
purchase accounting adjustments, repossessed assets and foreclosed real
estate, net, increased to $310 million at December 31, 1998, compared with
$272 million at December 31, 1997. However, non-performing assets as a
percentage of the Bank's total assets decreased to .57% at December 31, 1998,
from .87% of total assets at December 31, 1997. The decrease in the Bank's
non-performing assets as a percentage of total assets is due to the level of
the Bank's non-performing assets increasing at a much lower rate than the
significant increase in total assets over such time period.
Golden State, through the Bank, manages its credit risk by assessing the
current and estimated future performance of the real estate markets in which
it operates. The Company continues to place a high degree of emphasis on the
management of its asset portfolio. The Company has three distinct asset
management functions: performing loan asset management, problem loan asset
management and credit review. Each of these three functions is charged with
the responsibility of reducing the risk profile within the residential,
commercial, multi-family and other asset portfolios by applying asset
management and risk evaluation techniques that are consistent with the
Company's portfolio management strategy and regulatory requirements. In
addition to these asset management functions, the Company has a specialized
credit risk management group that is charged with development of credit
policies and performing credit risk analyses for all asset portfolios.
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The following table presents non-performing real estate assets by
geographic region of the country as of December 31, 1998:
<TABLE>
<CAPTION>
Total
Non-performing Foreclosed Non-performing
Real Estate Real Estate, Real Estate Geographic
Loans, Net (2) Net (2) Assets Concentration
-------------- ------- ------ -------------
(dollars in millions)
Region:
<S> <C> <C> <C> <C>
Northeast (1) $ 28 $ 8 $ 36 12.12%
California 135 51 186 62.63
Other regions 54 21 75 25.25
---- --- ---- ------
Total $217 $80 $297 100.00%
==== === ==== ======
</TABLE>
- ------------------
(1) Consists of Connecticut, Massachusetts, New Hampshire, New Jersey, New
York, Pennsylvania, Rhode Island and Delaware.
(2) Net of purchase accounting adjustments and specific allowances for
losses.
At December 31, 1998, the Company's largest non-performing asset was
$7.3 million, and the Company had four non-performing assets over $2 million
in size with balances averaging approximately $3.6 million. At December 31,
1998, the Company had 1,810 non-performing assets below $2 million in size,
including 1,674 non-performing 1-4 unit residential assets.
The level of non-performing assets is directly affected by economic
conditions throughout the country. The following table indicates
non-performing real estate loans, net of purchase accounting adjustments and
specific allowances for losses, by collateral type, interest rate type and
state concentration as of December 31, 1998:
<TABLE>
<CAPTION>
Total
1-4 unit 5+ unit Commercial Non-performing
Residential Residential and Other Real Estate % of
State Variable Fixed Variable Fixed Variable Fixed Loans Total
----- -------- ----- -------- ----- -------- ----- ----- -----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $ 99 $13 $15 $-- $6 $2 $135 62.07%
New York 11 5 -- -- -- -- 16 7.13
Florida 12 6 -- -- -- -- 18 8.48
Hawaii 8 2 -- -- 3 -- 13 6.12
New Jersey 4 3 -- -- -- -- 7 2.92
Illinois 2 -- -- -- -- -- 2 1.12
Ohio 1 1 -- -- -- -- 2 1.11
Connecticut 1 1 -- -- -- -- 2 1.01
Texas 1 1 -- -- -- -- 2 1.05
Other states (1) 11 8 1 -- -- -- 20 8.99
---- --- --- --- -- -- ---- ------
Total $150 $40 $16 $-- $9 $2 $217 100.00%
==== === === === == == ==== ======
</TABLE>
- ------------------
(1) There are 41 states, Puerto Rico, Virgin Islands, Guam and the District
of Columbia, of which no one state had non-performing loans in excess of
1% of the total.
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The following table indicates outstanding balances of impaired loans, net
of purchase accounting adjustments and specific allowances for losses, by
collateral type, interest rate type and state concentration as of December 31,
1998:
<TABLE>
<CAPTION>
5+ Unit Commercial
Residential and Other Total % of
----------------- ---------------- --------------------
Variable Fixed Variable Fixed Impaired Total
-------- ----- -------- ----- -------- -----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
California $49 $1 $54 $8 $112 82.98%
New York 3 -- 3 -- 6 4.44
Illinois -- -- 6 -- 6 4.44
Hawaii -- -- 3 -- 3 2.22
Florida -- -- 5 -- 5 3.70
Arizona -- -- -- 1 1 0.74
Other states (1) 2 -- -- -- 2 1.48
--- -- --- -- ---- ------
Total $54 $1 $71 $9 $135 100.00%
=== == === == ==== ======
</TABLE>
- ------------------
(1) Represents four states, none of which had impaired loans in excess of
1% of the total.
The following table indicates outstanding balances of troubled debt
restructured loans, net of purchase accounting adjustments and specific
allowances for losses, by collateral type, interest rate type and state
concentration as of December 31, 1998:
<TABLE>
<CAPTION>
1-4 Unit 5+ Unit Commercial Total
Residential Residential and Other Troubled
----------------- ----------------- ---------------- Debt % of
State Variable Fixed Variable Fixed Variable Fixed Restructured Total
----- -------- ----- -------- ----- -------- ----- ------------ -----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $3 $1 $2 $1 $7 $ -- $14 43.75%
New York -- -- 1 5 -- 12 18 56.25
-- -- -- -- -- --- -- ------
Total $3 $1 $3 $6 $7 $12 $32 100.00%
== == == == == === === ======
</TABLE>
A summary of the activity in the allowance for loan losses by loan type is
as follows for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
5+ Unit
Residential
1-4 Unit and Commercial Consumer
Residential Real Estate and Other Total
----------- ----------- --------- -----
(in millions)
<S> <C> <C> <C> <C>
Balance - December 31, 1995 $116 $ 85 $ 9 $210
Purchases and acquisitions, net 6 32 1 39
Provision for loan losses 34 2 4 40
Charge-offs (35) (4) (6) (45)
Recoveries 2 -- 1 3
---- ---- --- ----
Balance - December 31, 1996 123 115 9 247
Purchases and acquisitions, net 55 79 10 144
Provision for loan losses 60 12 8 80
Charge-offs (38) (8) (10) (56)
Recoveries 2 -- 2 4
---- ---- --- ----
Balance - December 31, 1997 202 198 19 419
Purchases and acquisitions, net 50 78 42 170
Provision for loan losses 25 9 6 40
Charge-offs (28) (10) (8) (46)
Recoveries 1 2 3 6
---- ---- --- ----
Balance - December 31, 1998 $250 $277 $62 $589
==== ==== === ====
</TABLE>
Page 81
<PAGE>
The ratio of allowance for loan losses to non-performing loans at December
31, 1998, 1997 and 1996 was 260.2%, 217.8% and 143.2%, respectively. The
increase in the ratio in 1998 is primarily attributed to balances acquired in
the Golden State Acquisition. The increase in the ratio in 1997 is primarily
attributed to the Cal Fed Acquisition and the expiration of the Put Agreement.
See "Business--Non-performing Assets--Allowance for Loan Losses" for further
discussion.
MORTGAGE BANKING OPERATIONS
The Company, through FNMC, has significantly expanded its mortgage banking
operations. During January 1998, FNMC acquired mortgage servicing assets of
$3.6 billion as a result of bulk servicing acquisitions. With the consummation
of bulk servicing acquisitions, the acquisition of additional 1-4 unit
residential loan servicing portfolios in the Glen Fed Merger and the
originated servicing, the 1-4 unit residential loans serviced for others
(including loans subserviced for others and excluding loans serviced for the
Bank) totalled $65.4 billion at December 31, 1998, an increase of $20.5
billion from December 31, 1997. During 1998, the Company, through FNMC,
originated $12.4 billion and sold (generally with servicing retained) $7.9
billion of 1-4 unit residential loans. Gross revenues from mortgage loan
servicing activities for 1998 totalled $264.2 million, an increase of $28.5
million from the year ended December 31, 1997.
A decline in long-term interest rates generally results in an acceleration
of mortgage loan prepayments. Higher than anticipated levels of prepayments
generally cause the accelerated amortization of MSRs and generally will result
in a reduction of the market value of MSRs and in the Company's servicing fee
income. To reduce the sensitivity of its earnings to interest rate and market
value fluctuations, the Company hedged the change in value of its MSRs based
on changes in interest rates ("MSR Hedge").
At December 31, 1998, the Company, through FNMC, was a party to several
interest rate floor contracts maturing in 2003. The Company paid
counterparties a premium in exchange for cash payments in the event that the
10-year Constant Maturity Swaps rate falls below the strike prices. At
December 31, 1998, the notional amount of the interest rate floors was $2.1
billion and the strike prices were between 5.2% and 5.6%. The Company, through
FNMC, also entered into principal only swap agreements with a notional amount
of $164.7 million at December 1998. Further, to hedge against prepayment risk
in its mortgage servicing portfolio, the Company entered into
prepayment-linked swaps with a notional value of $1.9 billion at December 31,
1998. The Company was also a party to swaption contracts with a weighted
average maturity of 2.8 years, a notional amount of $2.3 billion and a
weighted average strike rate of 5.57% at December 31, 1998. The estimated fair
values of interest rate floor contracts and principal-only swaps designated as
hedges against MSRs at December 31, 1998, were $32.2 million and $18.8
million, respectively. The estimated fair values of the interest rate swaption
contracts and the prepayment-linked swaps was $89.3 million and $1.3 million,
respectively, at December 31, 1998. For further discussion, see note 39 to the
Company's consolidated financial statements.
The premium paid by the Company on the interest rate floor contracts is
amortized over the life of the contract. Amounts receivable or payable under
the principal only swap agreements and prepayment linked swap agreements, and
amounts receivable under the interest rate floor contracts, swaptions or
terminated hedges are included in the carrying value of MSRs and are amortized
as part of the MSR basis. Gains and losses on early termination of these
hedges would be included in the carrying amount of the related MSRs and
amortized over the remaining terms of the assets. Two requirements must be met
in order to use these hedge accounting methods: (i) MSRs must expose the
Company to interest rate risk, and (ii) at the inception of the hedge and
throughout the hedge period, high correlation of changes in the market value
of the hedge instruments and the fair value of the MSRs must be probable so
that the results of the hedge instruments will substantially offset the
effects of interest rate changes on the MSRs. If these requirements are not
met, the hedge instruments would be considered speculative and marked to
market with changes in market value reflected in current earnings.
When a mortgage loan is sold and servicing rights are retained, a portion
of the cost of originating a mortgage loan is allocated to the MSRs based on
its relative fair market value. This cost of originating the loan is
capitalized and amortized over the period of estimated future net servicing
income. The net gains on sales of 1-4 unit residential loans during the year
ended December 31, 1998 totalled $32.3 million and included amounts related to
the capitalization of originated and excess MSRs of $170.0 million.
Page 82
<PAGE>
The following is a summary of activity in MSRs and the MSR Hedge for the
year ended December 31, 1998 (in millions):
<TABLE>
<CAPTION>
Total MSR
MSRs MSR Hedge Balance
<S> <C> <C> <C>
Balance at December 31, 1997 $ 531 $ 5 $ 536
Additions - Glen Fed Merger 213 -- 213
Originated servicing 170 -- 170
Additions - other purchases 161 -- 161
Sale - Servicing Sale (1) -- (1)
Gain on termination -- (76) (76)
Premiums paid -- 107 107
Payments received from counterparties, net -- (8) (8)
Amortization (152) (6) (158)
----- ----- -----
Balance at December 31, 1998 $ 922 $ 22 $ 944
===== ===== =====
</TABLE>
Capitalized MSRs are amortized in proportion to, and over the period of,
estimated net servicing income. SFAS No. 125 requires enterprises to measure
the impairment of MSRs based on the difference between the carrying amount of
the MSRs and their current fair value. At December 31, 1998 and 1997, no
allowance for impairment of the MSRs was necessary.
CAPITAL RESOURCES
OTS capital regulations require savings associations to satisfy three
minimum capital requirements: tangible capital, core (leverage) capital and
risk-based capital. In general, an association's tangible capital, which must
be at least 1.5% of adjusted total assets, is the sum of common stockholders'
equity (including retained earnings), noncumulative perpetual preferred stock
and minority interest in equity accounts of fully consolidated subsidiaries,
less disallowed intangibles. An association's ratio of core capital to
adjusted total assets (the "core" capital or "leverage capital" ratio) must be
at least 4%, recently amended from 3% which had been in effect prior to March
1998. Core capital generally is the sum of tangible capital plus certain other
qualifying intangibles. Under the risk-based capital requirement, a savings
association must have total capital (core capital plus supplementary capital)
equal to at least 8% of risk-weighted assets (which equals assets plus the
credit risk equivalent of certain off-balance sheet items, each multiplied by
the appropriate risk weight). Supplementary capital, which may not exceed 100%
of core capital for purposes of the risk-based requirement, includes, among
other things, certain permanent capital instruments such as qualifying
cumulative perpetual preferred stock, as well as some forms of term capital
instruments, such as qualifying subordinated debt. The capital requirements
are viewed as minimum standards by the OTS, and most associations are expected
to maintain capital levels well above the minimum. In addition, the OTS
regulations provide that minimum capital levels higher than those provided in
the regulations may be established by the OTS for individual savings
associations, depending upon their particular circumstances. These capital
requirements are applicable to the Bank but not to Golden State. The Bank is
not subject to any such individual minimum regulatory capital requirement.
The "Business--Regulation of the Bank--Regulatory Capital Requirements."
Page 83
<PAGE>
At December 31, 1998, the Bank's regulatory capital levels exceeded the
minimum regulatory capital requirements, with tangible, core and risk-based
capital ratios of 5.29%, 5.29% and 11.69%, respectively. The following is a
reconciliation of the Bank's stockholders' equity to regulatory capital as of
December 31, 1998:
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
------- ------- -------
(dollars in millions)
<S> <C> <C> <C>
Stockholders' equity of the Bank $3,679 $3,679 $3,679
Minority interest - REIT Preferred Stock 498 498 498
Unrealized holding gain on securities available for sale, net (5) (5) (5)
Non-qualifying MSRs (94) (94) (94)
Non-allowable capital:
Intangible assets (924) (924) (924)
Goodwill Litigation Assets (160) (160) (160)
Investment in non-includable subsidiaries (58) (58) (58)
Excess deferred tax asset (119) (119) (119)
Supplemental capital:
Qualifying subordinated debentures -- -- 93
General loan loss allowance -- -- 346
Assets required to be deducted:
Land loans with more than 80% LTV ratio -- -- (13)
Equity in subsidiaries -- -- (25)
Low-level recourse deduction -- -- (12)
------ ------- ------
Regulatory capital of the Bank 2,817 2,817 3,206
Minimum regulatory capital requirement 799 2,131 2,194
------ ------- ------
Excess above minimum capital requirement $2,018 $ 686 $1,012
====== ======= ======
Tangible Leverage Risk-based
Capital Capital Capital
Ratio Ratio Ratio
----- ----- -----
Regulatory capital of the Bank 5.29% 5.29% 11.69%
Minimum regulatory capital requirement 1.50 4.00 8.00
---- ---- ----
Excess above minimum capital requirement 3.79% 1.29% 3.69%
==== ==== ====
</TABLE>
The amount of adjusted total assets used for the tangible and leverage
capital ratios is $53.3 billion. Risk-weighted assets used for the risk-based
capital ratio amounted to $27.4 billion.
The Bank is also subject to the "prompt corrective action" standards
prescribed in the FDICIA and related OTS regulations, which, among other
things, define specific capital categories based on an association's capital
ratios. See "Business -- Regulation of the Bank."
At December 31, 1998, the Bank's capital levels were sufficient for it to
be considered "well capitalized."
<TABLE>
<CAPTION>
Risk-based
Leverage ----------------------
Capital Tier 1 Total Capital
------- ------ -------------
<S> <C> <C> <C>
Regulatory capital of the Bank 5.29% 10.27% 11.69%
"Well capitalized" ratio 5.00 6.00 10.00
---- ---- -----
Excess above "well capitalized" ratio 0.29% 4.27% 1.69%
==== ==== =====
</TABLE>
OTS capital regulations allow a savings association to include a net
deferred tax asset in regulatory capital, subject to certain limitations. To
the extent that the realization of a deferred tax asset depends on a savings
association's future taxable income, such deferred tax asset is limited for
regulatory capital purposes to the lesser of the amount that can be realized
within one year or 10 percent of core capital. At December 31, 1998, $119
million of the net tax benefit was determined to be attributable to the amount
of taxable income that may be realized in periods beyond one year.
Accordingly, such amount has been excluded from regulatory capital at December
31, 1998.
Page 84
<PAGE>
YEAR 2000
The Company has developed and is currently executing a comprehensive plan
to make its computer systems, applications and facilities Year 2000 ready. The
Company's operations, like those of most financial institutions, are
substantially dependent upon computer systems for lending and deposit
activities. Issues regarding Year 2000 arise because computer systems and
related software may have been designed to recognize only dates that relate to
the 20th century. Accordingly, if no changes are implemented, some computer
systems would interpret "1/1/00" as January 1, 1900 instead of January 1,
2000. Additionally, some equipment, being controlled by microprocessor chips,
may not deal appropriately with a year "00."
The Company has formed a Year 2000 Project Steering Committee with senior
representatives from every functional area of the Company. At the direction of
the Board of Directors, the Committee is leading the efforts to ensure that
the Company is ready for the Year 2000. The Board of Directors has approved
the Company's Year 2000 Plan that was developed in accordance with the
guidelines set forth by the Federal Financial Institutions Examination Council
("FFIEC"). The Company's plan covers four stages including (i) inventory, (ii)
assessment, (iii) remediation and (iv) testing and certification. Inventory
involves taking stock of and recording known computer hardware, software and
chip-embedded technologies. The assessment stage includes evaluation and
identification of actions necessary to ensure Year 2000 compliance.
Remediation consists of the corrective actions, including modifications,
upgrades or replacement of non-compliant hardware, software and chip-embedded
technologies. Testing and certification entails validation that the system
will operate correctly for Year 2000, and includes exercising predefined tests
that simulate specific activities known to be problematic for otherwise
compliant technologies, such as century roll-over, Year 2000 leap year, etc.
At December 31, 1998, the Company had completed the inventory and
assessment stages for its Company owned systems and applications, and was
substantially complete with the remediation stage. During this remediation
process, the Company is utilizing both internal and external resources to
reprogram and/or replace, and test the software for Year 2000 modifications.
The remediation process for existing mission-critical systems is targeted to
be complete by March 31, 1999; testing and certification of these systems and
applications are currently targeted for completion at the same time. In
addition, during February and March of 1999, the Company has participated in
industry-wide Year 2000 integration testing sponsored by the Mortgage Banking
Association. The Company is currently assessing risks related to the potential
failure of material third parties to be ready for Year 2000.
The Company also completed its inventory and assessment of electrical and
electronic equipment which may be controlled by microprocessor chips,
including automatic teller machines, telecommunications systems, building
management systems, security equipment and systems, telecommunications
equipment, vehicles and office equipment. All such equipment and systems not
certified as Year 2000 ready are planned to be upgraded, discarded or replaced
by March 31, 1999. In addition, the Company has completed its inventory of
business forms to identify those containing a preprinted "19__." All such
forms have been redesigned and replacement supplies have been ordered.
It is currently expected that costs related to Year 2000 will total
approximately $16.4 million over the years 1997 to 2000. Of this, $9.8 million
has been incurred since the inception of the Year 2000 project through
December 31, 1998. Historically, cost estimates and actuals by year for year
2000 are as follows (in millions):
1997 1998
---- ----
Estimates $1.2 $8.9
Actual 1.2 8.6
Of the total Year 2000 project costs, $10.1 million are incremental third
party expenses which will be funded through operating cash flows. Costs
related to purchase of project equipment and replacement of non-compliant
equipment are projected to be $2.9 million and $.9 million, respectively,
which will also be funded through operating cash flows. However, an increase
in reprogramming costs or other unforeseen equipment replacement costs would
adversely affect these costs estimates. Expenditures in 1998 represented 11.6%
of the total Information and Technology Services ("ITS") expenses. In 1999,
expenditures are estimated to be 9.1% of the total ITS budget. No critical ITS
projects have been deferred as a result of the Year 2000 efforts. Instead,
incremental resources including consultants, contractors, software utilities
and hardware were obtained from outside the Company to supplement existing
staff. In addition, the Company has prioritization mechanisms in place to
ensure that other critical projects
Page 85
<PAGE>
are addressed. The Company is currently unaware of any asserted or unasserted
claims of breach of contract or warranty, and, at the present time, does not
anticipate any assertion of such claims in the future.
The Company has initiated communications with its critical external
relationships to determine the extent to which the Company may be vulnerable
to such parties' failure to remediate their own Year 2000 issues. From its
critical service providers, the Company has obtained written statements
indicating they will be Year 2000-ready. However, through the testing and
certification stage, the Company will continue to assess and attempt to
mitigate its risks with respect to the failure of these entities to be Year
2000-ready. The effect, if any, on the Company's results of operations from
the failure of such parties to be Year 2000-ready cannot be reasonably
estimated.
The Company has completed its risk assessment of each of its loan
portfolios and identified material borrowers which are most likely to
experience Year 2000 related problems. In an effort to educate borrowers and
further assess Year 2000 preparedness, material borrowers have been contacted
through questionnaires, surveys, or loan officer phone calls and visits.
Educational materials have been sent to the majority of borrowers not
categorized as material customers for Year 2000 purposes. Ongoing efforts to
mitigate potential Year 2000 problems in higher-risk portfolios include
incorporating Year 2000 compliance requirements in loan documents and
assessing Year 2000 readiness in the Company's underwriting process for new
loans and renewals.
Year 2000 is the highest priority project within the ITS unit of the
Company. Management believes there is no material risk that the Company will
fail to address Year 2000 issues in a timely manner, and little possibility of
material changes in its estimates of reserves, allowances for capitalized
software costs, litigation and deferred revenue. In light of normal ongoing
field visits by Bank regulatory examiners, there is little likelihood of
enforcement action on the Company's Year 2000 project. The Company does not
anticipate material loan losses or acceleration of prepayments due to Year
2000. However, the amount of potential liability and lost revenue, if any,
cannot be reasonably estimated at this time nor can the Company identify
specifically the most likely worst case scenario.
If unforeseen circumstances were to arise, the Year 2000 issue could
disrupt the Company's normal business operations. The most reasonably likely
worst case Year 2000 scenario foreseeable at this time would include the
inability to systematically process, in some combination, various types of
customer transactions. This could affect the Company's ability to accept
deposits or process withdrawals, originate new loans or accept loan payments
in the automated manner currently utilized. Depending upon how long this
scenario lasted, this could have a material adverse effect on the Company's
operations. In the unlikely event the Company or its vendors and/or business
partners are not ready for the Year 2000, the Company has been developing a
contingency plan of action. This contingency plan addresses possible failures
of the remediated systems and failure to remediate a system on time, and will
address a support infrastructure for specific systems. The contingency plan
focuses on three main areas: service providers, critical supply vendors and
in-house systems.
At December 31, 1998, contingency plans had been completed for all but
seven of the Company's 45 service providers. Contingency plans for the
services provided by the seven remaining vendors were completed in January
1999. The contingency plans for the critical supply vendors was completed in
mid-February 1999. Finally, since remediation, testing and certification of
in-house maintained systems will have been substantially completed by the
March 31, 1999 date established by federal regulators, no specific
contingencies will be developed for these systems. However, a plan will be
developed to address how the Company will treat the possibility of Year
2000-related problems with in-house maintained systems after they have been
tested and certified. This plan will address a 1999- 2000 schedule of events
and a support infrastructure necessary to see the Company through Year 2000
with its systems. The support plan for in-house maintained applications will
be completed by September 30, 1999.
Page 86
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to interest-rate
risk, which is the potential for loss due to changes in interest rates.
Financial products that expose the Company to interest-rate risk include
securities, loans, deposits, debt and derivative financial instruments such as
swaps, swaptions and floors.
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 and 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 discussed below are designed to
minimize the impact of sudden and sustained changes in interest rates on NPV
and net interest income.
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 and net interest income in the event of hypothetical
changes in interest rates and interest rate sensitivity gap analysis is used
to determine the repricing characteristics of the Company's assets and
liabilities. If estimated changes to NPV and net interest income are not
within the limits established by the Board, the Board may direct management to
adjust its asset and liability mix to bring interest rate risk within
Board-approved limits.
In order to reduce the exposure to interest rate fluctuations, the Company
has developed strategies to manage its liquidity, shorten its effective
maturities of certain interest-earning assets, and increase the ability of its
asset base to respond to changes in interest rates. Management has sought to
decrease the average maturity of its assets by emphasizing the origination of
adjustable-rate residential mortgage loans and consumer loans, which are
retained by the Company for its portfolio. In addition, long-term, fixed-rate
single-family residential mortgage loans are underwritten according to
guidelines of FHLMC, GNMA and the FNMA, and are either swapped with the FHLMC,
GNMA and the FNMA in exchange for mortgage-backed securities secured by such
loans which are then sold or are sold directly for cash in the secondary
market, generally with servicing retained.
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 represents the market value
of portfolio equity and is equal to the 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 increase or decrease in the
market interest rates of one hundred to four hundred basis points. The Bank's
Board of Directors has adopted an interest rate risk policy which establishes
maximum decreases in the NPV of 15%, 30%, 45% and 60% in the event of a sudden
and sustained increase or decrease in market interest rates of 100, 200, 300
and 400 basis points, respectively. The following table presents the Company's
projected change in NPV for the various rate shock levels at December 31,
1998. All market risk sensitive instruments presented in this table are held
to maturity or available for sale. The Company has no trading securities.
<TABLE>
<CAPTION>
Percent Change
-------------------
Change in Market Value of Actual Board
Interest Rates Portfolio Equity Change Actual Limit
-------------- ---------------- ------ ------ -----
(dollars in millions)
<S> <C> <C> <C> <C>
400 basis point rise $2,435 $(1,490) -38.0% -60%
300 basis point rise 2,955 (971) -24.7% -45%
200 basis point rise 3,460 (466) -11.9% -30%
100 basis point rise 3,843 (83) -2.1% -15%
Base Scenario 3,926 -- -- --
100 basis point decline 3,874 (52) -1.3% -15%
200 basis point decline 3,710 (216) -5.5% -30%
300 basis point decline 3,727 (199) -5.1% -45%
400 basis point decline 3,822 (104) -2.7% -60%
</TABLE>
Page 87
<PAGE>
The preceding table indicates that at December 31, 1998, in the event of a
sudden and sustained increase in prevailing market interest rates, the
Company's NPV, including minority interest, would be expected to decrease, and
that in the event of a sudden and sustained decrease in prevailing market
interest rates, the Company's NPV would be expected to experience a much
lesser decline. At December 31, 1998, the Company's estimated changes in NPV
were within the targets established by the Board of Directors.
The fair market value of portfolio equity decreases in a rising interest
rate environment because the Company's interest-bearing liabilities generally
reprice faster than its interest-earning assets, and certain interest-earning
assets are subject to periodic caps. The reduction in value of the net
interest-earning assets is partially offset by an increase in value of MSRs
that appreciate in value as rates rise. In a declining interest rate
environment, the reduction in value of MSRs generally outweighs the increase
in value of the rest of the portfolio resulting from the repricing differences
of interest-earning assets and interest-bearing liabilities.
NPV is calculated by the Company pursuant to 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.
The computation of prospective effects of hypothetical interest rate
changes is 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.
Certain shortcomings are inherent in the method of analysis presented in
the computation of NPV. Actual values may differ from those projections
presented, should market conditions vary from assumptions used in the
calculation of the NPV. Certain assets, such as adjustable-rate loans, which
represent one of the Company's primary loan products, have features which
restrict changes in interest rates on a short-term basis and over the life of
the assets. In addition, the proportion of adjustable-rate loans in the
Company's portfolio could decrease in future periods if market interest rates
remain at or decrease below current levels due to refinance activity. Further,
in the event of a change in interest rates, prepayment and early withdrawal
levels would likely deviate significantly from those assumed in the NPV.
Finally, the ability of many borrowers to repay their adjustable-rate mortgage
loans may decrease in the event of interest rate increases.
In addition, the Company uses interest rate sensitivity gap analysis to
monitor the relationship between the maturity and repricing of its
interest-earning assets and interest-bearing liabilities, while maintaining an
acceptable interest rate spread. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset/Liability Management" and
note 39 of the consolidated financial statements for further information.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Golden State at December
31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and 1996 are
included in this report at the pages indicated.
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Comprehensive Income F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Page 88
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Those portions of Golden State's definitive Proxy Statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A for use
in connection with Golden State's Annual Meeting of Stockholders to be held on
May 17, 1999 ("Proxy Statement") appearing under the captions "Proposal I -
Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" are incorporated herein by reference.
The following table sets forth certain information (ages as of March 1,
1999) concerning the executive officers of Golden State.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gerald J. Ford 54 Chairman of the Board, Chief Executive Officer and Director
Carl B. Webb 49 President, Chief Operating Officer and Director
Richard H. Terzian 62 Executive Vice President and Chief Financial Officer
Christie S.Flanagan 60 Executive Vice President and General Counsel
Richard A. Fink 58 Executive Vice President
Richard P. Hodge 44 Executive Vice President
Scott A. Kisting 51 Executive Vice President
James R. Staff 51 Executive Vice President
Stephen J. Trafton 52 Executive Vice President
Renee Nichols Tucei 42 Senior Vice President and Controller
</TABLE>
In addition to the officers listed above, below are those individuals who
hold senior positions with the Bank and are deemed to be executive officers of
the Company for reporting purposes under the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Kendall M. Fugate 61 Executive Vice President and Information and Technology
Services Director
Walter C. Klein 55 Executive Vice President; President, FNMC
Richard A. Leweke 49 Executive Vice President and Administrative Services Director
Lacy G. Newman, Jr. 49 Executive Vice President and Chief Credit Officer
Peter K. Thomsen 56 Executive Vice President and Retail Banking Director
Michael R. Walker 53 Executive Vice President - Commercial Real Estate
Dennis L. Verhaegen 47 Executive Vice President - Director of Corporate Finance
</TABLE>
Mr. Ford has served as the Chairman of the Board and Chief Executive
Officer of Golden State since September 1998 and as the Chairman of the Board
and Chief Executive Officer of the Bank and its predecessors since 1988. Mr.
Ford was previously President and Director of Parent Holdings, Golden State's
predecessor, from its inception in 1994 until its merger with Golden State.
Mr. Ford has also been Chairman of the Board and Chief Executive Officer of GS
Holdings since its formation in 1998 and of Preferred Capital Corporation
since its formation in November 1996. Mr. Ford was Chairman of the Board of
First Madison from 1993 to 1994 and Chairman of the Board and Chief Executive
Officer of First Gibraltar from 1988 through 1993, both predecessors of
California Federal. Mr. Ford served as the Chairman of the Board and Chief
Executive Officer of First United Bank Group from 1993 to 1994. Mr. Ford is
Chairman of the Board of FNMC. Mr. Ford is also Chairman of the Board and
Chief Executive Officer of Liberte Investors Inc., and a Director of McMoRan
Oil and Gas Co.
Mr. Webb has served as President, Chief Operating Officer and a Director of
Golden State since September 1988 and as the President, Chief Operating
Officer and a Director of the Bank and its predecessors since 1988, and of
Preferred Capital Corp. since its formation in November 1996. Mr. Webb has
also been President and Chief Operating Officer of GS Holdings since its
formation in 1998. Mr. Webb served as President, Chief Executive Officer and
Director of First Madison from 1993 through 1994, and as President, Chief
Operating Officer and a Director of First Gibraltar from 1988 through 1993.
Mr. Webb also serves as a Director of FNMC.
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Mr. Terzian has served as Executive Vice President and Chief Financial
Officer of Golden State since September 1998 and of the Bank since April 1,
1995. Mr. Terzian has been the Executive Vice President, Chief Financial
Officer and a Director of Preferred Capital Corp. since its formation in
November 1996. Mr. Terzian also serves as a Director of the Federal Home Loan
Bank of San Francisco. For the five years prior to April 1, 1995, Mr. Terzian
served as Chief Financial Officer of Dime Bancorp, Inc. and its subsidiary,
The Dime Savings Bank of New York, FSB.
Mr. Flanagan has been the Executive Vice President and General Counsel of
Golden State since September 1998. Mr. Flanagan has also served as Executive
Vice President and General Counsel of the Bank since the consummation of the
FN Acquisition. Mr. Flanagan has been the Executive Vice President, General
Counsel and a Director of Preferred Capital Corp. since its formation in
November 1996. He also serves as a Director of FNMC. Mr. Flanagan has been
associated with the law firm of Jenkens & Gilchrist, P.C. and its predecessors
since 1968 in various capacities, including Managing Partner, and he is
currently Of Counsel to that firm.
Mr. Fink has been Executive Vice President of Golden State and Executive
Vice President and Goodwill Litigation Manager of the Bank since September
1998. Mr. Fink was Vice Chairman and a Director of Golden State from June 1997
until its merger with Parent Holdings on September 11, 1998. Mr. Fink
previously served as Senior Executive Vice President and a Director of
Glendale Federal from May 1992 to September 1998. He served as Chief Legal
Officer from May 1992 until April 1994; as Director, Corporate Development,
from April 1994 until February 1996; and served as Glendale Federal's Chief
Credit Officer from February 1996 until September 1998.
Mr. Hodge has been an Executive Vice President of Golden State since
September 1998 and of the Bank since January 1996. He has been employed by the
Bank since November 1995. Mr. Hodge previously was associated with the public
accounting firm of KPMG Peat Marwick LLP and its predecessors since 1981,
including most recently as a tax partner since 1986.
Mr. Kisting has been an Executive Vice President of Golden State since
September 11, 1998, and Executive Vice President of the Bank and Director of
the Retail Bank since September 1, 1998. From September 1997 to August 1998,
Mr. Kisting served as Chief Operating Officer of the New England-based
Citizens Financial Group. From 1993 to 1997, Mr. Kisting was associated with
Norwest Corporation in Minneapolis, where he served as Group Executive Vice
President from 1995 to 1997, and as Regional President from 1993 to 1995.
Prior to that time, Mr. Kisting was an Executive Vice President of Bank of
America.
Mr. Staff has been an Executive Vice President of Golden State since
September 1998 and of the Bank since October 17, 1994. He also serves as a
Director of Preferred Capital Corp. and FNMC. Mr. Staff served as Chairman and
Director of FGB Realty in 1996 and 1997. Mr. Staff previously was associated
with the public accounting firm of KPMG Peat Marwick LLP and its predecessors
since 1979, including most recently as Partner-in-charge of Financial Services
for the Southwest-Dallas area.
Mr. Trafton has been Executive Vice President of Golden State and Executive
Vice President and Goodwill Litigation Manager of the Bank since September
1998. Mr. Trafton previously served as Chairman of the Board, Chief Executive
Officer and President of Glendale Federal from April 1992 to September 1998.
He joined Glendale Federal in July 1990 as Senior Executive Vice President and
Chief Financial Officer and served as Chief Financial Officer until April
1992. He has served as a Director since June 1991. From June 1991 until April
1992 he was Vice Chairman of the Board.
Ms. Tucei has been Senior Vice President and Controller of Golden State
since September 1998. She has been an Executive Vice President of the Bank
since January 1999. Ms. Tucei served as Senior Vice President and the
Controller of the Bank since the consummation of the FN Acquisition. Ms. Tucei
previously served as Senior Vice President and Controller of First Madison
from 1993 to 1994, and as Senior Vice President for First Gibraltar from 1988
to 1993.
Mr. Fugate has been an Executive Vice President of Golden State since
September 1998 and an Executive Vice President of the Bank since the
consummation of the FN Acquisition. Mr. Fugate previously served as Executive
Vice President of Old FNB from 1991 to 1994, and held various executive
positions with Citibank, N.A. and Citibank California, FSB from 1982 to 1991.
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Mr. Klein has been an Executive Vice President of Golden State since
September 1998 and an Executive Vice President of the Bank and the President
of FNMC since January 1996. He also serves as a Director of FNMC. Mr. Klein
previously was associated with PNC Mortgage Corp. of America and its
predecessor, Sears Mortgage Corporation, since 1986, including most recently
as Chairman and Chief Executive Officer.
Mr. Leweke has been an Executive Vice President of Golden State since
September 1998 and an Executive Vice president of the Bank since January 1998.
Mr. Leweke served as Senior Vice President--Administrative Services since the
consummation of the FN Acquisition. Prior to that time, he served in the same
capacity for Old FNB from 1992 to 1994.
Mr. Newman has been an Executive Vice President of Golden State since
September 1998 and Executive Vice President and Chief Credit Officer of the
Bank since the consummation of the FN Acquisition. Mr. Newman has also served
as Executive Vice President of First Madison from 1993 to 1994, and Executive
Vice President of First Gibraltar since 1992. In addition, he served as
President and a Director of Madison Realty since 1992.
Mr. Thomsen has been an Executive Vice President of Golden State since
September 1998 and an Executive Officer of the Bank since the consummation of
the FN Acquisition. Mr. Thomsen previously served as Senior Executive Vice
President of Old FNB and a Director from 1992 to 1994. Mr. Thomsen was an
Executive Vice President of Old FNB from 1991 to 1992. Mr. Thomsen had been
Executive Vice President of Michigan National Corporation from 1986 to 1991
and a Director from 1989 to 1991, and the President of Michigan National Bank
from 1988 to 1991 and a Director from 1989 to 1991. Mr. Thomsen was Chairman
of Independence One Mortgage Corporation, a subsidiary of Michigan National
Bank, from 1986 to 1990.
Mr. Walker has been an Executive Vice President of Golden State since
September 1998 and an Executive Vice President of the Bank since the
consummation of the FN Acquisition. Mr. Walker served as Senior Vice President
of First Madison from 1993 to 1994. Mr. Walker previously served as Senior
Vice President of First Gibraltar from 1988 to 1993.
Mr. Verhaegen has been an Executive Vice President of Golden State since
September 1998 and an Executive Vice President of the Bank since February
1997. Mr. Verhaegen previously served as a Managing Director of First
Southwest Company from 1992 to 1994. Mr. Verhaegen served as a Senior Managing
Director and co-head of the Financial Institutions Group of Bear Stearns & Co.
Inc. from 1988 to 1992. From 1994 to 1996, Mr. Verhaegen operated his own
financial advisory and consulting firm.
ITEM 11. EXECUTIVE COMPENSATION
Those portions of Golden State's Proxy Statement appearing under the
caption "Executive Compensation and Other Information," "Report of the
Compensation Committee on Executive Compensation" and "Stock Price Performance
Graph" are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
That portion of Golden State's Proxy Statement appearing under the caption
"Beneficial Ownership of Golden State Securities" is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
That portion of Golden State's Proxy Statement appearing under the caption
"Certain Relationships and Related Transactions" is incorporated herein by
reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because of the absence of conditions under which they
are required or because the required information is provided in the
consolidated financial statements or notes thereto.
(B) EXHIBITS
2.1 Agreement and Plan of Reorganization, dated as of February 4,
1998, by and among First Nationwide (Parent) Holdings Inc.,
First Nationwide Holdings Inc., First Gibraltar Holdings,
Inc., Hunter's Glen/Ford, Ltd. Golden State Bancorp Inc. and
Golden State Financial Corporation. (Incorporated by reference
to Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated February 4, 1998 (the "February 1998 Form 8-K")).
2.2 Amendment No. 1 dated as of July 31, 1998, by and among First
Nationwide (Parent) Holdings Inc., First Nationwide Holdings
Inc., Golden State Bancorp Inc., Golden State Financial
Corporation, First Gibraltar Holdings Inc. and Hunter's
Glen/Ford Ltd., to the Agreement and Plan of Reorganization,
dated as February 4, 1998, by and among the Parties.
3.1 Third Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibits 3.1 and 3.2 to the
Registrant's Annual Report on Form 10-K for the year ended
June 30, 1998).
3.2 By-laws of the Registrant. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
3.3 By-laws of the Registrant, as amended.
4.1 Indenture, dated as of April 15, 1996 between the Registrant
and The Bank of New York, as trustee, relating to the 12 1/2%
Senior Exchange Notes due 2003. (Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form
S-1 (File No. 333-4026)).
4.2 First Supplemental Indenture, dated as of September 10, 1998
between First Nationwide (Parent) Holdings Inc. and the Bank
of New York, as Trustee, relating to the 12 1/2% Senior
Exchange Notes due 2003.
4.3 Indenture, dated as of September 19, 1996, between First
Nationwide Escrow Corp. and The Bank of New York, as trustee,
relating to the 10 5/8% Senior Subordinated Exchange Notes Due
2003 (the "10 5/8% Notes"). (Incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to FN Holdings Registration
Statement on Form S-1 (File No. 333-21015)).
4.4 First Supplemental Indenture, dated as of January 3, 1997,
among FN Holdings, First Nationwide Escrow Corp. and The Bank
of New York, as trustee, relating to the 10 5/8% Notes.
(Incorporated by reference to Exhibit 4.2 to Amendment No. 1
to FN Holdings' Registration Statement on Form S-1 (File No.
333-21015)).
4.5 Second Supplemental Indenture dated September 11, 1998,
supplementing the Indenture, dated as of September 19, 1996,
as Supplemented, between First Nationwide Holdings Inc. and
The Bank of New York, as Trustee, relating to the 10 5/8%
Senior Subordinated Exchange Notes Due 2003.
4.6 Third Supplemental Indenture dated September 14, 1998, between
Golden State Holdings Inc. (formerly known as New First
Nationwide Holdings Inc.), as successor to First Nationwide
Holdings Inc., and The Bank of New York, as Trustee, relating
to the 10 5/8% Senior Subordinated Exchange Notes Due 2003.
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4.7 Indenture, dated as of January 31, 1996, between FN Holdings
and The Bank of New York, as trustee, relating to the 9 1/8%
Senior Subordinated Exchange Notes Due 2003. (Incorporated by
reference to Exhibit 4.1 to FN Holdings' Registration
Statement on Form S-1 (File No. 333-00854)).
4.8 First Supplemental Indenture dated as of September 11, 1998,
supplementing the Indenture, dated as of January 31, 1996,
between First Nationwide Holdings Inc. and The Bank of New
York, as Trustee, relating to the 9 1/8% Senior Subordinated
Exchange Notes Due 2003.
4.9 Second Supplemental Indenture dated as of September 14, 1998,
supplementing the Indenture dated as of January 31, 1996, as
Supplemented, between Golden State Holdings Inc. (formerly
known as New First Nationwide Holdings Inc.), as successor to
First Nationwide Holdings Inc., and The Bank of New York, as
Trustee, relating to the 9 1/8% Senior Subordinated Exchange
Notes Due 2003.
4.10 Indenture, dated as of July 15, 1994, between FN Holdings and
The First National Bank of Boston, as trustee, relating to the
12 1/4% Senior Exchange Notes Due 2001 (the "12 1/4% Senior
Note Indenture"). (Incorporated by reference to Exhibit 4.1 to
FN Holdings' Registration Statement on Form S-1 (File No.
33-82654)).
4.11 First Supplemental Indenture, dated as of January 17, 1997,
between FN Holdings and State Street Bank and Trust Company,
as trustee, supplementing the 12 1/4% Senior Note Indenture.
(Incorporated by reference to Exhibit 4.5 to Amendment No. 1
to FN Holdings' Registration Statement on Form S-1 (File No.
333-21015)).
4.12 Second Supplemental Indenture dated as of September 11, 1998,
supplementing the Indenture dated as of July 15, 1994, as
Supplemented, between Golden State Holdings Inc. (formerly
known as New First Nationwide Holdings Inc.), as successor to
First Nationwide Holdings Inc., and State Street Bank and
Trust Company, as successor to The First National Bank of
Boston, as trustee, relating to the 12 1/4% Senior Exchange
Notes Due 2001.
4.13 Third Supplemental Indenture dated as of September 14, 1998,
supplementing the Indenture dated as of July 15, 1994, as
Supplemented, between Golden State Holdings Inc. (formerly
known as New First Nationwide Holdings Inc.), as successor to
First Nationwide Holdings Inc., and State Street Bank and
Trust Company, as successor to The First National Bank of
Boston, as trustee, relating to the 12 1/4% Senior Exchange
Notes Due 2001.
4.14 Indenture, dated as of October 1, 1986, between First
Nationwide Bank, A Federal Savings Bank, and Bank of America
National Trust and Savings Association Re: $100,000,000 10%
Subordinated Debentures due 2006 (the "2006 Indenture").
(Incorporated by reference to Exhibit 4.5 to FN Holdings'
Annual Report on Form 10-K for the year ended December 31,
1994.)
4.15 First Supplemental Indenture, dated as of September 30, 1994,
among First Madison Bank, FSB, First Nationwide Bank, A
Federal Savings Bank, and Bank of America National Trust and
Savings Association, supplementing the 2006 Indenture.
(Incorporated by reference to Exhibit 4.6 to FN Holdings'
Annual Report on Form 10-K for the year ended December 31,
1994.)
4.16 Second Supplemental Indenture, dated as of January 3, 1997,
among First Nationwide Bank, A Federal Savings Bank,
California Federal Bank, A Federal Savings Bank and Bank of
America National Trust and Savings Association, as trustee,
supplementing the 2006 Indenture. (Incorporated by reference
to Exhibit 4.8 to Amendment No. 1 to FN Holdings' Registration
Statement on Form S-1 (File No. 333-21015)).
4.17 Indenture, dated February 15, 1986, between Cal Fed Bancorp
Inc. and Manufacturers Hanover Trust Company, as trustee,
relating to the 6 1/2% Convertible Subordinated Debentures
Due 2001 (the "6 1/2% Convertible Debenture Indenture").
(Incorporated by reference to Exhibit 4.11 to Amendment No.
1 to FN Holdings' Registration Statement on Form S-1 (File
No. 333-21015)).
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4.18 First Supplemental Indenture, dated as of December 16, 1992,
among Cal Fed Bancorp Inc., XCF Acceptance Corporation,
California Federal Bank, A Federal Savings Bank, and Chemical
Bank, supplementing the 6 1/2% Convertible Debenture
Indenture. (Incorporated by reference to Exhibit 4.12 to
Amendment No. 1 to FN Holdings' Registration Statement on Form
S-1 (File No. 333- 21015)).
4.19 Second Supplemental Indenture dated as of December 13, 1996
among XCF Acceptance Corporation, California Federal Bank, A
Federal Savings Bank, and The Chase Manhattan Bank, as
trustee, supplementing the 6 1/2% Convertible Debenture
Indenture. (Incorporated by reference to Exhibit 4.13 to
Amendment No. 1 to FN Holdings' Registration Statement on Form
S-1 (File No.
333-21015)).
4.20 Third Supplemental Indenture dated as of December 13, 1996
among Cal Fed Bancorp Inc., XCF Acceptance Corporation,
California Federal Bank, A Federal Savings Bank, and The Chase
Manhattan Bank, as Trustee, supplementing the 6 1/2%
Convertible Debenture Indenture. (Incorporated by reference to
Exhibit 4.14 to Amendment No. 1 to FN Holdings' Registration
Statement on Form S-1 (File No. 333-21015)).
4.21 Fourth Supplemental Indenture dated as of December 13, 1996
among Cal Fed Bancorp Inc., XCF Acceptance Corporation, and
The Chase Manhattan Bank, as trustee, supplementing the 6 1/2%
Convertible Debenture Indenture. (Incorporated by reference to
Exhibit 4.15 to Amendment No. 1 to FN Holdings' Registration
Statement on Form S-1 (File No. 333-21015)).
4.22 Indenture, dated December 1, 1992, between California Federal
Bank, A Federal Savings Bank and Chemical Bank, as trustee,
relating to the 10% Subordinated Debentures Due 2003.
(Incorporated by reference to Exhibit 4.16 to Amendment No. 1
to FN Holdings' Registration Statement on Form S-1 (File No.
333-21015)).
4.23 Agreement Regarding Contingent Litigation Recovery
Participation Interests, dated as of June 30, 1995, between
California Federal Bank, A Federal Savings Bank, and Chemical
Trust Company of California, as Interest Agent. (Incorporated
by reference to Exhibit 4.17 to Amendment No. 1 to FN
Holdings' Registration Statement on Form S-1 (File No.
333-21015)).
4.24 Agreement regarding Secondary Contingent Litigation Recovery
Participation Interests, dated as of December 2, 1996, between
California Federal Bank, A Federal Savings Bank, and
ChaseMellon Shareholder Services, L.L.C., as Interest Agent.
(Incorporated by reference to Exhibit 4.18 to Amendment No. 1
to FN Holdings' Registration Statement on Form S-1 (File No.
333-21015)).
4.25 Note Agreement Regarding $50,000,000 aggregate principal
amount of 10.668% Senior Subordinated Notes Due 1998 of
California Federal Bank, A Federal Savings Bank. (Incorporated
by reference to Exhibit 4.19 to Amendment No. 1 to FN
Holdings' Registration Statement on Form S-1 (File No.
333-21015)).
4.26 Indenture dated as of August 6, 1998 between GS Escrow Corp.
and The Bank of New York, as Trustee. (Incorporated by
reference to Exhibit 4.1 to Golden State Holdings Inc.'s
Registration Statement on Form S-1 (File No 333-64597)).
4.27 First Supplemental Indenture dated as of August 6, 1998
between GS Escrow Corp. and The Bank of New York, as Trustee.
(Incorporated by reference to Exhibit 4.2 to Golden State
Holdings Inc.'s Registration Statement on Form S-1 (File No
333-64597)).
4.28 Second Supplemental Indenture dated as of August 6, 1998
between GS Escrow Corp. and The Bank of New York, as Trustee.
(Incorporated by reference to Exhibit 4.3 to Golden State
Holdings Inc.'s Registration Statement on Form S-1 (File No
333-64597)).
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4.29 Third Supplemental Indenture dated as of August 6, 1998
between GS Escrow Corp. and The Bank of New York, as Trustee.
(Incorporated by reference to Exhibit 4.4 to Golden State
Holdings Inc.'s Registration Statement on Form S-1 (File No
333-64597)).
4.30 Fourth Supplemental Indenture dated as of August 6, 1998
between GS Escrow Corp. and The Bank of New York, as Trustee
(Incorporated by reference to Exhibit 4.5 to Golden State
Holdings Inc.'s Registration Statement on Form S-1 (File No
333-64597)).
4.31 Fifth Supplemental Indenture dated as of September 11, 1998
between Golden State Holdings Inc. and the Bank of New York,
as Trustee (Incorporated by reference to Exhibit 4.6 to Golden
State Holdings Inc.'s Registration Statement on Form S-1 (File
No 333-64597)).
10.1 Tax Sharing Agreement, effective as of January 1, 1994, by and
among First Madison Bank, FSB, FN Holdings and Mafco Holdings,
Inc. (Incorporated by reference to Exhibit 10.10 to FN
Holdings' Registration Statement on Form S-1 (File No.
33-82654)).
10.2 Amendment to Tax Sharing Agreement, effective September 11,
1998, by and among Mafco Holdings Inc., Golden State Bancorp
Inc., First Nationwide Holdings Inc., Glendale Federal Bank, A
Federal Savings Bank, and New First Nationwide Holdings Inc.
10.3 Tax Sharing Modification Agreement dated as of December 22,
1998, between Mafco Holdings Inc. and Golden State Bancorp
Inc.
10.4 Asset Purchase Agreement, dated as of April 14, 1994, between
First Madison Bank, FSB, and First Nationwide Bank, A Federal
Savings Bank. (Incorporated by reference to Exhibit 2.1 to FN
Holdings' Current Report on Form 8-K dated October 3, 1994.)
10.5 Amendment No. 1 to the Asset Purchase Agreement, dated as of
September 30, 1994, between First Madison Bank, FSB, and First
Nationwide Bank, A Federal Savings Bank. (Incorporated by
reference to Exhibit 2.3 to FN Holdings' Current Report on
Form 8-K dated October 3, 1994.)
10.6 Amendment No. 2 to the Asset Purchase Agreement, dated as of
September 30, 1994, between First Madison Bank, FSB, and First
Nationwide Bank, A Federal Savings Bank. (Incorporated by
reference to Exhibit 2.4 to FN Holdings' Current Report on
Form 8-K dated October 3, 1994.)
10.7 Exchange Agreement dated September 26, 1994 by and among
Gerald J. Ford, First Nationwide Holdings Inc. and NationsBank
of Texas, N.A. (Incorporated by reference to Exhibit 10.12 to
Amendment No. 2 to FN Holdings' Registration Statement on Form
S-1 (File No. 33-82654)).
10.8 Exchange Agreement dated October 20, 1994 between Carl B. Webb
and FN Holdings. (Incorporated by reference to Exhibit 10.11
to FN Holdings' Registration Statement on Form S-1 (File No.
333-00854)).
10.9 Stockholders Agreement dated October 3, 1994 by and among
Gerald J. Ford, FN Holdings and the Registrant. (Incorporated
by reference to Exhibit 10.16 to Amendment No. 2 to FN
Holdings' Registration Statement on Form S-1 (File No.
33-82654)).
10.10 Office Lease, dated as of November 15, 1990, between Webb/San
Francisco Ventures, Ltd. and First Nationwide Bank, A Federal
Savings Bank. Confidential treatment has been granted for
portions of this document (Incorporated by reference to
Exhibit 10.6 to Amendment No. 3 to FN Holdings' Registration
Statement on Form S-1 (File No. 33-82654)).
10.11 Employment Agreement between First Nationwide Bank, A Federal
Savings Bank, and Gerald J. Ford, dated as of October 1, 1994.
(Incorporated by reference to Exhibit 10.13 to FN Holdings'
Annual Report on Form 10-K for the year ended December 31,
1994.)
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10.12 Amendment to Employment Agreement between California Federal
Bank, A Federal Savings Bank, and Gerald J. Ford, dated as of
January 1, 1998. (Incorporated by reference to Exhibit 10.10
of the Registrant' Annual Report on Form 10-K for the year
ended December 31, 1997.)
10.13 Employment Agreement between First Nationwide Bank, A Federal
Savings Bank, and Carl B. Webb, II, dated as of February 1,
1995. (Incorporated by reference to Exhibit 10.14 to FN
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1994.)
10.14 Amendment to Employment Agreement, dated as of June 1, 1996,
between First Nationwide Bank, A Federal Savings Bank, and
Carl B. Webb, II. (Incorporated by reference to Exhibit 10.1
to FN Holdings' Current Report on Form 8-K dated August 30,
1996 ( the "August 1996 Form 8-K")).
10.15 Employment Agreement dated as of January 1, 1998 between
California Federal Bank, A Federal Savings Bank, and Carl B.
Webb II. (Incorporated by reference to Exhibit 10.13 of the
Registrant' Annual Report on Form 10-K for the year ended
December 31, 1997.)
10.16 Employment Agreement, dated as of June 1, 1996, between First
Nationwide Bank, A Federal Savings Bank, and Christie S.
Flanagan. (Incorporated by reference to Exhibit 10.4 to the
August 1996 Form 8-K.)
10.17 Employment Agreement between First Nationwide Bank, A Federal
Savings Bank, and James R. Staff, dated as of February 1,
1995. (Incorporated by reference to Exhibit 10.16 to FN
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1994.)
10.18 Amendment to Employment Agreement, dated as of June 1, 1996,
between First Nationwide Bank, A Federal Savings Bank, and
James R. Staff. (Incorporated by reference to Exhibit 10.3 to
the August 1996 Form 8-K.)
10.19 Employment Agreement dated as of January 1, 1998 between
California Federal Bank, A Federal Savings Bank, and J. Randy
Staff. (Incorporated by reference to Exhibit 10.17 of the
Registrant' Annual Report on Form 10-K for the year ended
December 31, 1997.)
10.20 Employment Agreement between First Nationwide Bank, A Federal
Savings Bank, and Lacy G. Newman, Jr. dated as of February 1,
1995. (Incorporated by reference to Exhibit 10.17 to FN
Holdings' Registration Statement on Form S-1 (File No.
333-00854)).
10.21 Amendment to Employment Agreement, dated as of June 1, 1996,
between First Nationwide Bank, A Federal Savings Bank, and
Lacy G. Newman, Jr. (Incorporated by reference to Exhibit 10.5
to the August 1996 Form 8-K.)
10.22 Employment Agreement dated as of January 1, 1998, between
California Federal Bank, A Federal Savings Bank, and Lacy G.
Newman, Jr. (Incorporated by reference to Exhibit 10.20 of the
Registrant' Annual Report on Form 10-K for the year ended
December 31, 1997.)
10.23 Employment Agreement dated as of January 1, 1996, between
First Nationwide, A Federal Savings Bank and Richard P. Hodge.
(Incorporated by reference to Exhibit 10.16 to FN Holdings'
Annual Report on Form 10-K for the year ended December 31,
1995.)
10.24 Amendment to Employment Agreement, dated as of June 1, 1996,
between First Nationwide Bank, A Federal Savings Bank, and
Richard P. Hodge (Incorporated by reference to Exhibit 10.2 to
the August 1996 Form 8-K.)
10.25 Employment Agreement dated as of January 1, 1999, by and
between California Federal Bank, A Federal Savings Bank, and
Richard P. Hodge.
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10.26 Employment Agreement between First Nationwide Mortgage
Corporation, and Walter C. Klein, Jr., dated as of January 8,
1996. (Incorporated by reference to Exhibit 10.43 to Amendment
No. 1 to FN Holdings' Registration Statement on Form S-1 (File
No. 333-21015)).
10.27 Amendment to Employment Agreement dated as of July 10, 1997,
between First Nationwide Mortgage Corporation and Walter C.
Klein, Jr. (Incorporated by reference to Exhibit 10.25 of the
Registrant' Annual Report on Form 10-K for the year ended
December 31, 1997.)
10.28 Post-Employment Consulting Agreement between California
Federal Bank, A Federal Savings Bank and Edward G. Harshfield,
dated January 6, 1997. (Incorporated by reference to Exhibit
10.44 to Amendment No. 1 to FN Holdings' Registration
Statement on Form S-1 (File No. 333-21015)).
10.29 Special Bonus Agreement, dated as of November 25, 1996, by and
between First Nationwide Holdings Inc. and Carl B. Webb.
(Incorporated by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.)
10.30 Mortgage Company Asset Sale Agreement by and among Resolution
Trust Corporation as conservator for Standard Federal Savings
Association, America's Mortgage Servicing, Inc., A Mortgage
Company, America's Lending Network, Inc., and Stanfed
Financial Services, Inc.; and First Nationwide Mortgage
Corporation dated as of December 1, 1994. (Incorporated by
reference to Exhibit 10.18 to FN Holdings' Annual Report on
Form 10-K for the year ended December 31, 1994.)
10.31 Receivables Sale Agreement by and among Resolution Trust
Corporation as conservator for Standard Federal Savings
Association, America's Mortgage Servicing, Inc., A Mortgage
Company, and America's Lending Network, Inc.; and First
Nationwide Mortgage Corporation, dated as of December 1, 1994.
(Incorporated by reference to Exhibit 10.19 to FN Holdings'
Annual Report on Form 10-K for the year ended December 31,
1994.)
10.32 Purchase and Sale Agreement by and between Resolution Trust
Corporation in its corporate capacity and First Nationwide
Mortgage Corporation, dated as of December 1, 1994.
(Incorporated by reference to Exhibit 10.20 to FN Holdings'
Annual Report on Form 10-K for the year ended December 31,
1994.)
10.33 Purchase and Sale Agreement by and among Resolution Trust
Corporation as receiver of or conservator for certain
associations and First Nationwide Mortgage Corporation, dated
as of December 1, 1994. (Incorporated by reference to Exhibit
10.21 to FN Holdings' Annual Report on Form 10-K for the year
ended December 31, 1994.)
10.34 Letter agreement between the Resolution Trust Corporation, as
conservator for Standard Federal Savings Association, et al.,
and First Nationwide Mortgage Corporation, dated December 2,
1994, regarding the Mortgage Company Asset Sale Agreement,
Receivable Sales Agreement, and two Purchase and Sales
Agreements among such parties, dated as of December 1, 1994.
(Incorporated by reference to Exhibit 10.22 to FN Holdings'
Annual Report on Form 10-K for the year ended December 31,
1994.)
10.35 Letter agreement between the Resolution Trust Corporation, as
conservator for Standard Federal Savings Association, et al.,
and First Nationwide Mortgage Corporation, dated February 23,
1995, regarding the Mortgage Company Asset Sale Agreement,
Receivable Sales Agreement, and two Purchase and Sales
Agreements among such parties, dated as of December 1, 1994.
(Incorporated by reference to Exhibit 10.23 to FN Holdings'
Annual Report on Form 10-K for the year ended December 31,
1994.)
10.36 Letter agreement between the Resolution Trust Corporation, as
conservator for Standard Federal Savings Association, et al.,
and First Nationwide Mortgage Corporation, dated February 24,
1995, regarding the Mortgage Company Asset Sale Agreement
among such parties, dated as of December 1, 1994.
(Incorporated by reference to Exhibit 10.24 to FN Holdings'
Annual Report on Form 10-K for the year ended December 31,
1994.)
Page 97
<PAGE>
10.37 Letter agreement between the Resolution Trust Corporation, as
conservator for Standard Federal Savings Association, et al.,
and First Nationwide Mortgage Corporation, dated February 28,
1995, regarding the Mortgage Company Asset Sale Agreement
among such parties, dated as of December 1, 1994 (power of
attorney matters). (Incorporated by reference to Exhibit 10.25
to FN Holdings' Annual Report on Form 10-K for the year ended
December 31, 1994.)
10.38 Letter agreement between the Resolution Trust Corporation, as
conservator for Standard Federal Savings Association, et al.,
and First Nationwide Mortgage Corporation, dated February 28,
1995, regarding the Mortgage Company Asset Sale Agreement
among such parties, dated as of December 1, 1994 (amendments
to schedules). (Incorporated by reference to Exhibit 10.26 to
FN Holdings' Annual Report on Form 10-K for the year ended
December 31, 1994.)
10.39 Agreement for Provision of Services between First Nationwide
Bank, A Federal Savings Bank and Trans Network Insurance
Services, Inc. (then named "First Gibraltar (Parent) Holdings
Inc."), dated as of December 1, 1994. (Incorporated by
reference to Exhibit 10.27 to FN Holdings' Annual Report on
Form 10-K for the year ended December 31, 1994.)
10.40 Assignment from Trans Network Insurance Services Inc. to First
Nationwide Management Corp. of Agreement for Provision of
Services. (Incorporated by reference to Exhibit 10.37 to FN
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1995.)
10.41 Asset Purchase Agreement between Trans Network Insurance
Services Inc. and FNC Insurance Agency, Inc. dated effective
June 1, 1995. (Incorporated by reference to Exhibit 10.24 to
Post- Effective Amendment No. 1 to FN Holdings' Registration
Statement on Form S-1 (File No. 33- 82654)).
10.42 Trans Network Marketing and Support Services Agreement between
First Nationwide Bank, A Federal Savings Bank, and Trans
Network Insurance Services Inc. dated effective June 1, 1995.
(Incorporated by reference to Exhibit 10.25 to Post-Effective
Amendment No. 1 to FN Holdings' Registration Statement on Form
S-1 (File No. 33-82654)).
10.43 Amendment No. 2 to Lease between First Nationwide Bank, A
Federal Savings Bank, and RNM 135 Main, L.P. dated April 6,
1995. (Incorporated by reference to Exhibit 10.26 to
Post-Effective Amendment No. 1 to FN Holdings' Registration
Statement on Form S-1 (File No. 33-82654)).
10.44 Consulting Agreement between First Nationwide Management Corp.
and Gerald J. Ford dated as of October 1, 1994. (Incorporated
by reference to Exhibit 10.27 to Post-Effective Amendment No.
1 to FN Holdings' Registration Statement on Form S-1 (File No.
33-82654)).
10.45 Amendment to Consulting Agreement between First Nationwide
Management Corp. and Gerald J. Ford, dated effective December
17, 1997. (Incorporated by reference to Exhibit 10.43 of the
Registrant' Annual Report on Form 10-K for the year ended
December 31, 1997.)
10.46 First Amendment, dated as of January 1, 1995, by and among
First Nationwide Management Corp., Diamond A-Ford Corporation,
Trans Network Insurance Services, Inc. and Gerald J. Ford,
supplementing the Consulting Agreement between First
Nationwide Management Corp. and Gerald J. Ford dated as of
October 1, 1994. (Incorporated by reference to Exhibit 10.33
to FN Holdings' Registration Statement on Form S-1 (File No.
333-00854)).
10.47 Management Incentive Plan for Certain Employees of First
Nationwide Bank, A Federal Savings Bank. (Incorporated by
reference to Exhibit 10.34 to FN Holdings' Registration
Statement on Form S-1 (File No. 333-00854)).
Page 98
<PAGE>
10.48 Deferred Executive Compensation Program. (Incorporated by
reference to Exhibit 10.46 of the Registrant' Annual Report on
Form 10-K for the year ended December 31, 1997.)
10.49 Reimbursement and Expense Allocation Agreement, dated as of
January 1, 1996, by and between First Nationwide Management
Corp. and FN Holdings. (Incorporated by reference to Exhibit
10.35 to FN Holdings' Registration Statement on Form S-1 (File
No. 333-00854)).
10.50 Registration Agreement, dated September 13, 1996, among FN
Holdings Inc., First Nationwide Escrow Corp. and the initial
purchasers named therein relating to the 10 5/8% Notes.
(Incorporated by reference to Exhibit 4.20 to Amendment No. 1
to FN Holdings' Registration Statement on Form S-1 (File No.
333-21015)).
10.51 Amended and Restated Agreement and Plan of Merger dated as of
the 27th day of July, 1996 by and among First Nationwide
Holdings Inc., CFB Holdings, Inc., Cal Fed Bancorp Inc. and
California Federal Bank, A Federal Savings Bank. (Incorporated
by reference to Exhibit 2.1 to FN Holdings' Registration
Statement on Form S-1 (File No. 333-21015)).
10.52 Stock Option Agreement, dated as of February 4, 1998, by and
between Golden State Bancorp Inc. and First Nationwide
(Parent) Holdings Inc. (Incorporated by reference to Exhibit
99.1 to the February 1998 Form 8-K.)
10.53 Litigation Management Agreement, dated as of February 4, 1998,
by and among Golden State Bancorp Inc., Glendale Federal Bank,
Federal Savings Bank, California Federal Bank, A Federal
Savings Bank, Stephen J. Trafton and Richard A. Fink.
(Incorporated by reference to Exhibit 99.2 to the February
1998 Form 8-K.)
10.54 Purchase and Assumption Agreement between Norwest Bank Nevada,
N.A., and California Federal Bank, A Federal Savings Bank,
dated October 30, 1998.
10.55 Purchase and Assumption Agreement between Wells Fargo Bank,
N.A., and California Federal Bank, A Federal Savings Bank,
dated October 30, 1998.
10.56 Reimbursement and Expense Allocation Agreement between Golden
State Bancorp Inc. and California Federal Bank, A Federal
Savings Bank, dated November 23, 1998.
10.57 Agreement for Provision of Services between California Federal
Bank, A Federal Savings Bank and Golden State Management Inc.,
dated November 23, 1998.
10.58 Agreement for Provision of Services between Mafco Holdings
Inc. and Golden State Bancorp Inc., dated effective January 1,
1999.
10.59 Asset Purchase Agreement between Trans Network Insurance
Services Inc. and Golden State Bancorp Inc., dated effective
December 1, 1998.
10.60 Stock Purchase Agreement (GSB Aviation) between Trans Network
Insurance Services Inc., and Golden State Management Inc.,
dated October 7, 1998.
10.61 Stock Purchase Agreement (First Nationwide Management) between
Trans Network Insurance Services Inc. and Golden State
Management Inc., dated effective December 1, 1998.
10.62 Stock Purchase Agreement (FGB Services) between Trans Network
Insurance Services Inc. and Golden State Management Inc.
10.63 Equity Purchase Agreement between RGI Group Incorporated and
Golden State Management Inc., dated January 19, 1999.
Page 99
<PAGE>
12.1 Statement regarding the computation of ratio of earnings to
combined fixed charges and minority interest for the
Registrant.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, Independent Auditors of the Registrant.
24.1 Power of Attorney executed by Ronald O. Perelman.
24.2 Power of Attorney executed by Paul M. Bass, Jr.
24.3 Power of Attorney executed by Gabrielle K. McDonald
24.4 Power of Attorney executed by Howard Gittis.
27.1 Financial Data Schedule.
(C) REPORTS ON FORM 8-K
None.
Page 100
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 25, 1999
GOLDEN STATE BANCORP INC.
By: /s/ Gerald J. Ford
-------------------------------
Gerald J. Ford
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ Gerald J. Ford Chairman of the Board, Chief March 25, 1999
---------------------------------- Executive Officer and Director
Gerald J. Ford (Principal Executive Officer)
/s/ Carl B. Webb President, Chief Operating Officer March 25, 1999
---------------------------------- and Director
Carl B. Webb
/s/ Richard H. Terzian Executive Vice President March 25, 1999
---------------------------------- and Chief Financial Officer
Richard H. Terzian (Principal Financial Officer)
/s/ Renee Nichols Tucei Senior Vice President and March 25, 1999
---------------------------------- Controller
Renee Nichols Tucei (Principal Accounting Officer)
* Director March 25, 1999
----------------------------------
Ronald O. Perelman
* Director March 25, 1999
----------------------------------
Paul M. Bass, Jr.
/s/ George W. Bramblett, Jr. Director March 25, 1999
----------------------------------
George W. Bramblett, Jr.
Page 101
<PAGE>
/s/ The Honorable Bob Bullock Director March 25, 1999
----------------------------------------
The Honorable Bob Bullock
/s/ Brian P. Dempsey Director March 25, 1999
----------------------------------------
Brian P. Dempsey
* Director March 25, 1999
----------------------------------------
Howard Gittis
/s/ John F. King Director March 25, 1999
----------------------------------------
John F. King
/s/ John F. Kooken Director March 25, 1999
----------------------------------------
John F. Kooken
* Director March 25, 1999
----------------------------------------
Gabrielle K. McDonald
/s/ B. M. Rankin, Jr. Director March 25, 1999
----------------------------------------
B. M. Rankin, Jr.
/s/ Thomas S. Sayles Director March 25, 1999
----------------------------------------
Thomas S. Sayles
/s/ Robert Setrakian Director March 25, 1999
----------------------------------------
Robert Setrakian
/s/ Cora M. Tellez Director March 25, 1999
----------------------------------------
Cora M. Tellez
</TABLE>
* Eric K. Kawamura, by signing his name hereto, does hereby execute this
report on Form 10-K on behalf of the directors and officers of the
Registrant indicated above by asterisks, pursuant to powers of attorney
duly executed by such directors and officers and filed as exhibits to this
report on Form 10-K.
By: /s/ Eric K. Kawamura
-----------------------
Eric K. Kawamura
Attorney-in-fact
Page 102
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Golden State Bancorp Inc.:
We have audited the accompanying consolidated balance sheets of Golden State
Bancorp Inc. and subsidiaries (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for each of the years in the three-year
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 audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Golden State Bancorp
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
San Francisco, California
January 26, 1999
F-1
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Assets 1998 1997
------ ---- ----
<S> <C> <C>
Cash and amounts due from banks $ 854,954 $ 350,214
Interest-bearing deposits in other banks 52,671 36,164
Short-term investment securities 60,325 25,933
------------ ------------
Cash and cash equivalents 967,950 412,311
Securities available for sale, at fair value 770,747 813,085
Securities held to maturity (fair value $251,489 in 1998 and $58,299 in 1997) 250,964 58,299
Mortgage-backed securities available for sale, at fair value 12,947,992 5,076,598
Mortgage-backed securities held to maturity (fair value $2,825,227 in 1998
and $1,373,289 in 1997) 2,770,913 1,337,877
Loans held for sale, net 2,366,583 1,483,466
Loans receivable, net 30,280,944 19,424,410
Investment in Federal Home Loan Bank ("FHLB") System 1,000,147 468,191
Office premises and equipment, net 336,874 159,349
Foreclosed real estate, net 80,068 76,997
Accrued interest receivable 317,455 188,203
Intangible assets (net of accumulated amortization of $113,709 in 1998
and $60,294 in 1997) 923,598 675,927
Mortgage servicing rights 943,581 536,703
Other assets 911,168 650,740
------------ ------------
Total assets $ 54,868,984 $ 31,362,156
============ ============
Liabilities, Minority Interest and Stockholders' Equity
-------------------------------------------------------
Deposits $ 24,620,066 $ 16,202,605
Securities sold under agreements to repurchase 4,238,395 1,842,442
Borrowings 22,375,557 11,232,530
Other liabilities 1,459,750 702,959
------------ ------------
Total liabilities 52,693,768 29,980,536
------------ ------------
Commitments and contingencies -- --
Minority interest 593,438 1,012,136
Stockholders' equity:
Common stock, $1.00 par value, (250,000,000 shares authorized; 128,687,763
and 56,722,988 shares issued at December 31,
1998 and 1997, respectively) 128,688 56,723
Additional paid-in capital 1,392,155 --
Accumulated other comprehensive income 6,151 35,162
Retained earnings (substantially restricted) 56,471 277,599
Treasury stock (89,994 shares at December 31, 1998) (1,687) --
------------ ------------
Total stockholders' equity 1,581,778 369,484
------------ ------------
Total liabilities, minority interest and stockholders' equity $ 54,868,984 $ 31,362,156
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1998, 1997 and 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Interest income:
<S> <C> <C> <C>
Loans receivable $ 1,739,294 $ 1,553,210 $ 884,905
Mortgage-backed securities available for sale 482,567 297,816 115,983
Mortgage-backed securities held to maturity 134,537 113,300 135,103
Covered assets -- -- 1,413
Loans held for sale 115,714 76,364 61,595
Securities available for sale 49,736 53,936 31,416
Securities held to maturity 4,702 2,436 257
Interest-bearing deposits in other banks 22,263 5,638 3,127
----------- ----------- -----------
Total interest income 2,548,813 2,102,700 1,233,799
----------- ----------- -----------
Interest expense:
Deposits 791,112 746,985 419,174
Securities sold under agreements to repurchase 153,697 140,547 120,280
Borrowings 874,736 610,885 308,840
----------- ----------- -----------
Total interest expense 1,819,545 1,498,417 848,294
----------- ----------- -----------
Net interest income 729,268 604,283 385,505
Provision for loan losses 40,000 79,800 39,600
----------- ----------- -----------
Net interest income after provision for loan losses 689,268 524,483 345,905
----------- ----------- -----------
Noninterest income:
Loan servicing fees, net 132,543 143,704 123,887
Customer banking fees and service charges 121,283 100,263 45,044
Management fees 2,263 6,211 9,694
Gain on sale of assets, net 193 38,230 38,118
Gain on sale of branches 108,825 3,569 363,342
Gain on sale of loans, net 54,217 24,721 17,802
Gain from termination of Assistance Agreement -- -- 25,632
Dividends on FHLB stock 36,042 24,790 11,670
Other income 21,633 22,996 18,189
----------- ----------- -----------
Total noninterest income 476,999 364,484 653,378
----------- ----------- -----------
Noninterest expense:
Compensation and employee benefits 293,982 256,448 204,818
Occupancy and equipment 99,746 81,914 51,936
Data processing 15,708 12,402 10,491
Savings Association Insurance Fund ("SAIF")
deposit insurance premium 11,055 10,680 81,149
Marketing 19,597 20,186 10,908
Professional fees 56,360 48,771 18,986
Loan expense 48,183 60,437 31,282
Foreclosed real estate operations, net (6,152) (3,304) (7,390)
Amortization of intangible assets 53,415 49,153 9,445
Merger and integration costs 59,162 -- --
Other 112,947 113,882 80,111
----------- ----------- -----------
Total noninterest expense 764,003 650,569 491,736
----------- ----------- -----------
Income before income taxes, minority interest
and extraordinary item 402,264 238,398 507,547
Income tax (benefit) expense (106,351) 41,315 (75,807)
----------- ----------- -----------
Income before minority interest and extraordinary item 508,615 197,083 583,354
Minority interest 110,527 102,135 48,045
----------- ----------- -----------
Income before extraordinary item 398,088 94,948 535,309
Extraordinary item - loss on early extinguishment of debt,
net of tax 150,333 -- 1,586
----------- ----------- -----------
Net income $ 247,755 $ 94,948 $ 533,723
=========== =========== ===========
<PAGE>
Earnings per share:
Basic
Before extraordinary item $ 5.00 $ 1.67 $ 9.44
Extraordinary item (1.89) -- (0.03)
----------- ----------- -----------
Net income $ 3.11 $ 1.67 $ 9.41
=========== =========== ===========
Diluted
Before extraordinary item $ 4.88 $ 1.67 $ 9.44
Extraordinary item (1.84) -- (0.03)
----------- ----------- -----------
Net income $ 3.04 $ 1.67 $ 9.41
=========== =========== ===========
</TABLE>
F-3
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years Ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $ 247,755 $ 94,948 $ 533,723
Other comprehensive income, net of tax:
Unrealized holding (loss) gain on securities available for sale:
Unrealized holding (loss) gain arising during the period (28,167) 10,907 18,225
Less: reclassification adjustment for gain
included in net income (844) (21,964) (35,518)
--------- --------- ---------
Other comprehensive loss (29,011) (11,057) (17,293)
--------- --------- ---------
Comprehensive income $ 218,744 $ 83,891 $ 516,430
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Preferred Stock Accumulated
Series A Common Stock Additional Other
------------------ ------------ Paid-in Comprehensive
Shares Amount Shares Amount Capital Income
------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995,
as previously reported -- $ -- 1,000 $ 1 $ 267,055 $ 50,810
Restatement for "as if" pooling -- -- 56,721,988 56,722 (39,976) 12,702
------ --------- ---------- ------ ------- -----------
Balance at December 31, 1995,
as restated -- -- 56,722,988 56,723 227,079 63,512
Net income -- -- -- -- -- --
Capital contribution -- -- -- -- 1,819 --
Dividends and distributions to
stockholders -- -- -- -- (227,079) --
Change in net unrealized
holding gain on securities
available for sale -- -- -- -- -- (17,293)
Costs of FN Holdings Preferred
Stock issuance -- -- -- -- (1,819) --
------ --------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 -- -- 56,722,988 56,723 -- 46,219
Net income -- -- -- -- -- --
FN Escrow Merger -- -- -- -- (1,164) --
Redemption of FN Holdings
Preferred Stock -- -- -- -- 2,339 --
Costs of FN Holdings Preferred
Stock issuance -- -- -- -- (650) --
Issuance costs of REIT
Preferred Stock -- -- -- -- (574) --
Change in net unrealized
holding gain on securities
available for sale -- -- -- -- -- (11,057)
Dividends to Parent -- -- -- -- -- --
Capital contribution -- -- -- -- 49 --
------ --------- ---------- ----------- ----------- -----------
Balance at December 31, 1997 -- -- 56,722,988 56,723 -- 35,162
Net income -- -- -- -- -- --
Golden State Acquisition 4,183,599 4,184 61,880,950 61,881 1,400,332 --
Conversion of Series A
Preferred Stock (4,181,061) (4,181) 10,051,200 10,051 (5,870) --
Redemption of Additional FN
Holdings Preferred Stock -- -- -- -- 787 --
Change in net unrealized
holding gain on securities
available for sale -- -- -- -- -- (29,011)
Liability reflecting value of
Golden State Common Stock to
be distributed to First
Gibraltar and Hunter's Glen in
respect of their proportionate
ownership of the California
Federal Goodwill Litigation
Asset -- -- -- -- -- --
Liability reflecting value of
Golden State Common Stock to
be distributed to First
Gibraltar and Hunter's Glen
upon use of Parent Holdings'
pre-merger tax benefits -- -- -- -- -- --
GS Escrow Merger -- -- -- -- (3,535) --
Dividend of tax benefits to
parent due to deconsolidation -- -- -- -- -- --
Pre-merger dividends to parent -- -- -- -- -- --
Redemption of Series A
Preferred Stock (2,538) (3) -- -- (61) --
Exercise of stock options -- -- 32,625 33 611 --
Capital contribution -- -- -- -- 22 --
Sale of common stock in treasury -- -- -- -- (131) --
------ --------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 -- $ -- 128,687,763 $ 128,688 $ 1,392,155 $ 6,151
====== ========= =========== =========== =========== ===========
<PAGE>
<CAPTION>
Common Stock
in Treasury Total
Retained ----------- Stockholders'
Earnings Shares Amount Equity
-------- ------ ------ ------
<S> <C> <C> <C>
$ 86,289 -- $ -- $ 404,155
28,813 -- -- 58,261
---------- ------- --------- -----------
115,102 -- -- 462,416
533,723 -- -- 533,723
-- -- -- 1,819
(422,541) -- -- (649,620)
-- -- -- (17,293)
(3,932) -- -- (5,751)
---------- ------- --------- -----------
222,352 -- -- 325,294
94,948 -- -- 94,948
-- -- -- (1,164)
-- -- -- 2,339
-- -- -- (650)
(16,977) -- -- (17,551)
-- -- -- (11,057)
(22,724) -- -- (22,724)
-- -- -- 49
---------- ------- --------- -----------
277,599 -- -- 369,484
247,755 -- -- 247,755
(108,574) (2,036) 1,464,361
-- -- -- --
-- -- -- 787
-- -- -- (29,011)
(58,791) -- -- (58,791)
(170,139) -- -- (170,139)
-- -- -- (3,535)
(230,161) -- -- (230,161)
(9,793) -- -- (9,793)
1 -- -- (63)
-- -- -- 644
-- -- -- 22
-- 18,580 349 218
---------- ------- --------- -----------
$ 56,471 (89,994) $ (1,687) $ 1,581,778
========== ======= ========= ===========
</TABLE>
See accompanying note to consolidated financial statements.
F-5
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 247,755 $ 94,948 $ 533,723
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Amortization of intangible assets 53,415 49,153 9,445
Accretion of discount on borrowings 832 744 523
Accretion of purchase accounting premiums
and discounts, net (236) (20,650) (15,771)
Amortization of mortgage servicing rights 158,163 110,282 90,981
Provision for loan losses 40,000 79,800 39,600
Gain on sale of assets, net (193) (38,230) (38,118)
Gain on sale of branches (108,825) (3,569) (363,342)
Gain on sale of foreclosed real estate (13,559) (12,087) (12,951)
Loss on sale of loans, net 115,754 95,744 63,226
Capitalization of originated mortgage servicing rights (169,971) (120,465) (81,028)
Gain from termination of Assistance Agreement -- -- (25,632)
Extraordinary loss on early extinguishment of debt, net 150,333 -- 1,586
Depreciation and amortization of office premises
and equipment 26,720 16,773 10,921
Amortization of deferred debt issuance costs 8,592 7,591 2,978
FHLB stock dividend (36,042) (24,790) (11,670)
Purchases and originations of loans held for sale (8,843,499) (6,293,262) (4,822,753)
Proceeds from the sale of loans held for sale 7,892,122 5,510,777 5,157,186
(Increase) decrease in other assets (51,894) 165,747 (91,552)
(Increase) decrease in accrued interest receivable (17,630) (11,197) 20,991
Decrease in other liabilities (134,531) (136,673) (30,439)
Minority interest 110,527 97,555 48,045
----------- ----------- -----------
Net cash (used in) provided by
operating activities (572,167) (431,809) 485,949
----------- ----------- -----------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows,
continued Years Ended December 31, 1998, 1997
and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from investing activities:
Acquisitions and divestitures:
Golden State Acquisition $ 782,228 $ -- $ --
Cal Fed Acquisition -- (161,196) --
GSAC Acquisition (13,577) -- --
Auto One Acquisition -- (2,845) --
SFFed Acquisition -- -- (83,184)
Home Federal Acquisition -- -- 79,044
Mortgage loan servicing rights and operations -- (34,260) (48,305)
Purchases of securities available for sale (891,643) (1,340,881) (497,963)
Proceeds from sales of securities available for sale -- 52,014 92,320
Proceeds from maturities of securities available for sale 975,288 1,015,410 242,514
Purchases of securities held to maturity (384) (58,965) (9,303)
Principal payments and proceeds from maturities of securities held
to maturity 2,827 4,938 1,255
Purchases of mortgage-backed securities available for sale (8,959,321) (2,589,257) (149,724)
Principal payments on mortgage-backed securities
available for sale 3,284,430 1,099,699 475,186
Proceeds from sales of mortgage-backed securities
available for sale 5,664 50,772 --
Purchases of mortgage-backed securities held to maturity -- (458) --
Principal payments on mortgage-backed securities held to maturity 468,544 283,696 387,891
Proceeds from sales of loans 10,875 21,179 123,026
Net decrease in loans receivable 1,687,198 514,377 1,498,588
Decrease in covered assets -- -- 39,349
Purchases of FHLB stock, net (278,955) (50,721) (65,753)
Purchases of office premises and equipment (71,361) (66,131) (42,368)
Proceeds from the disposal of office premises and equipment 30,634 31,400 4,071
Proceeds from sales of foreclosed real estate 164,278 200,275 170,443
Purchases of mortgage servicing rights (157,224) (29,627) (65,994)
Proceeds from sales of mortgage servicing rights -- 31,051 --
------------ ------------ ------------
Net cash (used in) provided by investing activities (2,960,499) (1,029,530) 2,151,093
------------ ------------ ------------
Cash flows from financing activities:
Branch sales (1,267,517) (79,900) (4,585,022)
Net decrease in deposits (1,449,687) (1,196,360) (56,694)
Proceeds from additional borrowings 25,559,922 19,595,218 11,144,414
Principal payments on borrowings (20,496,018) (17,495,008) (8,484,883)
Net increase (decrease) in securities sold under agreements to
repurchase 1,945,646 (40,289) (202,169)
Proceeds from GS Escrow Merger 1,970,285 -- --
Bank Preferred Stock Tender Offers (423,509) -- --
Debt Tender Offers (1,089,885) -- --
Defeasance of Parent Holdings Notes (553,667) -- --
Proceeds from FN Escrow Merger -- 603,313 --
Issuance of FN Holdings Preferred Stock, net -- (650) 144,249
Issuance of REIT Preferred Stock, net -- 482,449 --
Redemption of FN Holdings Preferred Stock (25,000) (125,000) --
Redemption of FN Holdings/FN Escrow Preferred Stock -- (17,250) --
Redemption of Series A Preferred Stock (68) -- --
Dividends -- (22,724) (375,772)
Dividends paid to minority stockholders, net of taxes (80,506) (100,067) (38,607)
Exercise of stock options 644 -- --
Sale of treasury stock 218 -- --
Capital contribution from parent -- 49 1,819
Capital distribution (2,553) -- (227,079)
------------ ------------ ------------
Net cash provided by (used in) financing activities 4,088,305 1,603,781 (2,679,744)
------------ ------------ ------------
Net change in cash and cash equivalents 555,639 142,442 (42,702)
Cash and cash equivalents at beginning of year 412,311 269,869 312,571
------------ ------------ ------------
Cash and cash equivalents at end of year $ 967,950 $ 412,311 $ 269,869
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1) Organization
Golden State Bancorp Inc. (the "Company" or "Golden State") is a holding
company with no business operations of its own. The Company's only significant
asset is its indirect ownership of all of the common stock of Golden State
Holdings Inc. ("GS Holdings"), formerly First Nationwide Holdings Inc. ("FN
Holdings"), which owns all of the common stock of California Federal Bank, A
Federal Savings Bank and its subsidiaries ("California Federal" or "Bank"),
formerly First Nationwide Bank, A Federal Savings Bank ("First Nationwide"),
formerly First Madison Bank, FSB ("First Madison"). The Company's principal
business operations are conducted by California Federal.
Pursuant to the Golden State Merger (as defined herein) agreement, First
Gibraltar Holdings Inc. ("First Gibraltar"), parent company of First Nationwide
(Parent) Holdings Inc. ("Parent Holdings"), and Hunter's Glen/Ford Ltd.
("Hunter's Glen"), a 20% minority shareholder of FN Holdings, received at the
closing of the Golden State Acquisition (as defined herein), in consideration of
their interests as stockholders of Parent Holdings and FN Holdings, 56,722,988
shares of common stock, par value $1.00 (the "Golden State Common Stock"), that
constituted, in the aggregate, 47.9% of the common stock outstanding,
immediately after giving effect to the Golden State Acquisition (as defined
herein). In connection with the Golden State Merger, the Hunter's Glen minority
interest in FN Holdings was extinguished. On September 11,1998, Parent Holdings,
which then owned all of the common stock of FN Holdings, merged with and into
Golden State, pursuant to the Golden State Merger agreement. See note 3.
The Bank was organized and chartered as First Gibraltar Bank, FSB ("First
Gibraltar"), a federal stock savings bank, in December 1988 for the primary
purpose of acquiring substantially all of the assets and assuming deposit,
secured and certain other liabilities of five insolvent Texas savings and loan
associations ("Closed Associations") from the Federal Savings and Loan Insurance
Corporation ("FSLIC"), as receiver.
On February 1, 1993, First Gibraltar sold to BankAmerica Corporation
certain assets, liabilities and substantially all of the branch operations of
First Gibraltar located in Texas, including $829 million of loans and 130
branches with approximately $6.9 billion in deposits (the "BAC Sale").
Concurrently with the BAC Sale, First Gibraltar changed its name to First
Madison Bank, FSB ("First Madison").
On April 14, 1994, First Madison entered into the Asset Purchase
Agreement with First Nationwide Bank, A Federal Savings Bank ("Old FNB"), an
indirect subsidiary of Ford Motor Company ("Ford Motor"). On October 3, 1994,
effective immediately after the close of business on September 30, 1994, First
Madison acquired substantially all of the assets and certain of the liabilities
(the "FN Acquired Business") of Old FNB (the "FN Acquisition"). Effective
October 1, 1994, First Madison changed its name to First Nationwide Bank, A
Federal Savings Bank ("First Nationwide").
On January 3, 1997, pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") among FN Holdings, Cal Fed Bancorp Inc. ("Cal Fed") and
California Federal Bank, A Federal Savings Bank ("Old California Federal"), FN
Holdings acquired 100% of the outstanding stock of Cal Fed and Old California
Federal, and First Nationwide merged with and into Old California Federal (the
"Cal Fed Acquisition") The aggregate consideration paid under the Merger
Agreement consisted of approximately $1.2 billion in cash and the issuance of
litigation interests. Cal Fed, a savings and loan holding company, owned 100% of
the common stock of Old California Federal. At December 31, 1996, Old California
Federal had total assets of approximately $14.1 billion and deposits of $8.9
billion, and operated 119 branches in California and Nevada. Effective January
3, 1997, First Nationwide changed its name to California Federal Bank, A Federal
Savings Bank. In connection with the Cal Fed Acquisition, FN Holdings made a
capital contribution to the Bank on January 3, 1997 of approximately $685
million.
In November 1996, the Bank formed California Federal Preferred Capital
Corporation ("Preferred Capital Corp."), a real estate investment trust
("REIT"), for the purpose of acquiring, holding and managing real estate
mortgage assets. All of Preferred Capital Corp.'s common stock is owned by the
Bank. Pursuant to a subservicing agreement with the Bank's wholly-owned mortgage
banking subsidiary, First Nationwide Mortgage Corporation ("FNMC"), FNMC
services Preferred Capital Corp.'s mortgage assets. On January 31, 1997,
Preferred Capital Corp. issued to the public $500 million of its 9 1/8%
Noncumulative Exchangeable Preferred Stock (the "REIT Preferred Stock"), which
is reflected in the Company's consolidated balance sheet as minority interest.
Preferred Capital Corp. used the proceeds from such offering to acquire mortgage
assets from the Bank.
The Bank is a diversified financial services company that primarily
serves consumers in California, and to a lesser extent, in Nevada. The Bank's
principal business consists of (i) operating retail deposit branches that
provide retail
F-8
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
consumers and small businesses with deposit products such as demand, transaction
and savings accounts; investment products such as mutual funds, annuities and
insurance; and (ii) mortgage banking activities, including originating and
purchasing 1-4 unit residential loans for sale to various investors in the
secondary market and servicing loans for itself and others. To a lesser extent,
the Bank originates and/or purchases certain commercial real estate and consumer
loans for investment. These operating activities are financed principally with
customer deposits, secured short-term and long-term borrowings, collections on
loans, asset sales and retained earnings.
(2) Summary of Significant Accounting Policies
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and prevailing practices within the savings and
loan industry. The following summarizes the more significant of these policies.
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts
of Golden State which indirectly owns all of the common stock of GS Holdings,
which owns all of the common stock of the Bank. Unless the context otherwise
indicates, "Golden State" or "Company" refers to Golden State Bancorp Inc. as
the surviving entity after the consummation of the Golden State Acquisition. On
September 11, 1998, Glendale Federal Bank, Federal Savings Bank ("Glendale
Federal") merged with and into the Bank pursuant to the Golden State Merger.
Unless the context otherwise indicates, "California Federal" or "Bank" refers to
California Federal as the surviving entity after the consummation of the Golden
State Merger. On January 3, 1997, First Nationwide merged with and into the Bank
pursuant to the Cal Fed Acquisition. Unless the context otherwise indicates, (i)
"Old California Federal" refers to California Federal Bank, A Federal Savings
Bank prior to the consummation of the Cal Fed Acquisition and (ii) "California
Federal" or "Bank" refers to California Federal Bank, A Federal Savings Bank, as
the surviving entity after the consummation of the Cal Fed Acquisition, and to
First Nationwide and its predecessors for periods prior to the Cal Fed
Acquisition. All significant intercompany balances and transactions have been
eliminated in consolidation. Certain amounts in the prior years have been
reclassified to conform to the current period's presentation.
Pursuant to the Golden State Merger agreement, First Gibraltar Holdings,
Inc. ("First Gibraltar"), parent company of Parent Holdings, and Hunter's Glen
received at the closing of the Golden State Acquisition (as defined herein), in
consideration of their interests as stockholders of Parent Holdings and FN
Holdings, 56,722,988 shares of common stock, par value $1.00 per share (the
"Golden State Common Stock"), that constituted, in the aggregate, 47.9% of the
common stock outstanding, immediately after giving effect to the Golden State
Acquisition. In connection with the Golden State Merger, the Hunter's Glen
minority interest in FN Holdings was extinguished. Accordingly, the net income,
minority interest and stockholders' equity amounts of prior periods have been
restated to reflect this change.
Minority interest as restated represents amounts attributable to (i) the
Bank Preferred Stock, (ii) the Preferred Stock of FN Holdings, which was
redeemed during 1998, (iii) the REIT Preferred Stock and (iv) that portion of
stockholders' equity of Auto One, a subsidiary of the Bank, attributable to 20%
of its common stock.
Golden State is a holding company whose only significant asset is its
indirect ownership of all of the common stock of the Bank, and therefore, all
activities for the consolidated entity are carried out by the Bank and its
operating subsidiaries.
(b) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and amounts due from banks, interest-bearing deposits
in other banks, and other short-term investment securities with original
maturities of three months or less. Savings and loan associations are required
by the Federal Reserve System to maintain non-interest bearing cash reserves
equal to a percentage of certain deposits. The reserve requirement for
California Federal at December 31, 1998 was $89.7 million, which was met with
vault cash of $90.1 million and cash reserve of $1.3 million.
F-9
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(c) Securities and Mortgage-backed Securities
The Company's investment in securities consists primarily of U.S.
government and agency securities and mortgage-backed securities. The Company
classifies debt and equity securities, including mortgage-backed securities,
into one of three categories: held to maturity, available for sale or trading
securities. Securities held to maturity represent securities which management
has the positive intent and ability to hold to maturity and are reported at
amortized cost. Securities bought and held principally for the purpose of
selling them in the near term are classified as trading securities and reported
at fair value, with unrealized gains and losses included in income. All other
securities including equity securities with readily determinable fair values are
classified as available for sale and are carried at fair value, with unrealized
holding gains and losses, net of tax, reported as a separate component of
stockholders' equity until realized. Declines in the value of held-to-maturity
and available-for-sale securities below their cost that are deemed to be other
than temporary are reflected in earnings as realized losses. Realized gains or
losses on securities available for sale are computed on a specific
identification basis and are accounted for on a trade-date basis.
Amortization and accretion of premiums and discounts relating to
mortgage-backed securities is recognized using the interest method over the
estimated lives of the underlying mortgages with adjustments based on prepayment
experience.
(d) Loans Held for Sale, Net
One-to-four unit residential loans originated and intended for sale in
the secondary market are carried at the lower of aggregate cost or market value
as determined by outstanding commitments from investors or current investor
yield requirements calculated on an aggregate basis. Net unrealized losses are
recognized in a valuation allowance by charges to income.
(e) Loans Receivable, Net
Loans receivable, net, is stated at unpaid principal balances, less the
allowance for loan losses, and net of deferred loan origination fees and
purchase discounts or premiums.
Discounts or premiums on 1-4 unit residential loans are accreted or
amortized to income using the interest method over the remaining period the
loans are expected to be outstanding. Discounts or premiums on consumer and
other loans are recognized over the lives of the loans using the interest
method.
A significant portion of the Company's real estate loan portfolio is
comprised of adjustable-rate mortgages. The interest rate and payment terms of
these mortgages adjust on a periodic basis in accordance with various published
indices. The majority of these adjustable-rate mortgages have terms which limit
the amount of interest rate adjustment that can occur each year and over the
life of the mortgage. During periods of limited payment increases, negative
amortization may occur on certain adjustable-rate mortgages. See note 37.
The allowance for loan losses is adjusted by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on such factors as the Company's past
loan loss experience, delinquency trends, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral, and current economic
conditions. As management utilizes information currently available to make such
evaluation, the allowance for loan losses is subjective and may be adjusted in
the future depending on changes in economic conditions or other factors.
Additionally, regulatory authorities, as an integral part of their regular
examination process, review the Bank's allowance for estimated losses on a
periodic basis. These authorities may require the Bank to recognize adjustments
to the allowance based on their judgment of information available to them at the
time of their examination.
Uncollectible interest on loans that are contractually ninety days or
more past due is charged off, or an allowance is established, based on
management's periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are received.
When, in management's judgment, the borrower's ability to make periodic interest
and principal payments resumes, the loan is returned to accrual status.
F-10
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(f) Auto One Loans
The Company, through its subsidiary, Auto One, purchases loans
individually and in groups. Such loans are grouped and accounted for in
homogeneous pools based upon certain common risk characteristics, including
interest coupon rate, credit quality, and period of origination. At acquisition,
the Company estimates the amount and timing of undiscounted expected future
principal and interest cash flows ("Expected Cash Flows") for each pool. For
certain purchased pools of loans, the amount paid reflects the Company's
determination that it is probable the Company will be unable to collect all
amounts due according to the contractual terms of the underlying loans in the
pool. Accordingly, at acquisition, the Company recognizes the excess of the
pool's scheduled contractual principal and contractual interest payments over
its Expected Cash Flows as an amount that should not be accreted ("Nonaccretable
Difference"). The remaining amount - representing the excess of the pool's
Expected Cash Flows over the amount paid - is accreted into interest income over
the remaining life of each pool ("Accretable Yield").
Over the life of each pool of loans, the Company continues to estimate
Expected Cash Flows. In the event a pool's actual cash flows plus the expected
future cash payments are less than the Expected Cash Flows estimated at the time
of purchase, the amount by which the current carrying value of the pool exceeds
the present value of the future expected cash flows discounted at the originally
estimated internal rate of return is an impairment and requires an allocation of
the allowance for loan losses established by provisions for loan losses. If the
present value of a pool's expected remaining cash flows discounted at the
originally estimated internal rate of return exceeds the current carrying value
of the pool, the amount of the Accretable Yield is increased and the amount of
the Nonaccretable Difference is decreased by the amount the sum of a pool's
expected remaining cash flows exceeds the sum of the remaining payments less the
Nonaccretable Difference. The adjusted Accretable Yield is accreted into
interest income over the pool's remaining life using the interest method.
(g) Impaired Loans
The Company considers a loan is impaired when, based on current
information and events, it is "probable" that it will be unable to collect all
amounts due (i.e., both principal and interest) according to the contractual
terms of the loan agreement. Any insignificant delay or insignificant shortfall
in amount of payments will not cause a loan to be considered impaired. In
determining impairment, the Company considers large non-homogeneous loans
including nonaccrual loans, troubled debt restructurings, and performing loans
that exhibit, among other characteristics, high loan-to-value ratios, low
debt-coverage ratios, or other indications that the borrowers are experiencing
increased levels of financial difficulty.
The measurement of impairment may be based on (i) the present value of
the expected future cash flows of the impaired loan discounted at the loan's
original effective interest rate, (ii) the observable market price of the
impaired loan, or (iii) the fair value of the collateral of a
collateral-dependent loan. The Company bases the measurement of
collateral-dependent impaired loans on the fair value of the loan's collateral
less disposal costs. The amount, if any, by which the recorded investment of the
loan exceeds the measure of the impaired loan's value is recognized by recording
a valuation allowance. Large groups of smaller balance homogeneous loans are
collectively evaluated for impairment. For the Company, loans collectively
reviewed for impairment include all business banking loans, single-family loans,
and performing multi-family and commercial real estate loans under $500,000,
excluding loans that have entered the workout process.
Cash receipts on impaired loans not performing according to contractual
terms are generally used to reduce the carrying value of the loan, unless the
Company believes it will recover the remaining principal balance of the loan.
Impairment losses are included in the allowance for loan losses through a charge
to provision for loan losses. Adjustments to impairment losses due to changes in
the fair value of collateral of impaired loans are included in provision for
loan losses. Upon disposition of an impaired loan, loss of principal, if any, is
recorded through a charge-off to the allowance for loan losses.
(h) Loan Origination and Commitment Fees and Related Costs
Loan origination fees, net of direct underwriting and closing costs, are
deferred and amortized to interest income using the interest method over the
contractual term of the loans, adjusted for actual loan prepayment experience.
Unamortized fees on loans sold or paid in full are recognized as income.
Adjustable-rate loans with lower initial interest rates during the introductory
period result in the amortization of a substantial portion of the net deferred
fee during the introductory period.
F-11
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Fees received in connection with loan commitments are deferred and
recognized as fee revenue on a straight-line basis over the term of the
commitment. If the commitment is subsequently exercised during the commitment
period, the remaining unamortized commitment fee at the time of exercise is
recognized over the term of the loan using the interest method.
Commitment fees paid to investors, for the right to deliver permanent
residential mortgages in the future to the investors at a specified yield, are
deferred. Amounts are included in the recognition of gain (loss) on sale of
loans as loans are delivered to the investor in proportion to the percentage
relationship of loans delivered to the total commitment amount. Any unused fee
is recognized as an expense at the expiration of the commitment date, or
earlier, if it is determined that the commitment will not be filled.
Other loan fees and charges, which represent income from the prepayment
of loans, delinquent payment charges, and miscellaneous loan services, are
recognized as income when collected.
(i) Office Premises and Equipment
Land is carried at cost. Premises, equipment and leasehold improvements
are stated at cost, less accumulated depreciation. Premises, equipment and
leasehold improvements are depreciated on a straight-line basis over the lesser
of the lease term or the estimated useful lives of the various classes of
assets. Maintenance and repairs on premises and equipment are charged to expense
in the period incurred.
Closed facilities of the Company and its subsidiaries are carried at fair
value. In the case of leased premises that are vacated by the Company, a
liability is recorded representing the difference between the net present value
of future lease payments plus holding costs and the net present value of
anticipated sublease income, if any, for the remaining term of the lease.
(j) Foreclosed Real Estate
Real estate acquired through, or in lieu of, loan foreclosure is
initially recorded at fair value less estimated disposal costs at the time of
foreclosure. Subsequent to foreclosure, the Company charges current earnings
with a provision for estimated losses if the carrying value of the collateral
property exceeds its fair value. Gains or losses on the sale of real estate are
recognized upon disposition of the property. Carrying costs such as maintenance
and property taxes are expensed as incurred.
(k) Intangible Assets
Intangible assets, which primarily consist of the excess of cost over
fair value of net assets acquired in business combinations accounted for as a
purchase, are amortized on a straight-line basis over the expected period to be
benefited of 15 years. The Company periodically reviews the operations of the
businesses acquired to determine that income from operations continues to
support the recoverability of its intangible assets and the amortization periods
used.
(l) Mortgage Servicing Rights
The Company purchases mortgage servicing rights separately and acquires
mortgage servicing rights through the sale of loans it purchases or originates.
Generally, purchased mortgage servicing rights are capitalized at the cost to
acquire the rights and are carried at the lower of cost, net of accumulated
amortization, or fair value. Originated mortgage servicing rights are
capitalized based on the relative fair value of the servicing right to the fair
value of the loan and the servicing right and are carried at the lower of the
capitalized amount, net of accumulated amortization, or fair value.
A portion of the cost of originating a mortgage loan is allocated to the
mortgage servicing right based on its fair value. To determine the fair value of
mortgage servicing rights, the Company uses market prices for comparable
mortgage servicing contracts, when available, or alternatively uses a valuation
model that calculates the present value of future net servicing income. In using
this valuation method, the Company incorporates assumptions that market
participants would use in estimating future net servicing income, which include
estimates of the cost of servicing, the discount rate, mortgage escrow earnings
rate, an inflation rate, ancillary income, prepayment speeds and default rates
and losses.
F-12
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Mortgage servicing rights are amortized in proportion to, and over the
period of, estimated net servicing income. The amortization of the mortgage
servicing rights is analyzed periodically and is adjusted to reflect changes in
prepayment rates and other estimates. A decline in long-term interest rates
generally results in an acceleration in mortgage loan prepayments.
The Company evaluates the possible impairment of servicing rights based on
the difference between the carrying amount and current fair value of the
servicing rights. In determining impairment, the Company aggregates all mortgage
servicing rights and stratifies them based on the predominant risk
characteristics of interest rate, loan type and investor type. A valuation
allowance would be established for any excess of amortized cost over the current
fair value, by risk stratification, by a charge to income.
The Company employs hedging techniques through the use of interest rate
floor contracts, swaptions, principal- only swap agreements and prepayment
linked swap agreements to reduce the sensitivity of its earnings and value of
its servicing rights to declining interest rates and borrower prepayments as
further discussed in note 38. The Company uses hedge accounting because mortgage
servicing rights expose the Company to interest rate risk and at the inception
of the hedge and throughout the hedge period, high correlation of changes in the
market value of the hedge instruments and the fair value of the mortgage
servicing rights are probable so that the results of the hedge instruments will
substantially offset the effects of interest rate changes on the mortgage
servicing rights. If these requirements are not met, the hedge instruments would
be considered speculative and would be marked to market with changes in market
value reflected in current income.
The premium paid by the Company on the interest rate floor contracts and
swaptions is amortized over the life of the contract. Amounts receivable or
payable under the principal only swap agreements and prepayment linked swap
agreements and amounts receivable under the interest rate floor contracts,
swaptions or terminated hedges are included in the carrying value of mortgage
servicing rights and are amortized as part of the basis in mortgage servicing
rights.
(m) Gains/Losses on Sales of Mortgage Loans
Mortgage loans are generally sold with the mortgage servicing rights
retained by the Company. The carrying value of mortgage loans sold is reduced by
the cost allocated to the associated mortgage servicing rights. Gains or losses
on sales of mortgage loans are recognized based on the difference between the
selling price and the carrying value of the related mortgage loans sold.
Deferred origination fees and expenses, net of commitment fees paid in
connection with the sale of the loans, are recognized at the time of sale in the
gain or loss determination.
(n) Servicing Fee Income
Servicing fee income is recorded for fees earned for servicing mortgage
loans under servicing agreements with Fannie Mae ("FNMA"), Freddie Mac
("FHLMC"), the Government National Mortgage Association ("GNMA"), and certain
private investors. The fees are based on a contractual percentage of the
outstanding principal balance or a fixed amount per loan and are recorded as
income when received. The amortization of mortgage servicing rights is netted
against servicing fee income.
(o) Derivatives
The Company uses interest rate derivative financial instruments (interest
rate swaps, interest rate floors, swaptions, principal only swaps and prepayment
linked swaps) primarily to hedge against prepayment risk in its mortgage
servicing portfolio caused by declining interest rates and, to a lesser extent,
to hedge against the interest rate risk inherent in fixed-rate FHLB advances.
These instruments serve to reduce rather than increase the Company's exposure to
movements in interest rates, both at the inception and throughout the hedge
period. At the inception of the hedge, the Company identifies an individual
asset or liability, or an identifiable group of essentially similar assets or
liabilities, that expose the Company to interest rate risk at the consolidated
level.
Interest rate derivative financial instruments receive hedge accounting
treatment only if they are designated as a hedge and are expected to be, and
are, effective in substantially reducing interest rate risk arising from the
assets and liabilities identified as exposing the Company to risk. Those
derivative financial instruments that do not meet the hedging criteria discussed
below would be classified as trading activities and would be recorded at fair
value with changes in fair value recorded in earnings. Derivative hedge
contracts must meet specific correlation tests (i.e., the
F-13
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
change in their fair values must be within 80 to 125 percent of the opposite
change in the fair values of the hedged assets or liabilities). Changes in fair
value of the derivative financial instruments must be effective at offsetting
changes in fair value of the hedged items during the term of the hedge. Further,
if the underlying financial instrument differs from the hedged asset or
liability, there must be a clear economic relationship between the prices of the
two financial instruments.
If periodic assessment indicates derivatives no longer provide an
effective hedge, the derivatives contracts would be closed out, settled or
classified as a trading activity. The net settlement amount (upon close out or
termination) that offsets changes in value of the hedged asset or liability is
deferred and amortized into net interest income over the life of the hedged
asset or liability. The portion, if any, of the net settlement amount that did
not offset changes in the value of the hedged asset or liability is recognized
immediately in noninterest income.
Interest rate swaps are accounted for under the "accrual method."
Interest rate floors, swaptions, principal only swaps and prepayment linked
swaps are accounted for under the "deferral method." Under the accrual method,
the net interest payment due or owed under the instrument is recognized over the
life of the contract in net interest income. Under the deferral method, realized
gains or losses, or payments made or received on the derivative financial
instrument, are reported as adjustments to the carrying value of the hedged
asset or liability. There is no recognition under either method on the balance
sheet for changes in the derivative's fair value.
Except for contracts designated as a hedge of an available-for-sale
security, derivative financial instruments are not carried at fair value. If
there were contracts that were designated as a hedge of an available-for-sale
security, in addition to the accrual method and deferral method of accounting,
these contracts would be carried at fair value with the resulting gain or loss
recognized in other comprehensive income.
Swaption and interest rate floor premiums are classified on the balance
sheet with the hedged asset or liability at the time the premium is paid. These
premiums are amortized to net loan servicing fee income over the life of the
contract.
If a hedged asset or liability settles before maturity of the hedging
interest rate derivatives, the derivatives are closed out, and previously
unrecognized hedge results, if any, and the net settlement upon close out would
be accounted for as part of the gains and losses on the hedged asset or
liability. If derivative financial instruments used in an effective hedge are
closed out before the hedged item settles, previously unrecognized hedge
results, if any, and the net settlement upon close out are deferred and
amortized over the life of the hedged asset or liability.
Cash flows resulting from the derivative financial instruments that are
accounted for as hedges of assets and liabilities are classified in the cash
flow statement in the same category as the cash flows of the items being hedged.
(p) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
A valuation allowance is maintained against the deferred tax asset in an
amount representing the amount of such asset which it is more likely than not
that the Company will be unable to utilize. The deferred tax asset is
continually evaluated for realizability. To the extent that management's
judgment regarding the realization of the deferred tax asset changes, an
adjustment to the allowance is recorded, with an offsetting increase or
decrease, as appropriate, in income tax expense. Such adjustments are recorded
in the period in which management's estimate as to the realizability of the
asset changed.
Prior to the Golden State Merger, for federal income tax purposes, Parent
Holdings and FN Holdings were members of Mafco Holdings Inc. affiliated group
("Mafco Group"), and accordingly, their federal taxable income or loss will be
included in the consolidated federal income tax return filed by Mafco. Parent
Holdings may also be included in certain state and local income tax returns of
Mafco or its subsidiaries. The FN Holdings tax sharing agreement with Mafco
provided that income taxes be based on the separate results of FN Holdings. The
agreement
F-14
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
generally provided that FN Holdings will pay to Mafco amounts equal to the taxes
that FN Holdings would be required to pay if it were to file a return separately
from the affiliated group. Furthermore, the agreement provided that FN Holdings
shall be entitled to take into account any net operating loss carryovers in
determining its tax liability. The agreement also provided that Mafco pay FN
Holdings amounts equal to tax refunds FN Holdings would be entitled to if it had
always filed a separate company tax return. Parent Holdings did not enter into
any tax sharing agreements with Mafco.
In connection with the Golden State Acquisition, the tax sharing
agreement with Mafco was assumed by the Company for taxable periods ending after
the acquisition. The Company, the successor of Parent Holdings, is the parent
corporation of the Golden State affiliated group. Accordingly, after September
11, 1998, the Company and its subsidiaries will file a consolidated federal
income tax return and certain consolidated state and local income tax returns.
(q) Stock Compensation Plan
Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation,
encourages all entities to adopt a fair value based method of accounting for
employee stock compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. However, it also allows an entity
to continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, whereby
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date (or other measurement date) over the amount an employee must
pay to acquire the stock. Stock options issued under Golden State's stock option
plan established for the benefit of the Bank's employees have no intrinsic value
at the grant date, and under APB Opinion No. 25 no compensation cost was
recognized for them. The Company has elected to continue with the accounting
methodology prescribed in APB Opinion No. 25 and complies with the disclosure
requirements of SFAS No. 123.
(r) Earnings per Common Share
The Company has adopted SFAS No. 128, Earnings per Share. SFAS No. 128
requires the presentation of earnings per common share and diluted earnings per
common share. Under the requirements, earnings per common share includes the
dilutive effect of contingently issuable shares, but excludes the dilutive
effect of stock options and warrants. The dilutive effect of stock options and
warrants (which are convertible into the right to receive both shares of Golden
State Common Stock and LTW(TM)s (as defined herein)) used to compute diluted
earnings per share, is based on the average market prices of Golden State's
Common Stock and LTW(TM)s for the period. The dilutive effect of contingently
issuable shares (used in both the basic and diluted earnings per share
computation) is based solely on the average market price of Golden State's
Common Stock for the period, as such shares are not eligible to receive LTW(TM)s
upon issuance. Earnings per common share is computed by dividing net income
available to common stockholders by the average number of common shares
outstanding during the period, including the dilutive effect of contingently
issuable shares. Diluted earnings per common share is computed by dividing net
income available to common stockholders by the average number of common shares
outstanding during the period, including the dilutive effect of contingently
issuable shares, stock options and warrants outstanding during the period.
(s) Management's Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect (i) the reported amounts of assets and
liabilities, (ii) disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and (iii) the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
(t) Accounting Pronouncements Issued During the Years Presented
On June 28, 1996, the FASB issued SFAS No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No.
125 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. Under
that approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control
F-15
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
has been surrendered, and derecognizes liabilities when extinguished. This
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125. SFAS No. 127 defers for
one year the effective date (i) of paragraph 15 of SFAS No. 125 and (ii) of
paragraphs 9-12 and 237(b) of SFAS No. 125 for repurchase agreement,
dollar-roll, securities lending and similar transactions. SFAS No. 127 provides
additional guidance on the types of transactions for which the effective date of
SFAS No. 125 has been deferred. It also requires that if it is not possible to
determine whether a transaction occurring during calendar-year 1997 is part of a
repurchase agreement, dollar-roll, securities lending, or similar transaction,
then paragraphs 9-12 of SFAS No. 125 should be applied to that transfer. The
Company adopted SFAS No. 125, as amended by SFAS No. 127, on January 1, 1997.
Such adoption did not have a material impact on the Company's consolidated
financial statements.
The Company has adopted SFAS No. 128, Earnings per Share. SFAS No. 128
established requirements for computing and presenting earnings per share that
require the presentation of earnings per common share and diluted earnings per
common share. Under the requirements, earnings per common share includes the
dilutive effect of contingently issuable shares, but excludes the dilutive
effect of stock options and warrants. The dilutive effect of stock options,
warrants and contingently issuable shares used to compute diluted earnings per
common share is based on the average market price of Golden State's Common Stock
and, where applicable, the LTW(TM)s, for the period. See note 2(r). This
statement has no impact on the financial condition or results of operations of
the Company but does affect the Company's disclosure.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
About Capital Structure. SFAS No. 129 supersedes capital structure disclosure
requirements found in previous accounting pronouncements and conditions them
into one statement for ease of retrieval and greater visibility for non-public
entities. These disclosures are required for financial statements for periods
ending after December 15, 1997. As SFAS No. 129 makes no changes to previous
accounting pronouncements as those pronouncements applied to the Company, the
adoption of SFAS No. 129 had no impact on the Company's results of operations
and financial condition.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. It does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement. This statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. This statement,
which the Bank adopted effective October 1, 1997, had no impact on the financial
condition or results of operations of the Bank, but did impact the Company's
disclosure requirements.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This statement supersedes SFAS No. 14, Financial Reporting for
Segments of a Business Enterprise, but retains the requirement to report
information about major customers. It amends SFAS No. 94, Consolidation of All
Majority-Owned Subsidiaries, to remove the special disclosure requirements for
previously unconsolidated subsidiaries. This statement is effective for fiscal
years beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This statement need
not be applied to interim financial statements in the initial year of
application, but comparative information for interim periods in the initial year
of application is to be reported in financial statements for interim periods in
the second year of application. This statement has no impact on the financial
condition or results of operations of the Company, but has required changes in
the Company's disclosure.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits, an amendment of SFAS No. 87,
No. 88 and No. 106. SFAS No. 132 revises employers' disclosures about pension
and other postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent
F-16
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they were when Statements No. 87, Employers' Accounting for Pensions, No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No. 106, Employers' Accounting
for Postretirement Benefits Other than Pensions, were issued. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of disclosures for earlier periods provided for comparative
purposes, if available. The Company has not experienced any material revision in
its disclosures as a result of the adoption of SFAS No. 132.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes standards for
derivative instruments and for hedging activities, and requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. Under SFAS No. 133, an entity that
elects to apply hedge accounting is required to establish at the inception of
the hedge the method it will use for assessing the effectiveness of the hedging
derivative and the measurements approach for determining the ineffective aspect
of the hedge. SFAS No. 133 applies to all entities and amends SFAS No. 107,
Disclosures About Fair Values of Financial Instruments, to include in SFAS No.
107 the disclosure provisions about concentrations of credit risk from SFAS No.
105. SFAS No. 133 supersedes SFAS No. 80, Accounting for Futures Contracts, SFAS
No. 105, Disclosure of Information about Financial Instruments with Off-Balance
Sheet Risk and Financial Instruments with Concentrations of Credit Risk, and
SFAS No. 119, Disclosure about Derivative Instruments and Fair Value of
Financial Instruments. SFAS No. 133 also nullifies or modifies the consensuses
reached on a number of issues addressed by the Emerging Issues Task Force. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Initial application of this statement should be as of the
beginning of an entity's fiscal quarter. On that date, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. Earlier application of all of the provisions of SFAS No. 133 is
encouraged, but is permitted only as of the beginning of any fiscal quarter that
begins after issuance of this statement. SFAS No. 133 should not be applied
retroactively to financial statements of prior periods. Management has
established a multi-disciplinary task force to assess the Standard's effect on
the Company's consolidated financial statements and to coordinate its
implementation.
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, an amendment of SFAS No. 65.
SFAS No. 65 Accounting for Certain Mortgage Banking Activities, as amended by
SFAS No. 115 Accounting for Certain Investments in Debt and Equity Securities,
requires that after the securitization of a mortgage loan held for sale, an
entity engaged in mortgage banking activities classify the resulting
mortgage-backed security as a trading security. SFAS No. 134 amends SFAS No. 65
to require that after the securitization of mortgage loans held for sale, an
entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interests based on its ability and
intent to sell or hold those investments. SFAS No. 134 conforms the subsequent
accounting for securities retained after the securitization of mortgage loans by
a mortgage banking enterprise with the subsequent accounting for securities
retained after the securitization of other types of assets by a nonmortgage
banking enterprise. SFAS No. 134 is effective for the first fiscal quarter after
December 15, 1998. Early application is encouraged and is permitted as of the
issuance of this statement. The Company adopted SFAS No. 134 effective October
1, 1998. Such adoption did not have a material impact on the Company's
consolidated financial statements.
(3) Acquisitions and Divestitures
Golden State Acquisition
On September 11, 1998, Parent Holdings and Hunter's Glen completed the
merger with Golden State, the publicly traded parent company of Glendale
Federal, in a tax-free exchange of shares (the "Golden State Merger"), accounted
for under the purchase method of accounting. Pursuant to the Golden State Merger
agreement, (i) FN Holdings, contributed all of its assets (including all of the
common stock of the Bank) to GS Holdings (the "FN Holdings Asset Transfer"),
(ii) Parent Holdings, which then owned all of the common stock of FN Holdings,
merged with and into Golden State, which indirectly owned 100% of the common
stock of Glendale Federal, (iii) FN Holdings merged with and into Golden State
Financial Corporation ("GS Financial"), which owned all of the common stock of
Glendale Federal (the "FN Holdings Merger," and together with the Golden State
Merger, the "Holding Company Mergers") and (iv) Glendale Federal merged with and
into the Bank (the "Glen Fed Merger"). The FN Holdings Asset Transfer, the
Holding Company Mergers and the Glen Fed Merger are referred to collectively as
the "Golden State Acquisition."
F-17
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
At September 11, 1998, Glendale Federal had total assets of
approximately $18.9 billion and deposits of $11.3 billion and operated 181
branches and 26 loan offices in California. The following is a summary of assets
acquired and liabilities assumed in connection with the Golden State Acquisition
at September 11, 1998.
<TABLE>
<CAPTION>
Estimated
Carrying Fair Value Fair Remaining
Value Adjustments Value Lives
----- ----------- ----- -----
(dollars in thousands) (in years)
<S> <C> <C> <C>
Cash and cash equivalents $ 782,233 $ -- $ 782,233 --
Securities and mortgage-backed
securities 2,354,263 16,015 2,370,278 1-5
Loans receivable, net 14,432,389 129,718 14,562,107 6-9
Office premises and equipment, net 158,446 (9,692) 148,754 2-12
Investment in FHLB System 314,591 -- 314,591 --
Foreclosed real estate, net 47,504 -- 47,504 --
Accrued interest receivable 115,165 -- 115,165 --
Mortgage servicing rights 230,764 (17,831) 212,933 2-7
Goodwill 271,743 (271,743) -- --
Other assets 204,372 59,319 263,691 2-5
Deposits (11,293,173) (10,547) (11,303,720) 1-8
Borrowings (5,877,574) (45,310) (5,922,884) 1-5
Other liabilities (399,737) (81,324) (481,061) 1-10
------------ ------------ ------------
$ 1,340,986 $ (231,395) 1,109,591
============ ============
Purchase price 1,464,361
Excess cost over fair value of net ------------
assets acquired $ 354,770 15
============
</TABLE>
The Golden State Acquisition was accounted for as a purchase and
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed in the transaction based on estimates of fair value at the
date of purchase. Since the date of purchase, the results of operations related
to such assets and liabilities have been included in the Company's consolidated
statement of income for the year ended December 31, 1998.
Merger and integration costs associated with the Golden State Merger were
$59.2 million for the year ended December 31, 1998, including severance for
terminated Cal Fed employees, expenses for Cal Fed branch closures, conversion
and consolidation costs, as well as transition expenses for duplicate personnel,
facilities and computer systems during the integration period.
Auto One and GSAC Acquisitions
On September 1, 1997, the Bank acquired Auto One Acceptance Corporation
("Auto One") in a purchase transaction (the "Auto One Acquisition"). Auto One
primarily engages in indirect sub-prime auto financing activities, providing
loan processing, funding and loan servicing for over 800 franchised automobile
dealers. Auto One is a licensed lender in 47 states and is headquartered in
Dallas, Texas. The Company's consolidated statements of income include the
results of operations for Auto One from September 1, 1997.
On February 4, 1998, Auto One, a subsidiary of the Bank, acquired 100% of
the partnership interests in Gulf States Acceptance Company, a Delaware limited
partnership ("GSAC") and its general partner, Gulf States Financial Services,
Inc., a Texas corporation. GSAC was liquidated and its assets and liabilities
were transferred to Auto One (the "GSAC Acquisition"). The aggregate
consideration paid by Auto One in connection with the GSAC Acquisition was
approximately $13.6 million plus 250 shares of its common stock, par value $1.00
per share, representing a 20% interest in the common stock of Auto One. This
interest is reflected in the Company's consolidated balance sheet as minority
interest.
F-18
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Weyerhaeuser Purchase
On May 31, 1997, FNMC acquired a 1-4 unit residential loan servicing
portfolio of approximately $3.2 billion and approximately 40,000 loans from WMC
Mortgage Corporation (the "Weyerhaeuser Purchase") for $37.1 million. The
Company's consolidated statements of income include the results of the acquired
servicing portfolio from June 1, 1997.
Cal Fed Acquisition
The following is a summary of the assets acquired and liabilities assumed
in connection with the Cal Fed Acquisition at January 3, 1997.
<TABLE>
<CAPTION>
Cal Fed Bank Estimated
Carrying Fair Value Carrying Remaining
Value Adjustments Value Lives
----- ----------- ----- -----
(dollars in thousands) (in years)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,027,491 $ -- $ 1,027,491 --
Securities 6,013 12 6,025 1
Mortgage-backed securities 1,963,869 4,532 1,968,401 6-9
Loans receivable, net 10,084,170 (23,991) 10,060,179 2-12
Office premises and equipment, net 58,900 (17,592) 41,308 3-10
Investment in FHLB System 166,786 -- 166,786 --
Foreclosed real estate, net 18,482 (16) 18,466 --
Accrued interest receivable 71,868 -- 71,868 --
Mortgage servicing rights 4,759 39,738 44,497 2-7
Other assets 87,096 142,634 229,730 2-5
Deposits (8,985,630) (9,699) (8,995,329) 1-8
Borrowings (3,468,004) (2,918) (3,470,922) 1-5
Other liabilities (198,454) (117,713) (316,167) 1-10
Preferred stock (172,500) -- (172,500) --
------------- ----------- ------------
$ 664,846 $ 14,987 679,833
============ ===========
Purchase price 1,188,687
Excess cost over fair value ------------
of net assets acquired $ 508,854 15
============
</TABLE>
The Cal Fed Acquisition was accounted for as a purchase and accordingly,
the purchase price was allocated to the assets acquired and liabilities assumed
in the transaction based on estimates of fair value at the date of purchase.
During 1998, the Company recorded fair value adjustments to reduce other
liabilities and excess cost over fair value of net assets acquired by $71.2
million related to (i) the receipt of a tax refund related to periods prior to
January 3, 1997 and (ii) previously accrued severance and contract termination
costs (which had not been utilized upon completion of the integration plan).
Since the date of purchase, the results of operations related to such assets and
liabilities have been included in the Company's consolidated statements of
income.
F-19
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
1996 Acquisitions
On February 1, 1996, the Bank acquired SFFed Corp. ("SFFed") and its
wholly-owned subsidiary, San Francisco Federal Savings and Loan Association (the
"SFFed Acquisition"). The following is a summary of the assets acquired and
liabilities assumed in connection with the SFFed Acquisition at February 1,
1996.
<TABLE>
<CAPTION>
SFFed Bank Estimated
Carrying Fair Value Carrying Remaining
Value Adjustments Value Lives
----- ----------- ----- -----
(dollars in thousands) (in years)
<S> <C> <C> <C>
Cash and cash equivalents $ 181,061 $ -- $ 181,061 --
Mortgage-backed securities 918,817 11,007 929,824 1-5
Loans receivable, net 2,715,758 (23,245) 2,692,513 2-12
Office premises and equipment 20,581 (11,672) 8,909 3-10
Investment in FHLB System 31,989 -- 31,989 --
Foreclosed real estate, net 30,018 -- 30,018 --
Accrued interest receivable 22,740 -- 22,740 --
Mortgage servicing rights 2,238 13,762 16,000 2-4
Other assets 44,938 (7,773) 37,165 2-5
Deposits (2,678,692) (10,950) (2,689,642) 1-5
Securities sold under
agreements to repurchase (815,291) (3,640) (818,931) --
Borrowings (227,203) (8,831) (236,034) 1-9
Other liabilities (50,805) (605) (51,410) 1-5
------------ ----------- ----------
$ 196,149 $ (41,947) 154,202
=========== ===========
Purchase price 264,245
Excess cost over fair value ----------
of net assets acquired $ 110,043 15
==========
</TABLE>
During 1998, the Company recorded $5.5 million in fair value adjustments
to reduce other liabilities and excess cost over fair value of net assets
acquired, primarily related to the receipt of a tax refund associated with
periods prior to February 1, 1996.
F-20
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
On June 1, 1996, the Company acquired Home Federal Financial Corporation
("HFFC"), and its wholly-owned federally chartered savings association, Home
Federal Savings and Loan Association of San Francisco (the "Home Federal
Acquisition," and together with the SFFed Acquisition, the "1996 Acquisitions").
The aggregate consideration paid in connection with the Home Federal Acquisition
was approximately $67.8 million. The following is a summary of the assets
acquired and liabilities assumed in the Home Federal Acquisition at June 1,
1996.
<TABLE>
<CAPTION>
HFFC Bank Estimated
Carrying Fair Value Carrying Remaining
Value Adjustments Value Lives
----- ----------- ----- -----
(dollars in thousands) (in years)
<S> <C> <C> <C>
Cash and cash equivalents $146,867 $ -- $ 146,867 --
Mortgage-backed securities 4,053 (65) 3,988 1-5
Loans receivable, net 538,722 4,020 542,742 2-12
Office premises and equipment 4,202 (2,125) 2,077 3-10
Investment in FHLB Systems 6,259 -- 6,259 --
Foreclosed real estate, net 2,421 (198) 2,223 --
Accrued interest receivable 3,594 -- 3,594 --
Mortgage servicing rights 817 2,243 3,060 2-4
Other assets 10,016 2,392 12,408 2-5
Deposits (632,399) (1,875) (634,274) 1-5
Borrowings (30,000) 241 (29,759) 1-6
Other liabilities (3,602) (2,700) (6,302) 1-5
-------- ------- ----------
$ 50,950 $ 1,933 52,883
======== =======
Purchase price 67,823
----------
Excess cost over fair value
of net assets acquired $ 14,940 15
==========
</TABLE>
1996 LMUSA Purchase
On January 31, 1996, FNMC purchased from Lomas Mortgage USA, Inc.
("LMUSA") a $14.1 billion loan servicing portfolio (including a sub-servicing
portfolio of $2.4 billion), a master servicing portfolio of $2.7 billion, $5.9
million in foreclosed real estate, $46.8 million in net other servicing
receivables, $2.6 million in mortgage loans, and $6.2 million in net other
assets (including $1.4 million in cash and cash equivalents) for a purchase
price of approximately $160.9 million (the "1996 LMUSA Purchase").
The 1996 Acquisitions and the 1996 LMUSA Purchase were accounted for as
purchases and, accordingly, their respective purchase prices were allocated to
the assets acquired and liabilities assumed in each transaction based on
estimates of fair values at the date of purchase. Since the respective dates of
purchase, the results of operations related to such assets and liabilities have
been included in the Company's consolidated statements of income.
Florida Branch Sale
On September 11, 1998, the Bank consummated the sale of its Florida bank
franchise (consisting of 24 branches with deposits of $1.4 billion) to Union
Planters Bank of Florida, a wholly owned subsidiary of Union Planters Corp. (the
"Florida Branch Sale"). The Company recorded a pre-tax gain of approximately
$108.9 million in connection with the Florida Branch Sale, representing a
deposit premium of approximately 7.92%.
Texas Branch Sale
On December 12, 1997, the Bank sold its retail deposits and all related
retail banking facilities in the state of Texas (consisting of three branches)
totalling $57.6 million at a gross price representing a deposit premium of 4.1%
and resulting in a pre-tax gain on sale of $2.5 million (the "Texas Branch
Sale").
F-21
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Servicing Sale
On September 30, 1997, FNMC sold servicing rights for approximately
52,000 loans with an unpaid principal balance of approximately $2.3 billion,
recognizing a pre-tax gain of $14.0 million (the "Servicing Sale").
Garberville Branch Sale
On May 9, 1997, the Bank consummated the sale of deposit accounts and
related retail banking assets comprised of cash on hand, loans on deposits and
facilities totalling $21.7 million to Humboldt Bank at a gross price
representing a deposit premium of 4.5% (the "Garberville Branch Sale"), and
resulting in a pre-tax gain on sale of $1.1 million.
Branch Sales
During the first six months of 1996, the Bank consummated the sale of its
retail deposits and the related retail banking assets comprised of cash on hand,
loans on deposits, and facilities in Ohio, New York, New Jersey and Michigan
(collectively, the "Branch Sales") at gross prices which represented an average
premium of 7.96% of the approximately $4.6 billion deposits sold. The Bank
recorded a pre-tax gain of $363.3 million in connection with the Branch Sales.
The Company's consolidated statements of income include the results of
operations of those branches sold in the Branch Sales for the period prior to
sale.
Pro Forma Financial Information
The following unaudited pro forma financial information combines the
historical results of the Company as if the Golden State Acquisition, the
issuance of the GS Escrow Notes (as defined herein) and the Refinancing
Transactions (as defined herein) had occurred as of the beginning of each of the
years presented (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Net interest income $1,053,314 $1,001,484
Net income 556,834 136,810
Earnings per share:
Basic $4.21 $1.18
Diluted 3.68 1.09
</TABLE>
The pro forma information does not include the effect of the Weyerhaeuser
Purchase, the Auto One Acquisition, the GSAC Acquisition, the Servicing Sale,
the Garberville Branch Sale, the Texas Branch Sale, or the Florida Branch Sale
because such effect is not significant. The pro forma results are not
necessarily indicative of the results which would have actually been obtained if
the Golden State Acquisition, the issuance of the GS Escrow Notes or the
Refinancing Transactions had been consummated in the past nor do they project
the results of operations in any future period.
Purchase Accounting Adjustments
Premiums and discounts related to interest-earning assets acquired and
interest-bearing liabilities assumed are amortized (accreted) to operations
using the interest method over the estimated remaining lives of the respective
assets and liabilities.
Nevada Branch Purchase
On November 2, 1998, the Bank signed a definitive agreement to acquire
twelve retail branches located in Nevada (with deposits of approximately $637
million as of September 30, 1998) from Norwest Bank, Nevada, a subsidiary of
Norwest Corporation, and Wells Fargo Bank, N.A. This transaction is expected to
close in April 1999.
F-22
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(4) Issuance of Debt Securities
On August 6, 1998, GS Escrow Corp. ("GS Escrow"), an affiliate of GS
Holdings, issued $2 billion in debt securities consisting of (i) $250 million
aggregate principal amount of its Floating Rate Notes Due 2003 (the "Floating
Rate Notes"), (ii) $350 million aggregate principal amount of its 6 3/4% Senior
Notes due 2001 (the "2001 Notes"), (iii) $600 million aggregate principal amount
of its 7% Senior Notes Due 2003 (the "2003 Notes") and (iv) $800 million
aggregate principal amount of its 7 1/8% Senior Notes Due 2005 (the "2005 Notes"
and, together with the 2001 Notes and the 2003 Notes, the "Fixed Rate Notes"
and, together with the Floating Rate Notes, the "GS Escrow Notes"). Interest on
the Fixed Rate Notes is payable semi-annually in arrears on February 1 and
August 1 of each year, commencing on February 1, 1999. The Floating Rate Notes
bear interest at a rate equal to the three-month LIBOR plus 100 basis points per
annum, except that the initial rate was 6 3/4% per annum, based on six-month
LIBOR (which initial interest rate resets on the first interest payment date,
and, thereafter, on a quarterly basis). The first interest payment date for the
Floating Rate Notes was February 1, 1999, at which time the interest rate reset
to 5.97%. Thereafter, interest will be payable, and the interest rate will
reset, quarterly on each May 1, August 1, November 1 and February 1. The 2001
Notes, 2003 Notes and 2005 Notes will mature on August 1 of the respective year.
The GS Escrow Notes were issued to fund, in part, the Refinancing
Transactions that occurred following the Golden State Acquisition. Deferred
issuance costs of $38.6 million related to the GS Escrow Notes are included in
the Company's other assets and are being amortized over the life of such notes.
See note 23.
(5) Refinancing Transactions
On August 17, 1998, FN Holdings commenced cash tender offers (the "Bank
Preferred Stock Tender Offers") for each of the Bank's two outstanding series of
Bank Preferred Stock (as defined herein), which had a total aggregate
liquidation preference of $473.2 million. The Bank Preferred Stock Tender Offers
expired on September 14, 1998, at which time 222,721 shares of the 10 5/8%
Preferred Stock (as defined herein) and 995,437 shares of the 11 1/2% Preferred
Stock (as defined herein) were purchased for an aggregate purchase price of
$135.8 million. During the remainder of 1998, GS Holdings continued to purchase
Bank Preferred Stock through privately negotiated transactions. Through December
31, 1998, 894,980 additional shares of the 10 5/8% Preferred Stock and 1,693,522
shares of the 11 1/2% Preferred Stock had been purchased for an aggregate
purchase price of $287.7 million. The net tender premiums and expenses paid in
connection with the Bank Preferred Stock Tender Offers totalled $36.9 million
and are reflected as minority interest on the Company's consolidated statements
of income for the year ended December 31, 1998. GS Holdings expects to purchase
any outstanding Bank Preferred Stock not acquired in the Bank Preferred Stock
Tender Offers once it becomes redeemable (April 1, 1999 in the case of the
10 5/8% Preferred Stock and September 1, 1999 in the case of the 11 1/2%
Preferred Stock). See notes 27 and 45.
On September 14, 1998, GS Holdings commenced cash tender offers (the
"Debt Tender Offers" and, together with the Bank Preferred Stock Tender Offers
and the Parent Holdings Defeasance (as defined herein), the "Refinancing
Transactions") for the FN Holdings 12 1/4% Senior Notes, the FN Holdings 9 1/8%
Senior Sub Notes and the FN Holdings 10 5/8% Notes (each as defined herein and
collectively, the "FN Holdings Notes"), which together had a total aggregate
principal amount of $915 million. Through December 31, 1998, GS Holdings
purchased $914.5 million aggregate principal amount of the FN Holdings Notes for
an aggregate purchase price, including accrued interest payable, of $1.1
billion. At December 31, 1998, only $.2 million of the FN Holdings 12 1/4%
Senior Notes and $.3 million of the FN Holdings 10 5/8% Notes remained
outstanding. The after-tax tender premiums and expenses paid in connection with
the Debt Tender Offers totalled $98.7 million and are reflected as an
extraordinary loss, net of taxes, on the Company's consolidated statement of
income for the year ended December 31, 1998.
Concurrently with the closings of the Debt Tender Offers, GS Financial,
as the successor obligor, gave a 30-day notice of redemption for all the
outstanding $455 million aggregate principal amount of 12 1/2% Senior Notes Due
2003 of Parent Holdings (the "Parent Holdings Notes"), and irrevocably deposited
money or government obligations in trust in an amount sufficient to pay the
redemption price therefor, together with any accrued and unpaid interest to the
date of redemption, for the purpose of defeasing the Parent Holdings Notes (the
"Parent Holdings Defeasance"). The Parent Holdings Defeasance was completed on
October 14, 1998. The after-tax redemption premiums and expenses paid in
connection with the Parent Holdings Defeasance totalled $51.6 million and are
reflected as extraordinary loss, net of taxes, on the consolidated statement of
income for the year ended December 31, 1998.
F-23
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(6) GS Escrow Merger
On September 14, 1998, GS Escrow was merged with and into GS Holdings,
pursuant to a merger agreement by and between GS Escrow and GS Holdings (the "GS
Escrow Merger"). In connection therewith, GS Holdings acquired the net proceeds
of $2.0 billion from the Refinancing Transactions and became successor obligor
on the GS Escrow Notes. GS Escrow was a newly formed subsidiary of First
Gibraltar Holdings Inc., an indirect parent company of FN Holdings, and had no
significant assets. GS Escrow had not engaged in any business operations,
acquired any assets or incurred any liabilities, other than in connection with
the issuance of the GS Escrow Notes.
(7) FN Escrow Merger
On January 3, 1997 and prior to the consummation of the Cal Fed
Acquisition, First Nationwide Escrow Corp. ("FN Escrow"), an affiliate of FN
Holdings, was merged with and into FN Holdings, pursuant to a merger agreement
by and between FN Holdings and FN Escrow (the "FN Escrow Merger"). In connection
therewith, FN Holdings acquired the net proceeds from the issuance of FN
Escrow's $575 million of senior subordinated notes due 2003 (the "FN Holdings
10 5/8% Notes") and assumed FN Escrow's obligations under the FN Holdings
10 5/8% Notes and indenture. Deferred issuance costs associated with the FN
Holdings 10 5/8% Notes of $19 million were included in FN Escrow's other assets
and are being amortized over the term of the FN Holdings 10 5/8% Notes.
Concurrent with the issuance of the FN Holdings 10 5/8% Notes, FN Escrow
issued approximately $36 million aggregate liquidation value of cumulative
perpetual preferred stock (the "FN Escrow Preferred Stock") to Trans Network
Insurance Services Inc., an affiliate of FN Escrow. The FN Escrow Preferred
Stock had a stated liquidation value of $10,000 per share, plus accrued and
unpaid dividends, if any. Cash dividends on the FN Escrow Preferred Stock were
cumulative and accrued at an annual rate of approximately 7.3% of the stated
liquidation value. In connection with the FN Escrow Merger, each share of FN
Escrow Preferred Stock was converted into and became one share of cumulative
perpetual preferred stock of FN Holdings (the "FN Holdings/FN Escrow Preferred
Stock"), which stock had the same relative rights, terms and preferences as the
FN Escrow Preferred Stock. Immediately after issuance, FN Holdings redeemed the
FN Holdings/FN Escrow Preferred Stock at a redemption price of $36.8 million,
representing its stated liquidation value and accrued and unpaid dividends to
January 3, 1997. At the same time, a $19 million loan receivable from an
affiliate of FN Holdings was repaid.
(8) Supplemental Disclosure of Cash Flow Information (in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash paid for:
Interest $1,783,032 $1,459,676 $841,192
Income taxes, net (142,012) 20,778 40,035
Non-cash investing and financing activities:
Principal reductions to loans due to foreclosure 118,801 179,607 109,817
Loans made to facilitate the sale of real estate 10,898 19,413 13,036
Loans exchanged for mortgage-backed securities 1,905,274 50,772 --
Reclassification of certain consumer loans from loans
held for sale to loans receivable -- -- 27,734
Preferred stock dividends reinvested 107 2,227 792
Reduction of loans through redemption of and
dividends on Class C common stock -- -- 46,769
Contribution of capital through redemption of
Additional FN Holdings Preferred Stock 787 1,871 --
Dividend to parent 230,161 -- --
</TABLE>
F-24
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(9) Securities Available for Sale
At December 31, 1998 and 1997, securities available for sale and the
related unrealized gain or loss consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------
Gross Gross Net
Amortized Unrealized Unrealized Unrealized Carrying
Cost Gains Losses Gain Value
---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C>
Marketable equity securities $ -- $2,142 $ -- $ 2,142 $ 2,142
U.S. government and agency obligations 767,558 1,226 (179) 1,047 768,605
-------- ------ ---- ------- -------
Total $767,558 $3,368 $ (179) 3,189 $770,747
======== ====== ====== ========
Estimated tax effect (1,222)
-------
Net unrealized holding gain
in stockholders' equity $ 1,967
=======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------
Gross Gross Net
Amortized Unrealized Unrealized Unrealized Carrying
Cost Gains Losses Gain Value
---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C>
U.S. government and agency obligations $812,716 $957 $(588) $369 $813,085
======== ==== ===== (47) ========
Estimated tax effect ----
Net unrealized holding gain
in stockholders' equity $322
====
</TABLE>
The following represents a summary of the amortized cost, estimated fair
value (carrying value) and weighted average yield of securities available for
sale with related maturities (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------
Estimated Weighted
Amortized Fair Average
Cost Value Yield
---- ----- -----
<S> <C> <C> <C>
Marketable equity securities $ -- $ 2,142 --%
U.S. government and agency obligations:
Maturing within 1 year 75,478 75,498 5.01
Maturing after 1 year but within 5 years 57,622 57,709 6.03
Maturing after 5 years through 10 years 335,518 335,701 6.28
Maturing after 10 years 298,940 299,697 6.42
-------- --------
Total $767,558 $770,747 6.19%
======== ========
</TABLE>
At December 31, 1998, U.S. government and agency obligations available
for sale of $75.3 million were pledged as collateral for various obligations.
Pursuant to the terms of a settlement agreement dated June 17, 1991
between California Federal, Affiliated Computer Services ("ACS"), and the
Federal Deposit Insurance Corporation ("FDIC"), the FDIC was entitled to share
in a defined portion of the proceeds from the sale of ACS common stock owned by
the Bank. On June 28, 1996, California Federal sold 2,000,000 shares of its
investment in common stock of ACS for gross proceeds totalling $92.3 million
from which it satisfied its full obligation to the FDIC. A pre-tax gain of $40.4
million resulted from this transaction and was recorded as a gain on sale of
assets in the 1996 consolidated statement of income. The Bank's remaining shares
of ACS common stock were sold in October 1997, resulting in a pre-tax gain of
approximately $25.0 million.
F-25
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(10) Securities Held to Maturity
At December 31, 1998 and 1997 securities held to maturity consist of the
following (in thousands):
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Municipal securities $ 84,428 $533 $(8) $ 84,953
Commercial paper 166,536 -- -- 166,536
-------- ---- ---- --------
Total $250,964 $533 $(8) $251,489
======== ==== ==== ========
December 31, 1997
--------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
Municipal securities $ 170 $ -- $ -- $ 170
Commercial paper 58,129 -- -- 58,129
------- ----- ---- -------
Total $58,299 $ -- $ -- $58,299
======= ===== ==== =======
</TABLE>
The weighted average stated interest rates on securities held to maturity
were 4.77% and 5.32% at December 31, 1998 and 1997, respectively.
The following represents a summary of the amortized cost (carrying
value), estimated fair value, and weighted average yield of securities held to
maturity with related maturities (dollars in thousands):
December 31, 1998
---------------------------------
Estimated Weighted
Amortized Fair Average
Cost Value Yield
---- ----- -----
Municipal securities:
Maturing after 10 years $ 84,428 $ 84,953 5.19%
Commercial paper:
Maturing within 1 year 166,536 166,536 4.59
-------- ---------
Total $250,964 $251,489 4.77%
======== ========
F-26
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(11) Mortgage-Backed Securities Available for Sale
At December 31, 1998 and 1997, mortgage-backed securities available for
sale and the related unrealized gain or loss consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------
Gross Gross Net
Amortized Unrealized Unrealized Unrealized Carrying
Cost Gains Losses Gain (Loss) Value
---- ----- ------ ----------- -----
<S> <C> <C> <C> <C> <C>
GNMA $ 761,515 $ 1,366 $ (5,324) $ (3,958) $ 757,557
FNMA 2,896,972 11,829 (13,394) (1,565) 2,895,407
FHLMC 1,354,254 7,415 (5,239) 2,176 1,356,430
Other mortgage-backed securities 705,459 3,372 (4,467) (1,095) 704,364
Collateralized mortgage obligations 7,222,559 26,155 (14,480) 11,675 7,234,234
----------- -------- --------- ------- -----------
Total $12,940,759 $50,137 $(42,904) 7,233 $12,947,992
=========== ======= ======== ===========
Estimated tax effect (3,049)
--------
Net unrealized holding gain
in stockholders' equity $ 4,184
========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------
Gross Gross Net
Amortized Unrealized Unrealized Unrealized Carrying
Cost Gains Losses Gain (Loss) Value
---- ----- ------ ----------- -----
<S> <C> <C> <C> <C> <C>
GNMA $ 249,023 $ 2,710 $ -- $ 2,710 $ 251,733
FNMA 2,408,173 17,519 (5,923) 11,596 2,419,769
FHLMC 1,197,867 20,097 (548) 19,549 1,217,416
Other mortgage-backed securities 574,625 5,371 (111) 5,260 579,885
Collateralized mortgage obligations 606,965 2,698 (1,868) 830 607,795
---------- ------- --------- -------- ----------
Total $5,036,653 $48,395 $ (8,450) 39,945 $5,076,598
========== ======= ========= ==========
Estimated tax effect (5,105)
--------
Net unrealized holding gain
in stockholders' equity $ 34,840
========
</TABLE>
The following represents a summary of the amortized cost, estimated fair
value (carrying value) and weighted average yield of mortgage-backed securities
available for sale (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------
Estimated Weighted
Amortized Fair Average
Cost Value Yield
---- ----- -----
<S> <C> <C> <C>
GNMA $ 761,515 $ 757,557 6.72%
FNMA 2,896,972 2,895,407 6.64
FHLMC 1,354,254 1,356,430 7.02
Other mortgage-backed securities 705,459 704,364 6.93
Collateralized mortgage obligations 7,222,559 7,234,234 6.59
----------- -----------
Total $12,940,759 $12,947,992 6.66%
=========== ===========
</TABLE>
F-27
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The weighted average stated interest rates on mortgage-backed securities
available for sale were 6.74% and 7.16% at December 31, 1998 and 1997,
respectively. At December 31, 1998 and 1997, mortgage-backed securities
available for sale included securities totalling $1.1 billion and $1.4 billion,
respectively, which resulted from the securitization of certain qualifying
mortgage loans from the Bank's loan portfolio.
At December 31, 1998 and 1997, mortgage-backed securities available for
sale included $5.6 billion and $4.6 billion, respectively, of variable-rate
securities.
At December 31, 1998, mortgage-backed securities available for sale of
$8.4 billion were pledged as collateral for various obligations as further
discussed in notes 22, 23 and 37. Further, at December 31, 1998, mortgage-backed
securities available for sale with a carrying value of $116.5 million were
pledged to FNMA and were associated with the sales of certain securitized
multi-family loans.
(12) Mortgage-Backed Securities Held to Maturity
At December 31, 1998 and 1997, mortgage-backed securities held to
maturity consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
FHLMC $ 223,378 $ 4,553 $ -- $ 227,931
FNMA 2,545,967 49,766 (5) 2,595,728
Other mortgage-backed securities 1,568 -- -- 1,568
----------- ------- ---- ----------
Total $2,770,913 $54,319 $ (5) $2,825,227
========== ======= ==== ==========
December 31, 1997
-------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
FHLMC $ 317,766 $15,364 $ -- $ 333,130
FNMA 1,017,835 20,048 -- 1,037,883
Other mortgage-backed securities 2,276 -- -- 2,276
----------- ------- ---- ----------
Total $1,337,877 $35,412 $ -- $1,373,289
========== ======= ==== ==========
</TABLE>
The following represents a summary of the amortized cost (carrying
value), estimated fair value and weighted average yield of mortgage-backed
securities held to maturity (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------
Estimated Weighted
Amortized Fair Average
Cost Value Yield
---- ----- -----
<S> <C> <C> <C>
FHLMC $ 223,378 $ 227,931 7.83%
FNMA 2,545,967 2,595,728 7.32
Other mortgage-backed securities 1,568 1,568 12.78
---------- ----------
Total $2,770,913 $2,825,227 7.36%
========== ==========
</TABLE>
The weighted average stated interest rates on mortgage-backed securities
held to maturity were 7.22% and 7.33% at December 31, 1998 and 1997,
respectively. At December 31, 1998 and 1997, mortgage-backed securities held to
maturity included variable rate securities totalling $2.7 billion and $1.3
billion, respectively, which resulted from the securitization with FNMA and
FHLMC of certain qualifying mortgage loans from the Bank's loan portfolio with
full recourse to the Bank.
F-28
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
At December 31, 1998, mortgage-backed securities held to maturity of $2.5
billion were pledged as collateral for various obligations as further discussed
in notes 22, 23 and 37.
(13) Loans Receivable, Net
At December 31, 1998 and 1997 loans receivable, net, included the
following (in thousands):
<TABLE>
<CAPTION>
Real estate loans: 1998 1997
---- ----
<S> <C> <C>
1-4 unit residential $23,493,221 $14,071,258
5+ unit residential 2,640,635 3,035,195
Commercial 2,940,129 2,145,634
Construction 32,066 3,737
Land 33,002 4,766
------------ -------------
29,139,053 19,260,590
Undisbursed loan funds (9,933) (2,714)
------------ -------------
Total real estate loans 29,129,120 19,257,876
------------ -------------
Equity-line loans 385,118 354,966
Other consumer loans 241,884 107,089
Purchased auto loans 464,922 170,808
Business banking loans 528,665 22,143
Commercial loans 12,683 8,370
------------ -------------
Total consumer and other loans 1,633,272 663,376
------------ -------------
Total loans receivable 30,762,392 19,921,252
Deferred loan fees, costs, discounts and
premiums, net 103,377 47,219
Allowance for loan losses (588,533) (418,674)
Purchase accounting discounts, net 3,708 (125,387)
------------ -------------
Total loans receivable, net $30,280,944 $19,424,410
============ =============
</TABLE>
At December 31, 1998, $19.1 billion in residential loans were pledged as
collateral for FHLB advances as further discussed in note 23.
As a result of the Golden State and the Cal Fed Acquisitions, the Bank
assumed obligations for certain loans sold with recourse. The outstanding
balances of loans sold with recourse at December 31, 1998 totalled $5.1 billion.
No loans were sold with recourse during the years ended December 31, 1998, 1997
and 1996. The Bank evaluates the credit risk of loans sold with recourse and, if
necessary, records a liability (included in other liabilities) for estimated
losses related to these potential obligations. At December 31, 1998, such
liability totalled $71.9 million.
Auto loans purchased at a discount related to credit quality are included
in the balance sheet amount of loans receivable as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Auto loans: contractual payments receivable $ 674,401 $253,226
Accretable Yield (88,145) (35,198)
Nonaccretable Difference (121,334) (47,220)
--------- --------
Subtotal 464,922 170,808
Deferred fees and unearned premiums 21,649 17,251
Allowance for loan losses (7,118) --
--------- --------
Loans purchased at a discount relating
to credit quality, net $ 479,453 $188,059
========= ========
</TABLE>
F-29
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Nonaccretable Difference represents contractual principal and interest
cash flows that the Company determined, at acquisition, it was probable the
Company would be unable to collect. The increase in Accretable Yield in 1998
includes a $2.0 million reclassification from Nonaccretable Difference for cash
flows expected to be collected in excess of those previously expected. No
reclassification was needed in 1997.
Accretable Nonaccretable
Yield Difference
----- ----------
(in thousands)
Balance at December 31, 1996 $ -- $ --
Addition - Auto One Acquisition (29,046) (39,297)
Addition - other purchases (9,116) (14,724)
Accretion 2,964 --
Eliminations -- 6,801
---------- ----------
Balance at December 31, 1997 (35,198) (47,220)
Addition - Glen Fed Merger (6,934) (7,324)
Addition - GSAC Acquisition (38,359) (30,845)
Addition - other purchases (53,599) (97,985)
Accretion 47,929 --
Reclassifications (1,984) 1,984
Eliminations -- 60,056
--------- ---------
Balance at December 31, 1998 $ (88,145) $(121,334)
========= =========
During the year ended December 31, 1998, the Company accrued losses of
$2.5 million on loans purchased at a discount by increasing the allowance for
loan losses relative to such loans. Further, loss allowances totalling $5.1
million were acquired from predecessor institutions in connection with the Glen
Fed Merger and the GSAC Acquisition. No loss accruals were recorded during the
year ended December 31, 1997. No loss accruals were reversed in 1998 or 1997.
The following table indicates the carrying value of loans which have been
placed on nonaccrual status as of the dates indicated (in thousands):
Nonaccrual loans: At December 31,
-----------------------
Real estate loans: 1998 1997
---- ----
1-4 unit residential $189,193 $164,923
5+ unit residential 16,045 12,128
Commercial and other 10,362 6,240
Construction 1,208 1,560
-------- --------
Total real estate 216,808 184,851
Non-real estate 9,380 7,344
-------- --------
Total nonaccrual loans $226,188 $192,195
======== ========
The following table indicates the carrying value of loans classified as
troubled debt restructuring, as of December 31, 1998 and 1997 (in thousands):
At December 31,
-------------------------
1998 1997
---- ----
1-4 unit residential $ 3,921 $ 2,135
5+ unit residential 8,805 6,718
Commercial and other real estate 19,211 24,563
------- -------
Total restructured loans $31,937 $33,416
======= =======
F-30
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
At December 31, 1998, $24.9 billion, or 86%, of the Company's loan
portfolio consisted of real estate loans collateralized by properties located in
California. The financial condition of the Company is subject to general
economic conditions such as the volatility of interest rates and real estate
market conditions and, in particular, to conditions in the California
residential real estate market. Any downturn in the economy generally, and in
California in particular, could reduce real estate values. An increase in the
general level of interest rates may adversely affect the ability of certain
borrowers to pay the interest on and principal of their obligations.
Accordingly, in the event interest rates rise or real estate market values
decline, particularly in California, the Company and the Bank may find it
difficult to maintain its asset quality and may require additional allowances
for loss above the amounts currently estimated by management.
For nonaccrual loans and loans classified as troubled debt
restructurings, the following table summarizes the interest income recognized
("Recognized") and total interest income that would have been recognized had the
borrowers performed under the original terms of the loans ("Contractual") for
the years ended December 31, 1998 and 1997 (in thousands).
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------- --------------------------
Recognized Contractual Recognized Contractual
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Restructured loans $ 3,007 $ 2,982 $ 3,532 $ 3,583
Nonaccrual loans 9,680 18,219 6,779 15,880
------- ------- ------- -------
Total $12,687 $21,201 $10,311 $19,463
======= ======= ======= =======
</TABLE>
Activity in the allowance for loan losses for the years ended December
31, 1998, 1997 and 1996 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance - beginning of year $418,674 $246,556 $210,484
Purchases, net 170,014 143,819 38,486
Provision for loan losses 40,000 79,800 39,600
Charge-offs (46,126) (56,124) (44,785)
Recoveries 5,971 4,623 2,771
-------- -------- --------
Balance - end of year $588,533 $418,674 $246,556
======== ======== ========
</TABLE>
FN Holdings loaned approximately $46.8 million to an affiliate on March
1, 1996. Such loan bore interest at the rate of 10.5% over the prevailing yield
to maturity of the five-year United States treasury note, and was an unsecured
subordinated obligation of the borrower guaranteed by certain other affiliates
of FN Holdings, which obligation to FN Holdings was evidenced by a promissory
note (the "Promissory Note"). Management believes that the terms and conditions
of such loan were at least as favorable to FN Holdings as might have been
obtained in a similar transaction with an unaffiliated party. On May 15, 1996,
FN Holdings distributed the Promissory Note to Parent Holdings as a partial
redemption of and dividends on class C common stock. Parent Holdings distributed
the Promissory Note in the form of a dividend to an affiliate.
During 1996 FN Holdings loaned approximately $19 million to an affiliate.
Such loan accrued interest at the rate of 14%, and was an unsecured subordinated
obligation of the borrower, which obligation to FN Holdings was evidenced by a
promissory note. Management believes that the terms and conditions of such loan
were at least as favorable to FN Holdings as might have been obtained in a
similar transaction with an unaffiliated party. On January 3, 1997, such loan,
together with the accrued interest thereon, was repaid.
F-31
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(14) Impaired Loans
At December 31, 1998 and 1997, the carrying value of loans that are
considered to be impaired totalled $135.2 million and $110.1 million
respectively (of which $32.5 million and $18.6 million, respectively, were on
nonaccrual status). The average recorded investment in impaired loans during the
years ended December 31, 1998, 1997 and 1996 was approximately $137.1 million,
$112.9 million and $103.7 million, respectively. For the years ended December
31, 1998, 1997 and 1996, the Company recognized interest income on those
impaired loans of $9.0 million, $10.5 million and $10.7 million, respectively,
which included $1.2 million, $.6 million and $.3 million, respectively, of
interest income recognized using the cash basis method of income recognition.
Generally, allowances for loan losses relative to impaired loans have not
been allocated from the general allowance because the carrying value of such
loans, net of purchase accounting adjustments, exceeds the loans' related
collateral values less estimated selling costs.
(15) Put Agreement
In connection with the FN Acquisition, the Bank assumed generally the
same rights under an agreement ("Put Agreement") Old FNB had with Granite
Management and Disposition, Inc. ("Granite"), an indirect subsidiary of Ford
Motor, whereby Old FNB had the option to sell ("put") to Granite, on a quarterly
basis, up to approximately $500 million of certain assets, primarily
non-performing commercial real estate loans and residential mortgage loans with
an original principal balance greater than $250,000. The Put Agreement expired
on November 30, 1996. The aggregate purchase price of assets "put" to Granite
equals $500 million, including assets "put" to Granite by Old FNB through
October 3, 1994. Granite purchased these assets for an amount equal to the
assets' outstanding principal balance, accrued interest and certain other
expenses.
(16) Receivables from the FSLIC/RF - Covered Assets
As part of First Gibraltar's 1988 acquisition of the five Closed
Associations, it entered into an assistance agreement (the "Assistance
Agreement") with the FSLIC. Assets subject to the Assistance Agreement were
known as "Covered Assets." The Assistance Agreement generally provided for
guaranteed yield amounts to be paid on the book value of the Covered Assets, and
paid the Bank for 90% of the losses incurred upon disposition of the Covered
Assets ("Capital Loss Coverage").
In 1995, the FDIC, as manager of the FSLIC Resolution Fund ("FSLIC/RF"),
as successor to the FSLIC, exercised its rights under the Assistance Agreement
to purchase substantially all of the remaining Covered Assets at the fair market
value of such assets (the "FDIC Purchase"). Any losses sustained by the Bank as
a result of the FDIC Purchase were reimbursed under the Capital Loss Coverage
provision of the Assistance Agreement. Proceeds from this transaction were
reinvested in the normal course of business.
On August 19, 1996, the Bank and the FSLIC/RF executed an agreement which
resulted in the termination of the Assistance Agreement. As a result of the
agreement, the FSLIC/RF paid the Bank the remaining Covered Asset balance of $39
million and, among other things, assumed the responsibility for the disposition
of several litigation matters involving Covered Assets which had been retained
by the Bank following the FDIC Purchase. In connection with the agreement, a
pre-tax gain of $25.6 million was recorded.
(17) Investment in FHLB
The Company's investment in FHLB stock is carried at cost. The FHLB
provides a central credit facility for member institutions. As a member of the
FHLB system, the Bank is required to own capital stock in the FHLB in an amount
equal to the greater of (i) 1% of the aggregate outstanding principal amount of
its residential mortgage loans, home purchase contracts and similar obligations
at the beginning of each calendar year, (ii) .3% of total assets, or (iii) 5% of
its advances (borrowings) from the FHLB of San Francisco. The Bank was in
compliance with this requirement at December 31, 1998, 1997 and 1996. At
December 31, 1998, the Bank's investment in FHLB stock was pledged as collateral
for FHLB advances as further discussed in note 23.
F-32
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(18) Office Premises and Equipment, Net
Office premises and equipment, net, at December 31, 1998 and 1997 is
summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
Estimated
Depreciable Lives at
1998 1997 December 31, 1998
---- ---- -------------------
<S> <C> <C> <C>
Land $ 49,812 $ 29,942 --
Buildings and leasehold improvements 146,108 74,141 25
Furniture and equipment 154,393 85,519 6
Construction in progress 43,483 5,253 --
-------- --------
393,796 194,855
Accumulated depreciation and amortization (56,922) (35,506)
-------- --------
Total office premises and equipment, net $336,874 $159,349
======== ========
</TABLE>
Depreciation and amortization expense related to office premises and
equipment for the years ended December 31, 1998, 1997 and 1996 totalled $26.7
million, $16.8 million and $10.9 million, respectively.
The Company rents certain office premises and equipment under long-term,
noncancelable operating leases expiring at various dates through the year 2034.
Rental expense under such operating leases, included in occupancy and equipment
expense, for the years ended December 31, 1998, 1997 and 1996 totalled $36.0
million, $29.6 million and $19.3 million, respectively. Rental income from
sublease agreements for the years ended December 31, 1998, 1997 and 1996
totalled $3.0 million, $2.0 million and $1.6 million, respectively. At December
31, 1998, the projected minimum rental commitments, net of sublease agreements,
under terms of the leases were as follows (in thousands):
<TABLE>
<CAPTION>
Cash Effect on
Year Ending Commitment Net Income
----------- ---------- ----------
<S> <C> <C>
1999 $ 46,226 $ 31,145
2000 42,923 28,801
2001 34,970 22,511
2002 28,599 16,893
2003 24,434 13,095
Thereafter 104,121 48,555
-------- --------
Total $281,273 $161,000
======== ========
</TABLE>
The effect of lease commitments on net income is different from the cash
commitment primarily as a result of lease commitments assumed in acquisitions
with related purchase accounting adjustments and accrued facilities costs
recorded in connection with branch consolidations. See note 24.
(19) Accrued Interest Receivable
Accrued interest receivable at December 31, 1998 and 1997 is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents and securities $ 46,321 $ 10,832
Mortgage-backed securities 57,051 43,700
Loans receivable and loans held for sale 214,083 133,671
-------- --------
Total accrued interest receivable $317,455 $188,203
======== ========
</TABLE>
F-33
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(20) Mortgage Servicing Rights
The following is a summary of activity for mortgage servicing rights
("MSRs") and the hedge against the change in value of the mortgage servicing
rights ("MSR Hedge") for the years ended December 31, 1998, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
MSR
MSR Hedge Total
--- ----- -----
<S> <C> <C> <C>
Balance at December 31, 1995 $ 241,355 $ -- $ 241,355
Additions from 1996 LMUSA Purchase 105,029 -- 105,029
Additions from SFFed Acquisition 16,000 -- 16,000
Additions from Home Federal Acquisition 3,060 -- 3,060
Originated servicing 81,028 -- 81,028
Additions - other purchases 64,421 -- 64,421
Premiums paid for interest rate floor contracts -- 3,509 3,509
Payments to counterparties, net -- 271 271
Amortization (90,706) (275) (90,981)
--------- --------- ---------
Balance at December 31, 1996 420,187 3,505 423,692
Additions from Cal Fed Acquisition 44,497 -- 44,497
Additions from Weyerhaeuser Purchase 41,949 -- 41,949
Originated servicing 120,465 -- 120,465
Additions - other purchases 27,939 -- 27,939
Sales - Servicing Sale (16,792) -- (16,792)
Sales - other (4) -- (4)
Premiums paid for interest rate floor contracts -- 7,088 7,088
Payments received from counterparties, net -- (1,849) (1,849)
Amortization (106,972) (3,310) (110,282)
--------- --------- ---------
Balance at December 31, 1997 531,269 5,434 536,703
Additions from Glen Fed Merger 212,933 -- 212,933
Originated servicing 169,972 -- 169,972
Additions - other purchases 160,619 -- 160,619
Sales (1,057) -- (1,057)
Gain on termination -- (76,154) (76,154)
Premiums paid -- 107,412 107,412
Payments received from counterparties, net -- (8,684) (8,684)
Amortization (152,107) (6,056) (158,163)
--------- --------- ---------
Balance at December 31, 1998 $ 921,629 $ 21,952 $ 943,581
========= ========= =========
</TABLE>
At December 31, 1998, 1997 and 1996, the outstanding balances of 1-4 unit
residential loan participations, whole loans and mortgage pass-through
securities serviced for other investors (not including the Bank) by FNMC
totalled $65.4 billion, $44.9 billion and $43.1 billion, respectively. In
addition, FNMC had $10.4 billion, $6.2 billion and $5.7 billion of master
servicing at December 31, 1998, 1997 and 1996, respectively.
The percentage of principal outstanding in the Company's portfolio of
loans serviced for others, secured by properties located in California, Texas
and Florida was 54%, 8% and 8%, respectively, at December 31, 1998 and 46%, 11%
and 7%, respectively, at December 31, 1997. These percentages include the effect
of subservicing at December 31, 1997. There was no subservicing at December 31,
1998.
The estimated fair value of the MSRs was $989.7 million and $674 million
at December 31, 1998 and 1997, respectively. The estimated market value of
prepayment linked swaps, interest rate floor contracts, principal only swaps and
swaptions designated as hedges against MSRs at December 31, 1998 were $1.3
million, $32.2 million, $18.8 million and $89.3 million, respectively. At
December 31, 1998 and 1997, no allowance for impairment of the MSRs was
necessary.
A decline in long-term interest rates generally results in an
acceleration of mortgage loan prepayments. Higher than anticipated levels of
prepayments generally cause the accelerated amortization of mortgage servicing
rights and generally will result in a reduction of the market value of the
mortgage servicing rights and in the Company's servicing
F-34
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
fee income. To reduce the sensitivity of its earnings to interest rate and
market value fluctuations, the Company hedged the change in value of its
servicing rights based on changes in interest rates.
At December 31, 1998, the Company, through FNMC, was a party to several
interest rate floor contracts maturing in 2003. The Company paid counterparties
a premium in exchange for cash payments in the event that the 10-year Constant
Maturity Swaps rate falls below the strike prices. At December 31, 1998, the
notional amount of the interest rate floors was $2.1 billion and the strike
prices were between 5.2% and 5.6%. In addition, the Company, through FNMC,
entered into principal only swap agreements with a notional amount of $.2
billion and prepayment linked swap agreements with a notional amount of $1.9
billion. Further, at December 31, 1998, the Company, through FNMC, was a party
to swaption contracts in which the Company paid to the counterparties premiums
in exchange for the right, but not the obligation, to purchase an interest rate
swap. At December 31, 1998, the notional amount of the underlying interest rate
swap agreement was $2.3 billion. See note 39 for further discussion.
Servicing advances and other receivables related to 1-4 unit residential
loan servicing, net of valuation allowances of $30.7 million and $43.2 million
in 1998 and 1997, respectively, (included in other assets) consisted of the
following (in thousands):
December 31,
-------------------------
1998 1997
---- ----
Servicing advances $168,855 $165,027
Checks in process of collection 924 (156)
Other 1,520 2,110
-------- --------
$171,299 $166,981
======== ========
(21) Deposits
A summary of the carrying values of deposits at December 31, 1998 and
1997 follows (in thousands):
1998 1997
---- ----
Passbook accounts $ 3,371,976 $ 2,161,967
Demand deposits:
Interest-bearing 1,865,151 1,149,294
Noninterest-bearing 3,001,959 1,179,344
Money market deposit accounts 3,254,690 1,269,540
Term accounts 13,079,920 10,389,507
----------- -----------
24,573,696 16,149,652
Accrued interest payable 39,438 51,538
Purchase accounting adjustments 6,932 1,415
----------- -----------
Total deposits $24,620,066 $16,202,605
=========== ===========
The aggregate amount of jumbo certificates of deposit (term deposits)
with a minimum denomination of $100,000 was approximately $2.9 billion and $2
billion at December 31, 1998 and 1997, respectively. Brokered certificates of
deposit totalling $369 million and $363 million were included in deposits at
December 31, 1998 and 1997, respectively. Total deposits at December 31, 1998
and 1997 include escrow balances for loans serviced for others of $1.5 billion
and $702 million, respectively.
A summary of interest expense by deposit category follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Passbook accounts $ 96,942 $ 68,408 $ 31,418
Interest-bearing demand deposits 13,770 12,331 5,398
Money market deposit accounts 65,234 50,152 32,073
Term accounts 615,166 616,094 350,285
-------- -------- --------
Total $791,112 $746,985 $419,174
======== ======== ========
</TABLE>
F-35
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
At December 31, 1998, term accounts had scheduled maturities as follows
(in thousands):
Year Ending
-----------
1999 $11,124,007
2000 1,415,115
2001 231,803
2002 210,805
2003 82,811
Thereafter 15,379
-----------
Total $13,079,920
===========
(22) Securities Sold Under Agreements to Repurchase
A summary of information regarding securities sold under agreements to
repurchase follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------
Underlying Collateral Repurchase Liability
------------------------------- ---------------------------
Recorded Market Interest
Value (i) Value Amount Rate
--------- ----- ------ ----
<S> <C> <C> <C> <C>
Maturing 30 days to 90 days $2,895,807 $2,908,071 $2,984,964 5.13%
Maturing after 90 days to 1 year 1,287,385 1,285,310 1,237,094 4.86
---------- ---------- ----------
Total (ii) 4,183,192 4,193,381 4,222,058
Accrued interest payable -- -- 16,337
---------- ---------- ----------
$4,183,192 $4,193,381 $4,238,395
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------
Underlying Collateral Repurchase Liability
---------------------------- ----------------------------
Recorded Market Interest
Value (i) Value Amount Rate
--------- ----- ------ ----
<S> <C> <C> <C> <C>
Maturing 30 days to 90 days $1,848,385 $1,859,169 $1,774,950 5.75%
Maturing 90 days to 1 year 62,909 63,532 53,920 6.59
---------- ---------- ----------
Total (ii) 1,911,294 1,922,701 1,828,870
Purchase accounting adjustment (424) -- 99
Accrued interest payable -- -- 13,473
---------- ---------- ----------
$1,910,870 $1,922,701 $1,842,442
========== ========== ==========
</TABLE>
(i) Recorded value includes accrued interest at December 31, 1998 and
1997. In addition, the recorded values at December 31, 1998 and 1997
include adjustments for the unrealized gain or loss on
mortgage-backed securities available for sale.
(ii) Total mortgage-backed securities collateral at December 31, 1998 and
1997 includes $2.0 billion and $.6 billion, respectively, in
outstanding balances of loans securitized with full recourse to the
Bank. The market value of such collateral was $2.0 billion and $.6
billion at December 31, 1998 and 1997, respectively.
At December 31, 1998 and 1997, these agreements had weighted average
stated interest rates of 5.05% and 5.78%, respectively. The underlying
securities were delivered to, and are being held under the control of, third
party securities dealers. These dealers may have loaned the securities to other
parties in the normal course of their operations, but all agreements require the
dealers to resell to California Federal the identical securities at the
maturities of the agreements. The average daily balance of securities sold under
agreements to repurchase was $2.8 billion and $2.5 billion during 1998 and 1997,
respectively, and the maximum amount outstanding at any month-end during these
periods was $4.3 billion and $3.1 billion, respectively.
At December 31, 1998, securities sold under agreements to repurchase were
collateralized with $4.2 billion of mortgage-backed securities.
F-36
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(23) Borrowings
Borrowings are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1998 1997
------------------------ ---------------------------
Carrying Average Carrying Average
Value Rate Value Rate
----- ---- ----- ----
<S> <C> <C> <C> <C>
Fixed-rate borrowings from FHLB $15,427,033 5.38% $ 5,447,168 5.88%
Variable-rate borrowings from FHLB 4,570,743 5.53 4,074,182 5.95
12 1/2% Parent Holdings Notes due 2001 -- -- 455,000 12.50
10% Subordinated Debentures due 2006 92,100 10.00 92,100 10.00
11.20% Senior Notes due 2004 6,000 11.20 6,000 11.20
FN Holdings 12 1/4% Senior Notes due 2001 225 12.25 200,000 12.25
FN Holdings 9 1/8% Senior Sub Notes due 2003 -- -- 140,000 9.13
FN Holdings 10 5/8% Notes due 2003 250 10.63 575,000 10.63
10.668% Subordinated Notes due 1998 -- -- 50,000 10.67
6 1/2% Convertible Subordinated Debentures
due 2001 2,635 6.50 2,633 6.50
10% Subordinated Debentures due 2003 4,299 10.00 4,299 10.00
Floating Rate Notes due 2003 250,000 6.75 -- --
6 3/4% Senior Notes due 2001 350,000 6.75 -- --
7% Senior Notes due 2003 600,000 7.00 -- --
7 1/8% Senior Notes due 2005 800,000 7.13 -- --
Federal funds purchased 138,000 5.00 130,000 6.50
Other borrowings 4,083 8.78 570 8.89
----------- -------------
Total borrowings 22,245,368 5.57 11,176,952 6.64
Discount on borrowings (5,643) (3,907)
Purchase accounting adjustments, net 38,989 803
----------- -------------
Subtotal 22,278,714 5.54% 11,173,848 6.60%
Accrued interest payable 96,843 58,682
----------- -----------
$22,375,557 $11,232,530
=========== ===========
</TABLE>
Maturities and weighted average stated in terest rates of borrowings at
December 31, 1998, not including accrued interes t payable or purchase
accounting adjustments, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Weighted
Balances Maturing Average Rates
Maturities during the Years ---------------------------- -------------------
Ending December 31 FHLB Other FHLB Other
------------------ ---- ----- ---- -----
<S> <C> <C> <C> <C>
1999 $ 7,879,898 $ 138,033 5.34% 5.00%
2000 4,820,000 58 5.50 9.50
2001 1,210,833 352,860 5.56 6.75
2002 685,000 70 5.69 8.57
2003 5,400,000 854,549 5.38 6.94
Thereafter 2,045 902,022 7.83 7.46
----------- ----------
Total $19,997,776 $2,247,592 5.41% 7.00%
=========== ==========
</TABLE>
F-37
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Interest expense on borrowings for the years ended December 31, 1998,
1997 and 1996 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
FHLB advances $706,299 $443,966 $221,017
Interest rate swap agreements (2,536) (10,743) (11,532)
12 1/2% Parent Holdings Notes due 2001 45,420 57,613 40,494
10% Subordinated Debentures due 2006 9,209 9,210 9,210
11.20% Senior notes due 2004 672 672 3,641
FN Holdings 12 1/4% Senior Notes due 2001 18,093 24,500 24,504
FN Holdings 9 1/8% Senior Sub Notes due 2003 9,337 12,775 11,739
FN Holdings 10 5/8% Notes due 2003 44,353 60,648 --
10.668% Subordinated Notes due 1998 5,203 5,291 --
6 1/2% Convertible Subordinated Debentures
due 2001 171 172 --
10% Subordinated Debentures due 2003 430 418 --
Floating Rate Notes due 2003 5,006 -- --
6 3/4% Senior Notes due 2001 7,031 -- --
7% Senior Notes due 2003 12,441 -- --
7 1/8% Senior Notes due 2005 16,882 -- --
Federal funds purchased 3,987 5,300 3,529
Other borrowings 271 434 199
Purchase accounting adjustments (7,533) 629 6,039
-------- -------- --------
Total $874,736 $610,885 $308,840
======== ======== ========
</TABLE>
The following is a summary of the carrying value of assets pledged as
collateral for FHLB advances (in thousands):
December 31, 1998
-----------------
Real estate loans (primarily residential) $19,141,744
Mortgage-backed securities 6,131,500
FHLB stock 1,000,147
-----------
Total $26,273,391
===========
12 1/2% Senior Notes Due 2003
On April 17, 1996, Parent Holdings issued $455 million of its Parent
Holdings Notes. During 1998, all of the Parent Holdings Notes were redeemed in
connection with the Parent Holdings Defeasance for an aggregate redemption
price, including accrued interest payable, of $553.7 million.
FN Holdings 12 1/4% Senior Notes Due 2001
In connection with the FN Acquisition, the Company issued $200 million
principal amount of 12 1/4% Senior Notes due 2001 ("FN Holdings 12 1/4% Senior
Notes"), including $5.5 million principal amount of FN Holdings 12 1/4% Senior
Notes to certain directors and officers of the Bank. During 1998, a total of
$199.8 million aggregate principal amount of the FN Holdings 12 1/4% Senior
Notes have been repurchased in connection with the Debt Tender Offers for an
aggregate purchase price, including accrued interest payable, of $228.3 million.
At December 31, 1998, $.2 million of the FN Holdings 12 1/4% Senior Notes remain
outstanding.
The notes mature on May 15, 2001 with interest payable semiannually on
May 15 and November 15. The notes are redeemable at the option of GS Holdings,
in whole or in part, during the twelve-month period beginning May 15,
F-38
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
1999, at a redemption price of 106.125% plus accrued interest to the date of
redemption, and thereafter at 100% plus accrued interest. The notes are
subordinated to all existing and future liabilities, including deposits and
other borrowings of the Bank, and to the 11 1/2% Preferred Stock (as defined
herein).
FN Holdings 9 1/8% Senior Subordinated Notes Due 2003
On January 31, 1996, FN Holdings issued $140 million principal amount of
the 9 1/8% Senior Sub Notes due 2003 (the "FN Holdings 9 1/8% Senior Sub
Notes").
During 1998, all of the FN Holdings 9 1/8% Senior Sub Notes were
repurchased in connection with the Debt Tender Offers for an aggregate purchase
price, including accrued interest payable, of $159.9 million.
FN Holdings 10 5/8% Senior Subordinated Notes Due 2003
In connection with the Cal Fed Acquisition, GS Holdings acquired the net
proceeds from the issuance of $575 million principal amount of FN Escrow's
10 5/8% Notes and assumed FN Escrow's obligations under the FN Holdings 10 5/8%
Notes and indenture. During 1998, a total of $574.8 million aggregate principal
amount of the FN Holdings 10 5/8% Notes have been repurchased in connection with
the Debt Tender Offers for an aggregate purchase price, including accrued
interest payable, of $692.7 million. At December 31, 1998, $.3 million of the FN
Holdings 10 5/8% Notes remain outstanding.
The FN Holdings 10 5/8% Notes are redeemable at the option of GS
Holdings, in whole or in part, during the twelve-month period beginning January
1, 2001, at a redemption price of 105.313% plus accrued and unpaid interest to
the date of redemption, during the twelve-month period beginning January 1,
2002 at a redemption price of 102.656% plus accrued and unpaid interest to the
date of redemption, and thereafter at 100% plus accrued and unpaid interest to
the date of redemption.
The FN Holdings 10 5/8% Notes are subordinate in right of payment to all
existing and future subordinated debt, if any is issued, of GS Holdings. The FN
Holdings 10 5/8% Notes are subordinated to all existing and future liabilities,
including deposits, indebtedness and trade payables, of the subsidiaries of GS
Holdings, including California Federal and all preferred stock issued by the
Bank, including the Bank Preferred Stock (as defined herein).
10% Subordinated Debentures Due 2006
As part of the FN Acquisition, California Federal assumed $92.1 million
principal amount of subordinated debentures, which bear interest at 10% per
annum and mature on October 1, 2006 (the "10% Subordinated Debentures Due
2006").
Events of Default under the indenture governing the 10% Subordinated
Debentures Due 2006 (the "Old FNB Indenture") include, among other things: (i) a
default in the payment of interest when due and such default continues for 30
days, (ii) a default in the payment of any principal when due, (iii) the failure
to comply with covenants in the Old FNB Indenture, provided that the trustee or
holders of at least 25% in principal amount of the outstanding 10% Subordinated
Debentures Due 2006 notify the Bank of the default and the Bank does not cure
the default within 60 days after receipt of such notice, (iv) certain events of
bankruptcy, insolvency or reorganization of the Bank, (v) the FSLIC/RF (or a
comparable entity) is appointed to act as conservator, liquidator, receiver or
other legal custodian for the Bank and (vi) a default under other indebtedness
of the Bank in excess of $10 million resulting in such indebtedness becoming due
and payable, and such default or acceleration has not been rescinded or annulled
within 60 days after the date on which written notice of such failure has been
given by the trustee to the Bank or by holders of at least 25% in principal
amount of the outstanding 10% Subordinated Debentures Due 2006 to the Bank and
the trustee.
11.20% Senior Notes Due 2004
As part of the SFFed Acquisition, California Federal assumed $50 million
principal amount of SFFed 11.20% Senior Notes due September 1, 2004 (the "11.20%
Senior Notes"). In connection with the assumption of the 11.20% Senior Notes,
the Bank and all of the holders of the 11.20% Senior Notes entered into an
agreement amending certain provisions of the note purchase pursuant to which the
11.20% Senior Notes were sold (as amended, the "Note Purchase Agreement"). On
September 12, 1996, the Bank repurchased $44.0 million aggregate principal
amount of the 11.20%
F-39
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Senior Notes at a price of approximately 116.45% of the principal amount, plus
the accrued interest thereon. The Bank recorded an extraordinary loss, net of
tax, of $1.6 million in connection with such repurchase.
Events of Default under the Note Purchase Agreement include, among other
things: (i) failure to make any payment of principal when due; (ii) any failure
to make any payment of interest when due and such payment is not made within 15
days after the date such payment was due; (iii) failure to comply with certain
covenants in the Note Purchase Agreement, provided that such failure continues
for more than 60 days; (iv) failure to deliver to holders a notice of default,
notice of event of default, or notice of claimed default as provided in the Note
Purchase Agreement; (v) failure to comply with any provision of the Note
Purchase Agreement, provided that such failure continues for more than 60 days
after notice is delivered to the Bank; (vi) a default under other indebtedness
provided that the aggregate amount of all obligations in respect of such
indebtedness exceeds $15 million; (vii) one or more final, non-appealable
judgments outstanding against the Bank or its subsidiaries for the payment of
money aggregating in excess of $15 million, any one of which has been
outstanding for 45 days and shall not have been discharged in full or stayed;
(viii) any warranty, representation or other statement contained in the Note
Purchase Agreement by the Bank or any of its subsidiaries being false or
misleading in any material respect when made; or (ix) certain events of
bankruptcy, insolvency or reorganization of the Bank or its subsidiaries.
As a result of the Cal Fed Acquisition, the Bank is obligated with
respect to the following three outstanding securities of Old California Federal:
10.668% Subordinated Notes Due 1998
California Federal assumed $50 million of 10.668% unsecured senior
subordinated notes which matured and were repaid in full on December 22, 1998
(the "10.668% Subordinated Notes").
6 1/2% Convertible Subordinated Debentures Due 2001
In 1986, Cal Fed Inc., Old California Federal's former parent company,
issued $125 million of 6.5% convertible subordinated debentures due February 20,
2001 (the "6 1/2% Convertible Subordinated Debentures"). As a result of a
corporate restructuring in December 1992, Cal Fed Inc. was merged with and into
XCF Acceptance Corporation ("XCF"), a subsidiary of Old California Federal. The
6 1/2% Convertible Subordinated Debentures are redeemable at the option of the
holders on February 20, 2000, at 123% of their principal amount. Due to the
purchase of all of the Cal Fed stock by FN Holdings in the Cal Fed Acquisition
on January 3, 1997, the common stock conversion feature has been eliminated.
Events of Default under the indenture governing the 6 1/2% Convertible
Subordinated Debentures include, among other things: (i) any failure to make any
payment of interest when due and such payment is not made within 30 days after
the date such payment was due; (ii) failure to make any payment of principal
when due; (iii) default in the performance, or breach, of any covenant or
warranty in the indenture, provided that such default or breach continues for
more than 60 days after notice is delivered to the Bank; or (iv) certain events
of bankruptcy, insolvency or reorganization of the Bank or its subsidiaries.
10% Subordinated Debentures Due 2003
On December 16, 1992, Old California Federal issued $13.6 million of
10.0% unsecured subordinated debentures due 2003 (the "10% Subordinated
Debentures").
Events of Default under the indenture governing the 10% Subordinated
Debentures include, among other things: (i) failure to make any payment of
principal when due; (ii) any failure to make any payment of interest when due
and such payment is not made within 30 days after the date such payment was due;
(iii) failure to comply with certain covenants in the indenture; (iv) failure to
comply with certain covenants in the indenture provided that such failure
continues for more than 60 days after notice is delivered to the Bank; (v)
certain events of bankruptcy, insolvency or reorganization of the Bank; or (vi)
the default or any event which, with the giving of notice or lapse of time or
both, would constitute a default under any indebtedness of the Bank and cause
such indebtedness with an aggregate principal amount exceeding $15 million to
accelerate.
F-40
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
GS Escrow Notes
On August 6, 1998, GS Escrow, which subsequently merged into GS Holdings,
issued $2 billion principal amount of fixed and floating rate notes, as
described below. The GS Escrow Notes are unsecured and unsubordinated
obligations of GS Holdings and rank in right of payment with all other
unsubordinated and unsecured indebtedness of GS Holdings. The terms and
conditions of the notes indentures impose restrictions that affect, among other
things, the ability of GS Holdings to incur debt, pay dividends or make
distributions, engage in a business other than holding the common stock of the
Bank and similar banking institutions, make acquisitions, create liens, sell
assets and make certain investments.
Floating Rate Notes Due 2003
----------------------------
On August 6, 1998, GS Escrow, an affiliate of GS Holdings, issued $250
million principal amount of the Floating Rate Notes Due 2003. The notes will
mature on August 1, 2003 with interest payable quarterly on February 1, May 1,
August 1 and November 1. Interest on the Floating Rate Notes is equal to
three-month LIBOR plus 100 basis points per annum, except that the initial rate
was 6 3/4%, based on six-month LIBOR until the first interest payment date on
February 1, 1999. The interest rate on the Floating Rate Notes reset on February
1, 1999 to 5.97%. Deferred costs associated with the issuance of the Floating
Rate Notes totaling $3.1 million were recorded in other assets and are being
amortized over the term of the Floating Rate Notes.
The Floating Rate Notes are redeemable at the option of GS Holdings, in
whole or in part, after August 1, 2000 at a price of 101.5% of the outstanding
principal amount during the twelve-month period beginning August 1, 2000; at a
price of 101% of the outstanding principal amount during the twelve-month period
beginning August 1, 2001; and at a price of 100.5% of the outstanding principal
amount during the twelve-month period beginning August 1, 2002; including
accrued and unpaid interest, if any, to the date of redemption. In the event of
a change in control, the Floating Rate Notes are redeemable in whole at the
option of GS Holdings. The redemption price includes principal plus accrued and
unpaid interest, if any, to the date of redemption, plus the excess, if any, of
(i) the sum of the present value of the redemption price for the Floating Rate
Notes and the remaining scheduled interest payments over (ii) the outstanding
principal amount of the Floating Rate Notes to be redeemed.
Fixed Rate Notes
----------------
On August 6, 1998, GS Escrow, an affiliate of GS Holdings, issued $350
million principal amount of the 2001 Notes, $600 principal amount of the 2003
Notes and $800 million principal amount of the 2005 Notes. The Fixed Rate Notes
will mature on August 1 of the respective year with interest payable
semiannually on February 1 and August 1. Deferred costs associated with the
issuance of the Fixed Rate Notes totaling $3.5 million, $12.5 million and $19.5
million for the 2001 Notes, the 2003 Notes and the 2005 Notes, respectively,
were recorded in other assets and are being amortized over the term of the
notes.
The Fixed Rate Notes are redeemable at the option of GS Holdings, in
whole or in part, at a redemption price equal to principal plus accrued and
unpaid interest, if any, to the date of redemption, plus the excess, if any, of
(i) the sum of the present value of the redemption price for the notes and the
remaining scheduled interest payments over (ii) the outstanding principal amount
of the notes to be redeemed.
F-41
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(24) Accrued Termination and Facilities Costs
During the year ended December 31, 1998, the Bank recognized liabilities
in connection with the Glen Fed Merger resulting from (i) branch consolidations
due to duplicate facilities; (ii) employee severance and termination benefits
due to a planned reduction in force; and (iii) expenses incurred under a
contractual obligation to terminate services provided by outside service
providers (principally relating to data processing expenses). The merger and
integration plan relative to the Glen Fed Merger was in place on September 11,
1998. The table below reflects a summary of the liability for such costs related
to the Glen Fed Merger (in thousands):
<TABLE>
<CAPTION>
Expenses
Merger Costs Recognized
Included in in Net Charges to Balance
Allocation of Income Liability December 31,
Purchase Price (Pre-tax) Total Account 1998
-------------- --------- ----- ------- ----
<S> <C> <C> <C> <C> <C>
Branch consolidations $22,304 $ 7,566 $29,870 $ -- $29,870
Severance and termination
benefits 42,211 6,092 48,303 (14,823) 33,480
Contract termination 14,455 -- 14,455 (2,640) 11,815
------- ------- ------- -------- -------
Total liability established $78,970 $13,658 $92,628 $(17,463) $75,165
======= ======= ======= ======== =======
</TABLE>
The Bank has identified certain of its retail banking facilities that will
be closed and marketed for sale, with the related operations consolidated into
other retail banking facilities acquired in the Glen Fed Merger. Accordingly, a
liability of $29.9 million was established during the year ended December 31,
1998, representing the estimated present value of future occupancy expenses,
offset by estimates of sub-lease income over the applicable remaining lease
terms. Amounts recorded in the allocation of the purchase price of the Glen Fed
Merger represent costs associated with Glendale Federal branches to be closed;
those recorded in noninterest expense relate to California Federal branches. The
first group of branches was closed in November 1998; closures are scheduled to
continue through May 1999.
In connection with the Glen Fed Merger, management has identified
approximately 1,100 full-time equivalent positions to be eliminated. These
positions span all areas and business units of the Bank. An initial liability
for termination benefits totalling $48.3 million was established, of which $14.8
million has been charged against the liability during 1998. The elimination of
the identified duplicate and excess positions is expected to be completed by
June 1999.
The Bank has also established additional liabilities totalling $14.5
million for contract termination costs with outside service providers. At
December 31, 1998, costs totalling approximately $2.6 million have been charged
against the liability. The termination of the contracts is expected to be
finalized during the first quarter of 1999.
(25) Segment Reporting
The Company has two reportable segments, the community bank and the
mortgage bank. The community bank operates retail deposit branches in California
and Nevada. The community bank segment provides retail consumer and small
businesses with: (i) deposit products such as demand, transaction and savings
accounts, (ii) investment products such as mutual funds, annuities and insurance
and (iii) lending products, such as consumer and commercial loans. Further, the
community bank segment invests in residential real estate loans purchased from
FNMC and from others, and also invests in mortgage-backed and other securities.
The mortgage banking segment, conducted by FNMC, operates loan production
facilities throughout the United States and originates or purchases fixed rate
1-4 unit residential loans for sale to various investors in the secondary market
and services loans for itself and for others. The mortgage banking segment also
originates adjustable rate loans for the community bank segment.
The accounting policies of the segments are the same as those described
in note 2. The Company evaluates performance based on net interest income,
noninterest income, and noninterest expense. The total of these three items is
the reportable segment's net contribution.
The Company's reportable segments are strategic business units that offer
different services in different geographic areas. They are managed separately
because each segment appeals to different markets and, accordingly, requires
different technology and marketing strategies.
F-42
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Since the Company derives a significant portion of its revenues from
interest income and interest expense is the most significant expense, the
segments are reported below using net interest income. Because the Company also
evaluates performance based on noninterest income and noninterest expense goals,
these measures of segment profit and loss are also presented. The Company does
not allocate income taxes to the segments.
Community
Banking Mortgage Banking Total
------- ---------------- -----
(in thousands)
Net interest income: (1)
1998 $ 777,810 $ 52,830 $ 830,640
1997 624,834 45,788 670,622
1996 396,830 35,118 431,948
Noninterest income: (2)
1998 320,184 191,706 511,890
1997 199,461 187,536 386,997
1996 469,077 186,945 656,022
Noninterest expense: (3)
1998 594,440 174,203 768,643
1997 501,285 153,924 655,209
1996 308,335 183,401 491,736
Segment assets: (4)
1998 54,573,016 4,847,633 59,420,649
1997 31,175,543 3,072,219 34,247,762
1996 16,302,053 1,634,258 17,936,311
- ----------
(1) Includes $101.4 million, $66.3 million and $46.4 million for 1998, 1997
and 1996, respectively, in earnings credit provided to FNMC by the Bank
primarily for custodial bank account balances generated by FNMC. Also
includes $198.9 million, $124.1 million and $70.1 million for 1998, 1997
and 1996, respectively, in interest income and expense on intercompany
loans.
(2) Includes $34.9 million, $22.5 million and $2.6 million for 1998, 1997 and
1996, respectively, in intercompany servicing fees.
(3) Includes $4.6 million in both 1998 and 1997, in intercompany noninterest
expense. There was no intercompany noninterest expense in 1996.
(4) Includes $4.5 billion, $2.9 billion and $1.3 billion for 1998, 1997 and
1996, respectively, in intercompany borrowings and $27.6 million, $20.2
million and $23.3 million for 1998, 1997 and 1996, respectively, in
intercompany deposits maintained with the Bank.
F-43
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The following reconciles the above table to the amounts shown on the
consolidated financial statements as of and for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net interest income:
Total net interest income for
reportable segments $ 830,640 $ 670,622 $ 431,948
Elimination of intersegment net interest income (101,372) (66,339) (46,443)
------------- ------------ ------------
Total $ 729,268 $ 604,283 $ 385,505
============= ============ ============
Noninterest income:
Total noninterest income for
reportable segments $ 511,890 $ 386,997 $ 656,022
Elimination of intersegment servicing fee (34,891) (22,513) (2,644)
------------- ------------ ------------
Total $ 476,999 $ 364,484 $ 653,378
============= ============ ============
Noninterest expense:
Total noninterest expense for
reportable segments $ 768,643 $ 655,209 $ 491,736
Elimination of intersegment expense (4,640) (4,640) --
------------- ------------ ------------
Total $ 764,003 $ 650,569 $ 491,736
============= ============ ============
Total assets:
Total assets for reportable segments $ 59,420,649 $ 34,247,762 $ 17,936,311
Elimination of intersegment deposits (27,593) (20,218) (23,306)
Elimination of intersegment borrowings (4,524,072) (2,865,388) (1,277,932)
------------- ------------ ------------
Total $ 54,868,984 $ 31,362,156 $ 16,635,073
============= ============ ============
</TABLE>
The Company typically reviews the results of operations for the mortgage
banking segment based on that segment's contribution as opposed to its income
before income taxes, extraordinary item and minority interest. The main
difference between the two measures of profitability is that contribution for
the mortgage banking segment includes custodial earnings that are reported in
the community banking segment when computing net income and that intercompany
interest expense is computed using an internal cost of funds rate instead of a
market rate. The mortgage banking segment's contribution for the years ended
December 31, 1998, 1997 and 1996, was $66.0 million, $35.9 million and $54.9
million, respectively.
F-44
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(26) Comprehensive Income
The Company adopted SFAS No. 130, Reporting Comprehensive Income, as of
October 1, 1997. Accounting principles generally require that recognized
revenue, expenses, gains, and losses be included in net income. Although certain
changes in assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate component of the
equity section of the balance sheet, such items along with net income are
components of comprehensive income. The adoption of SFAS No. 130 had no effect
on the Company's net income or stockholders' equity.
The tax effect associated with unrealized gain (loss) on securities for
the years ended December 31, 1998, 1997 and 1996 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Before-tax Tax benefit Net-of-tax
amount (expense) amount
------ --------- ------
1998
- ----
<S> <C> <C> <C>
Unrealized gain (loss) on securities:
Unrealized holding (loss) gain arising during the period $(28,761) $ 594 $(28,167)
Less: reclassification adjustments for gains in net income (1,131) 287 (844)
-------- --------- --------
Other comprehensive (loss) income $(29,892) $ 881 $(29,011)
======== ========= ========
1997
- ----
Unrealized gain (loss) on securities:
Unrealized holding (loss) gain arising during the period $ 14,142 $ (3,235) $ 10,907
Less: reclassification adjustments for gains in net income (25,182) 3,218 (21,964)
-------- --------- --------
Other comprehensive (loss) income $(11,040) $ (17) $(11,057)
======== ========= ========
1996
- ----
Unrealized gain (loss) on securities:
Unrealized holding (loss) gain arising during the period $ 20,251 $ (2,026) $ 18,225
Less: reclassification adjustments for gains in net income (39,465) 3,947 (35,518)
-------- --------- --------
Other comprehensive (loss) income $(19,214) $ 1,921 $(17,293)
======== ========= ========
</TABLE>
Unrealized gain (loss) on securities is the only component of other
comprehensive income and accumulated other comprehensive income for the years
ended December 31, 1998, 1997 and 1996.
(27) Minority Interest
Prior to the Golden State Merger, minority interest included that portion
of stockholder's equity of FN Holdings attributable to its class B common stock,
which was owned by Hunter's Glen, a limited partnership controlled by the Bank's
Chairman of the Board and Chief Executive Officer. In connection with the Golden
State Merger, Hunter's Glen received shares of Golden State Common Stock in
consideration for its interest in FN Holdings as described in note 28. As a
result, the Hunter's Glen minority interest in FN Holdings was extinguished.
Accordingly, the net income, minority interest and stockholders' equity amounts
have been restated to reflect this change.
Auto One Common Stock
In connection with the GSAC Acquisition, Auto One issued 250 shares of its
common stock par value $1.00 per share, representing a 20% interest in Auto One.
The carrying value of Auto One's common stockholders' equity attributable to the
minority stockholders at December 31, 1998 is ($1.7) million.
11 1/2% Preferred Stock
In connection with the FN Acquisition, California Federal issued 3,007,300
shares of its 11 1/2% noncumulative perpetual preferred stock ("11 1/2%
Preferred Stock") with a par value of $.01 per share, having a liquidation
preference
F-45
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
of $300.7 million. This stock has a stated liquidation value of $100 per share.
Costs related to the 11 1/2% Preferred Stock issuance were deducted from
additional paid-in capital.
In connection with the Bank Preferred Stock Tender Offers, 2,688,959
shares of the 11 1/2% Preferred Stock were purchased by GS Holdings during the
year ended December 31, 1998. The stated liquidation value of the remaining 11
1/2% Preferred Stock not purchased by GS Holdings at December 31, 1998 was $31.8
million. See note 5. At or after September 1, 1999, the remaining shares of 11
1/2% Preferred Stock are redeemable at the option of the Bank, in whole or in
part, at $105.75 per share prior to September 1, 2000, and at prices which will
decrease annually thereafter to the stated liquidation value of $100 per share
on or after September 1, 2004, plus declared but unpaid dividends. Dividends are
payable quarterly at an annual rate of 11.50% per share when declared by the
Bank's Board of Directors. Dividends paid on the 11 1/2% Preferred Stock for
each year ended December 31, 1998 and 1997, totalled $34.6 million of which
$26.8 million and $34.6 million was included in minority interest in 1998 and
1997, respectively.
10 5/8% Preferred Stock
In connection with the Cal Fed Acquisition, California Federal assumed Cal
Fed's 10 5/8% noncumulative perpetual preferred stock with a liquidation value
of $172.5 million (the "10 5/8% Preferred Stock" and, together with the 11 1/2%
Preferred Stock, the "Bank Preferred Stock").
In connection with the Bank Preferred Stock Tender Offers, 1,117,701
shares of the 10 5/8% Preferred Stock were purchased by GS Holdings during the
year ended December 31, 1998. The stated liquidation value of the remaining
10 5/8% Preferred Stock not purchased by GS Holdings at December 31, 1998 was
$60.7 million. See note 5. Cash dividends on the 10 5/8% Preferred Stock are
noncumulative and are payable at an annual rate of 10 5/8% per share if, when,
and as declared by the Board of Directors of the Bank. The 10 5/8% Preferred
Stock is redeemable at the option of the Bank, in whole or in part, at $105.313
per share on or after April 1, 1999 and prior to April 1, 2000, and at prices
decreasing annually thereafter to the liquidation preference of $100.00 per
share on or after April 1, 2003, plus declared but unpaid dividends. In
addition, in the event of a change of control, the 10 5/8% Preferred Stock is
redeemable at the option of the Bank or its successor on or after April 1, 1996
and prior to April 1, 1999 in whole, but not in part, at $114.50 per share.
Dividends paid on the 10 5/8% Preferred Stock for each year ended December 31,
1998 and 1997 totalled $18.3 million, of which $15.3 million and $18.3 million
was included in minority interest in 1998 and 1997, respectively. See note 45.
REIT Preferred Stock
On January 31, 1997, Preferred Capital Corp. issued 20,000,000 shares of
the REIT Preferred Stock for $500 million. The REIT Preferred Stock has a stated
liquidation value of $25 per share, plus declared and unpaid dividends, if any.
The annual cash dividends on the 20,000,000 shares of REIT Preferred Stock,
assuming such dividends are declared by the Board of Directors of Preferred
Capital Corp., are expected to approximate $45.6 million per year. As long as
Preferred Capital Corp. qualifies as a REIT, distributions on the REIT Preferred
Stock will be a dividends-paid deduction by Preferred Capital Corp. for tax
purposes. Dividends paid on the REIT Preferred Stock during 1998 and 1997 were
$33.1 million and $36.6 million, respectively, net of the income tax benefit.
FN Holdings Preferred Stock
On September 19, 1996, FN Holdings issued 10,000 shares of preferred stock
("FN Holdings Preferred Stock") with a liquidation value of $150 million to a
corporation owned by the Chairman of the Board of the Bank. Cash dividends on
the FN Holdings Preferred Stock were cumulative and payable: (i) in cash at an
annual rate of the cost of funds to an affiliate of FN Holdings under such
affiliate's bank credit facility (the "Cost of Funds Rate") and (ii) in newly
issued shares of another series of cumulative perpetual preferred stock of FN
Holdings ("Additional FN Holdings Preferred Stock") at an annual rate of 2% of
the stated liquidation value of the FN Holdings Preferred Stock, if, when, and
as declared by the Board of Directors of FN Holdings. Dividends on the
Additional FN Holdings Preferred Stock were cumulative and accrued and were
payable in shares of Additional FN Holdings Preferred Stock at an annual rate
equal to the Cost of Funds Rate plus 2% of the stated liquidation value of the
Additional FN Holdings Preferred Stock if, when and as declared by the Board of
Directors of FN Holdings. Additional FN Holdings Preferred Stock had
substantially the same relative rights, terms and preferences as the FN Holdings
Preferred Stock except as set forth above with respect to the payment of
dividends. Dividends on the FN Holdings Preferred Stock were payable quarterly
each year, commencing January 1, 1997, out of funds legally available therefor.
F-46
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
In March 1998, FN Holdings redeemed all remaining 1,666.7 outstanding
shares of the FN Holdings Preferred Stock. The redemption price was equal to the
liquidation value of $15,000 per share. Upon redemption of the FN Holdings
Preferred Stock, all remaining 52.5 shares of the Additional FN Holdings
Preferred Stock totalling $.8 million liquidation value were contributed to the
capital of FN Holdings without any payment therefor. Such shares were retired
and cancelled.
Dividends on the FN Holdings Preferred Stock totalled $.6 million, $12.8
million and $4.8 million during 1998, 1997 and 1996, respectively, including the
issuance of Additional FN Holdings Preferred Stock of $.1 million, $2.2 million
and $.8 million.
(28) Stockholders' Equity
Series A Preferred Stock
In connection with the Golden State Acquisition the Company acquired
4,183,599 shares of the Series A Preferred Stock, with par value of $1.00 per
share and a liquidation preference of $25 per share. The Series A Preferred
Stock provides for noncumulative dividends, when, as and if declared, at an
annual rate of 8.75% of its liquidation preference and is convertible, at the
option of the holders thereof, into common stock at any time at a conversion
ratio of $2.404 per share, subject to adjustment in certain events. In
connection with the Golden State Acquisition, the Company converted 4,181,061
shares of the Company's Series A Preferred Stock into 10,051,200 shares of the
Company's common stock.
During September 1998, the Company announced its intention to redeem the
Series A Preferred Stock at the stated redemption price on that date of
$26.09375 per share plus an amount equal to any dividends declared but unpaid as
of the date of redemption. On October 1, 1998, the remaining 2,538 shares of
Series A Preferred Stock were redeemed.
Common Stock
The Company has 250 million shares of common stock authorized with a par
value of $1.00 per share. Pursuant to the Golden State Merger agreement, First
Gibraltar and Hunter's Glen received 56,722,988 shares of the Golden State
Common Stock, which represented 47.9% of the common stock outstanding as of
September 11, 1998, and provided for existing Golden State shareholders to own
61,880,950 shares of the Golden State Common Stock. During September 1998, an
additional 10,051,200 shares were issued resulting from conversions of the
Series A Preferred Stock. Holders of Golden State Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors of the
Company, subject to the superior rights of the holders of any series of
Preferred Stock that may be issued. At December 31, 1998, there were 128,687,763
shares of the Golden State Common Stock issued and outstanding (including
treasury stock).
Treasury Stock
In connection with the Golden State Acquisition, the Company acquired
108,574 shares of Golden State Common Stock held in treasury with an aggregate
cost of $2.0 million. During the year ended December 31, 1998, 18,580 shares
were issued out of treasury in connection with options exercised by holders
related to an earlier acquisition by Golden State. At December 31, 1998, the
Company had 89,994 shares of its common stock in treasury with an aggregate cost
of $18.75 per share.
Payment of Dividends
The terms of the GS Escrow Notes indenture generally will permit GS
Holdings to make distributions of up to 75% of the Consolidated Net Income (as
defined therein) of GS Holdings since July 1, 1998 if after giving effect to
such distribution, (i) the Bank is "well capitalized" under applicable OTS
regulations and (ii) the Consolidated Common Shareholders' Equity (as defined
therein) of the Bank is at least equal to the Minimum Common Equity Amount (as
defined therein). The Federal thrift laws and regulations of the Office of
Thrift Supervision (the "OTS") limit the Bank's ability to pay dividends on its
preferred or common stock. The Bank generally may not pay dividends without the
consent of the OTS if, after the payment of the dividends, it would not be
deemed "adequately capitalized" under the prompt corrective action standards of
the Federal Deposit Insurance Corporation Improvement Act of 1991.
F-47
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
As of December 31, 1998, the Bank could pay dividends of $264.7 million
without the consent of the OTS and it could pay dividends of $152.9 million and
still be "well capitalized." As of December 31, 1998, GS Holdings could pay
dividends, in addition to those already paid, of $267.2 million without
violating the most restrictive terms of the GS Escrow Notes indenture.
Warrants
The Company has a class of common stock purchase warrants outstanding
(the "Warrants"), totalling 12,776 at December 31, 1998, that were issued by
Golden State in March 1993 in connection with an exchange of preferred stock for
outstanding subordinated debentures and capital notes. Each Warrant entitles the
registered holder thereof to receive from the Company one share of common stock
and one LTW(TM) (as defined herein) for ten Warrants for no additional
consideration at any time until the expiration of the Warrants on March 10,
1999. The number of shares of common stock for which a Warrant may be exercised
is subject to adjustment from time to time upon the occurrence of certain
events. No Warrants have been exercised since September 11, 1998.
The Company has also issued transferable Standby Warrants (the "Standby
Warrants"), of which 10.77 million were outstanding at December 31, 1998. No
Standby Warrants have been exercised since September 11, 1998. Each Standby
Warrant entitles the holder thereof to purchase one share of common stock and
one LTW(TM) for a purchase price of $12.00 per share. The Standby Warrants are
exercisable at any time through August 21, 2000.
(29) Litigation Tracking Warrants
In connection with the Glendale Goodwill Litigation, Golden State
distributed Litigation Tracking Warrants(TM) ("LTW(TM)s") to its security
holders representing the right to receive, upon exercise of the LTW(TM)s, Golden
State Common Stock equal in value to 85% of the net after-tax proceeds, if any,
from the Glendale Goodwill Litigation. The LTW(TM)s would be exercisable after
notification by Golden State of its receipt of proceeds from a final judgement
in or settlement of the litigation. The LTW(TM)s would expire 60 days after such
notice is given.
Golden State distributed LTW(TM)s on May 29, 1998, to holders of Golden
State Common Stock of record on May 7, 1998, on the basis of one LTW(TM) for
each share held as of the close of business on that date. The Board of Directors
also reserved additional LTW(TM)s for future issuance in connection with
conversions or exercises of the Company's outstanding Series A Preferred Stock,
its two outstanding classes of common stock purchase warrants and employee stock
options. The total number of LTW(TM)s issued to holders of common stock and
reserved for such future issuances is approximately 85 million.
The LTW(TM)s trade on the NASDAQ national market system under the ticker
symbol "GSBNZ."
(30) Regulatory Capital of the Bank
The Bank is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Company's and the Bank's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to insure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of tangible and leverage capital to adjusted total assets, and of Tier 1
and total risk-based capital to risk-weighted assets. Management believes, as of
December 31, 1998, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1998 and 1997, the most recent notification from the
OTS categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain
F-48
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
minimum leverage, Tier 1 risk-based and total risk-based ratios as set forth in
the table below. There are no conditions or events since the most recent
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios as of December 31, 1998 and
1997 are also presented in the following table (dollars in thousands):
<TABLE>
<CAPTION>
To be Adequately
Actual Capitalized To be Well Capitalized
----------------------- ---------------------- ----------------------
As a % of As a % of As a % of
1998 Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity of the Bank
per financial statements $3,678,712
Minority interest 498,348
Net unrealized holding gains (4,884)
----------
4,172,176
Adjustments for tangible and leverage
capital:
Goodwill litigation assets (160,341)
Intangible assets (923,598)
Non-qualifying MSRs (94,358)
Non-includable subsidiaries (57,999)
Excess deferred tax asset (118,659)
----------
Total tangible capital $2,817,221 5.29% $ 799,271 1.50% N/A N/A
========== ==========
Total leverage capital $2,817,221 5.29% $2,131,388 4.00% $2,664,235 5.00%
========== ========== ==========
Tier 1 risk-based capital $2,817,221 10.27% N/A N/A $1,645,485 6.00%
========== ==========
Adjustments for risk-based
capital:
Qualifying subordinated
debt debentures 93,210
General loan loss allowance 345,583
Qualifying portion of
unrealized holding gains 73
Low level recourse (11,759)
Assets required to be
deducted (38,234)
----------
Total risk-based capital $3,206,094 11.69% $2,193,980 8.00% $2,742,475 10.00%
========== ========== ==========
</TABLE>
F-49
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
To Be Adequately
Actual Capitalized To Be Well Capitalized
---------------------- --------------------- -----------------------
As a % of As a % of As a % of
1997 Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity of the Bank $2,260,044
per financial statements
Minority interest in Preferred 500,000
Capital Corp.
Net unrealized holding gains (35,162)
2,724,882
Adjustments for tangible and
leverage capital:
Goodwill litigation asset (100,000)
Intangible assets (675,927)
Non-allowable minority
interest in Preferred
Capital Corp. (71,099)
Non-qualifying MSRs (53,670)
Non-includable subsidiaries (53,582)
Excess deferred tax asset (55,000)
----------
Total tangible capital $1,715,604 5.65% $ 455,457 1.50% N/A N/A
========== ===========
Total leverage capital $1,715,604 5.65% $ 910,915 3.00% $1,518,191 5.00%
========== =========== ==========
Tier 1 risk-based capital $1,715,604 10.14% N/A N/A $1,015,036 6.00%
========== ==========
Adjustments for risk-based
capital:
Qualifying subordinated debt
debentures 93,847
General loan loss allowance 214,217
Assets required to be
deducted (5,648)
----------
Total risk-based capital $2,018,020 11.93% $1,353,382 8.00% $1,691,727 10.00%
========== ========== ==========
</TABLE>
F-50
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(31) Other Noninterest Expense
Other noninterest expense amounts are summarized as follows for the years
ended December 31, 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Other noninterest expense:
Telephone $ 19,640 $ 15,932 $11,727
Insurance and surety bonds 6,027 5,642 3,811
Postage 10,023 8,070 7,141
Printing, copying and office supplies 11,179 9,230 6,549
Employee travel 10,386 8,745 6,112
Clerical and other losses 10,534 11,410 2,636
Other 45,158 54,853 42,135
-------- -------- -------
$112,947 $113,882 $80,111
======== ======== =======
</TABLE>
(32) Income Taxes
Total income tax expense (benefit) for the years ended December 31, 1998,
1997 and 1996 was allocated as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income before income taxes, extraordinary item
and minority interest $(106,351) $41,315 $(75,807)
Extraordinary item (103,823) -- (176)
Net unrealized holding (loss) gain on securities
available for sale (881) 17 (1,921)
--------- ------- --------
$(211,055) $41,332 $(77,904)
========= ======= ========
</TABLE>
Income tax expense (benefit) attributable to income before income taxes,
extraordinary item and minority interest consisted of (in thousands):
1998 1997 1996
---- ---- ----
Federal
Current $ 51,443 $ 4,687 $ 10,900
Deferred (214,131) -- (125,000)
--------- --------- ---------
(162,688) 4,687 (114,100)
--------- --------- ---------
State and local
Current 49,137 27,187 38,293
Deferred 7,200 9,441 --
--------- --------- ---------
56,337 36,628 38,293
--------- --------- ---------
$(106,351) $ 41,315 $ (75,807)
========= ========= =========
F-51
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The consolidated income tax expense (benefit) for the years ended December
31, 1998, 1997 and 1996 differs from the amounts computed by applying the
statutory federal corporate tax rate of 35% for 1998, 1997 and 1996 to income
before income taxes, extraordinary item and minority interest as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" income tax expense $ 140,792 $ 83,439 $177,642
Increase (decrease) in taxes resulting from:
State income taxes, net of federal income
tax benefit 36,619 23,808 24,890
Tax exempt income -- (5) (584)
Amortization of excess cost over fair
value of net assets acquired 17,613 16,959 33
Adjustment to prior year's tax expense -- -- 595
Unrealized holding (loss) gain on securities
available for sale recognized for tax purposes -- (12,234) (3,703)
Other 109 2,762 1,214
Adjustments to deferred tax asset fully offset by
valuation allowance:
Temporary differences from acquisitions -- (107,416) 6,196
Adjustment to deferred tax asset 64,527 (17,130) 2,821
REIT Preferred Stock dividends (6,700) (14,682) --
Change in the beginning-of-the-year balance of
the valuation allowance for deferred tax assets
allocated to income tax expense (359,311) 65,814 (284,911)
--------- -------- ---------
$(106,351) $ 41,315 $ (75,807)
========= ======== =========
</TABLE>
The significant components of deferred income tax (benefit) expense
attributable to income before income taxes, extraordinary item and minority
interest are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax expense (exclusive of the effects
of other components listed below) $ 87,353 $ 73,414 $ 150,894
Adjustments to deferred tax asset fully offset by
valuation allowance 57,827 (139,228) 9,017
Increase (decrease) in beginning-of-the-year balance
of the valuation allowance for deferred tax assets (359,311) 65,814 (284,911)
--------- --------- ---------
$(214,131) -- $(125,000)
========= ========= =========
</TABLE>
F-52
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 392,182 $ 750,193
Foreclosed real estate 2,182 7
Deferred interest 8,509 8,737
Loans receivable 77,523 75,896
Miscellaneous accruals 161,540 37,960
Accrued liabilities 31,364 104,311
State taxes 29,147 38,704
Purchased mortgage servicing rights 221,743 47,988
Alternative minimum tax credit and investment tax
credit carryforwards 15,347 14,911
Other 16,749 8,148
--------- ---------
Total gross deferred tax assets 956,286 1,086,855
Less valuation allowance (232,632) (591,943)
--------- ---------
Net deferred tax assets 723,654 494,912
--------- ---------
Deferred tax liabilities:
Change in accounting method -- 36,129
Securities -- 9,835
Mortgage servicing rights 238,938 88,963
Purchase accounting adjustments 2,071 21,842
FHLB stock 101,595 63,029
Unrealized gains on securities available for sale 4,271 5,152
Goodwill litigation 111,746 70,391
Other 155,024 78,615
--------- ---------
Net deferred tax liabilities 613,645 373,956
--------- ---------
Net deferred tax assets and liabilities $ 110,009 $ 120,956
========= =========
</TABLE>
The net change in the total valuation allowance for the year ended
December 31, 1998 was a decrease of $359 million which is attributable to income
before income taxes and minority interest.
Based on resolutions of federal tax audits and favorable future earnings
expectations, management changed its judgment about the realizability of the
Company's net deferred tax assets and reduced the valuation allowance by $250
million in the second quarter of 1998 and $125 million in the second quarter of
1996. Management believes that the realization of the resulting deferred tax
asset is more likely than not, based upon the expectation that the Company will
generate the necessary amount of taxable income in future periods.
In connection with the Golden State Merger, the Company deconsolidated
from the Mafco Group. As a result, only the amount of the net operating losses
("NOLs") of the Company not utilized by the Mafco Group on or before December
31, 1998 are available to offset taxable income of the Company thereafter. At
September 11, 1998, had the Company filed a consolidated federal income tax
return on behalf of itself and its subsidiaries for each of the years since the
formation of the Company, it would have had regular NOL carryforwards, for
federal income tax purposes of approximately $1.8 billion. Upon deconsolidation,
the NOLs available to offset taxable income of the Company is estimated to be
reduced by $900 million. This reduction of NOLs and other tax attributes (the
"Deconsolidation Adjustment") resulted in a $230.2 million reduction in
retained earnings. The Deconsolidation Adjustment may change based upon the
actual filing of the Mafco Group 1998 consolidated federal income tax return
(including the Company's operations through September 11, 1998) and the results
of Internal Revenue Service ("IRS") audits for all open years of Mafco and the
Company. Any increase to the Deconsolidation Adjustment will be recorded as an
increase to income for the additional federal income tax benefit resulting from
the change in the valuation allowance. Such increase to income will be offset
by an increase in minority interest since under the Golden State Merger
agreement the tax benefit from any NOLs and other tax attributes of Parent
Holdings and subsidiaries are retained by First Gibraltar and Hunter's Glen.
Accordingly, any change to the Deconsolidation Adjustment should have no
significant impact on total
F-53
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
stockholders' equity. Any change will be recorded in the period during which
such change is determined.
At December 31, 1998, the Company had regular NOL carryforwards for
federal income tax purposes of approximately $1.1 billion which are available to
offset future federal taxable income, if any, through 2009. In addition, the
Company had alternative minimum tax credit carryforwards of approximately $14.5
million which are available to offset future federal regular income taxes, if
any, over an indefinite period. Substantially all of the NOLs and alternative
minimum tax credits are subject to an annual Section 382 limitation on their
usage. The NOL carryforwards are subject to review and disallowance, in whole or
in part, by the IRS.
On August 20, 1996, the Small Business Job Protection Act of 1996 (the
"Act") was enacted into law generally effective for tax years beginning after
1995. One provision of the Act repealed the Section 593 reserve method of
accounting for bad debts by thrift institutions which are treated as large
banks. Another provision of the Act requires the Company to take into income the
balance of its post-1987 bad debt reserves over a six year period beginning in
1996 subject to a two-year deferral if certain residential loan tests are
satisfied. The Company has fully provided for the tax related to this recapture.
In accordance with SFAS No. 109, Accounting for Income Taxes, a deferred
tax liability has not been recognized for the base year reserves of the Company.
The base year reserves are generally the balance of the tax bad debt reserve as
of December 31, 1987 reduced proportionately for reductions in the Company's
loan portfolio since that date. At December 31, 1998, the amount of those
reserves was $305 million. The amount of the unrecognized deferred tax liability
at December 31, 1998 was $107 million. Pursuant to the Act, circumstances that
may require an accrual of this unrecorded tax liability are a failure to meet
the definition of a "bank" for federal income tax purposes, dividend payments in
excess of tax earnings and profits, and other distributions, dissolution,
liquidation or redemption of stock, excluding preferred stock meeting certain
conditions.
The IRS is examining the 1993 through 1997 federal income tax returns of
Glendale Federal and has raised an issue regarding the limitation on built-in
losses that may have resulted from the Glendale Federal 1993 recapitalization.
The IRS position is preliminary and currently under discussion with the Bank.
The Bank believes that the IRS position is incorrect and intends to vigorously
defend itself. The outcome of this issue is uncertain and the amount of any
additional taxes, if any, cannot be determined at this time.
(33) Employee Benefit Plans
----------------------
Postretirement Health Care and Defined Benefit Plans
The Bank provides certain postretirement medical benefits to certain
eligible employees and their dependents through age 64. In general, early
retirement is age 55 with 10 years of service. Retirees participating in the
plans generally pay Consolidated Omnibus Budget Reduction Act premiums for the
period of time they participate. The estimated cost for postretirement health
care benefits has been accrued on an actuarial net present value basis.
In connection with the SFFed Acquisition, the Bank assumed SFFed's defined
benefit pension plan, which covered substantially all employees of San Francisco
Federal. The SFFed benefit plan was frozen effective September 30, 1995, at
which time all employees become 100% vested and no additional benefits accrued.
In connection with the Cal Fed Acquisition, the Bank assumed sponsorship
of the Old California Federal defined benefit plan, which was frozen effective
May 31, 1993, at which time all accrued benefits became 100% vested. Effective
April 30, 1997, the SFFed benefit plan was merged with and into the Old
California Federal benefit plan. The fair value of the assets transferred was
$23.6 million.
In connection with the Glen Fed Merger, the Bank assumed Glendale
Federal's defined benefit pension plan (the "Glendale Federal Retirement Plan")
and the Redlands Federal Bank defined benefit plan, (collectively "the Glen Fed
Pension Plan"), which covered substantially all employees of Glendale Federal.
The Glen Fed Pension Plan was frozen upon the merger on September 11, 1998 and
no additional benefits accrued after such time. Effective October 15, 1998, the
Glen Fed Pension Plan was merged with and into the Old California Federal
defined benefit plan. The fair value of the assets transferred was $102.0
million.
F-54
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The following table sets forth the changes in the plan's benefit
obligations and fair value of plan assets, as well as the funded status at
December 31, 1998 and 1997 (in thousands).
<TABLE>
<CAPTION>
Non-Qualified Plans Qualified Plan
------------------- --------------
Postretirement Benefits Pension Benefits Pension Benefits
----------------------- ---------------- ----------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 4,125 $ 3,416 $ 9,206 $ 8,917 $ 35,795 $21,720
Service Cost 309 364 -- -- -- --
Interest cost 317 498 723 657 4,157 2,796
Amendments -- -- -- -- -- --
Actuarial (gain) loss 182 (3,104) 1,634 500 9,218 8,002
Glen Fed Merger 3,446 -- 5,025 -- 95,900 19,275
Acquisitions -- 3,344 -- -- -- --
Settlements -- -- -- -- -- 1,154
Benefits paid (213) (393) (1,107) (868) (8,252) (17,152)
-------- ------- -------- ------- -------- -------
Benefit obligation at end of year $ 8,166 $ 4,125 $ 15,481 $ 9,206 $136,818 $35,795
======== ======= ======== ======= ======== =======
CHANGE IN PLAN ASSETS
Fair value at beginning of year N/A N/A $ -- $ -- $ 29,754 $23,085
Actual return on plan assets -- -- -- -- 388 4,614
Glen Fed Merger -- -- -- -- 117,500 19,207
Employer contribution -- -- 1,107 868 -- --
Benefits paid -- -- (1,107) (868) (8,252) (17,152)
-------- ------- -------- ------- -------- -------
Fair value at end of year $ -- $ -- $ -- $ -- $139,390 $29,754
======== ======= ======== ======= ======== =======
Funded Status $ -- $ -- $ -- $ -- $ 2,572 $(6,041)
Unrecognized actuarial loss -- -- -- 509 16,656 2,836
-------- ------- -------- ------- -------- -------
Prepaid (accrued) benefit cost
recognized in the consolidated
balance sheet $ (8,166) $(4,125) $(15,481) $(8,697) $ 19,228 $(3,205)
======== ======= ======== ======= ======== =======
</TABLE>
Assumptions used in computing the funded status were:
<TABLE>
<CAPTION>
Non-Qualified Plans Qualified Plan
Weighted Average Assumptions as of Postretirement Benefits Pension Benefits Pension Benefits
December 31, 1998 1997 1998 1997 1998 1997
- ---------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.75% 7.50% 6.00% 7.25% 6.00% 7.25%
Expected return on plan assets N/A N/A 9.00 9.00 9.00 9.00
Rate of compensation increase 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
The initial health care cost trend rate for medical benefits in 1999 is
assumed to be 8.5%, the average trend rate is assumed to be 5.67% and the
ultimate trend rate is assumed to be 5.5%, which will be reached in eight years.
At December 31, 1998, an increase of 1% in the health care cost trend rate
would cause the accumulated postretirement benefit obligation to increase by
$.9 million, and the service and interest cost to increase by less than $.2
million. At December 31, 1998, a decrease of 1% in the health care cost trend
rate would cause the accumulated postretirement benefit obligation to decrease
by $.8 million, and the service and interest costs to decrease by $.1 million.
F-55
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The net periodic benefits cost for the years ended December 31, 1998 and
1997 included the following components (in thousands):
<TABLE>
<CAPTION>
Postretirement Benefits Pension Benefits
------------------------- ----------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $309 $ 364 $301 $ -- $ -- $ --
Interest cost 317 498 231 4,880 3,453 2,143
Recognized net actuarial loss (gain) 182 (3,104) 19 2,294 1,611 2,966
Settlement/curtailment gain -- -- -- -- (404) --
---- ------- ---- ------ ------ ------
Net periodic cost (income) $808 $(2,242) $551 $7,174 $4,660 $5,109
==== ======= ==== ====== ====== ======
</TABLE>
Defined Contribution Plan
The Bank offers a defined contribution plan, which is available to
substantially all employees with at least one year of employment. Employee
contributions are voluntary. The plan provides for the deferral of up to 12% of
eligible compensation of plan participants not to exceed the maximum allowed by
the Internal Revenue Service. The Bank's matching contribution was a maximum of
100% of up to the first 3% of employee deferrals. The annual discretionary
employer profit sharing contribution is a maximum of 3% of eligible
compensation. It can be declared at any level in the range from 0% to 3%.
Employees vest immediately in their own deferrals and any employer profit
sharing contributions and vest in employer matching contributions based on
completed years of service. The Bank's contributions to such plan totalled $9.3
million, $3.8 million, and $2.3 million for the years ended December 31, 1998,
1997 and 1996, respectively.
In connection with the Glen Fed Merger, the Bank assumed sponsorship of
the Glendale Federal's defined contribution plan. This plan was frozen at the
merger date, therefore no contributions were made to the plan subsequent to the
merger date. The plan is being maintained as a separate plan. It is anticipated
that Glendale Federal's plan will be merged with the Bank's plan at a later
date.
During 1996, defined contribution plans assumed in the SFFed and Home
Federal Acquisitions were merged with and into the First Nationwide Employees'
Investment Plan defined contribution plan. The fair value of assets transferred
was $14.4 million.
In the Cal Fed Acquisition, contributions made to Old California
Federal's defined contribution plan (the "Investment Plus Plan") became 100%
vested at the date of acquisition. Effective December 31, 1997, the Investment
Plus Plan was merged with and into the First Nationwide Employees' Investment
Plan, which was renamed in 1997 to the California Federal Employees' Investment
Plan. The fair value of assets transferred was $33.6 million.
Effective January 1, 1999, the California Federal Employees' Investment
Plan was amended to provide for automatic enrollment into the plan at a
contribution rate of 3% unless the employee opts, in writing, to participate at
a different deferral rate, or to opt out of the plan. Effective January 15,
1999, the plan was amended to allow the use of certain employer and employee
contributions to purchase Golden State common stock at market prices. Effective
March 1, 1999, the plan was also amended to reduce the length of required
service to six months before an employee can contribute to the plan and to amend
the enrollment date to the first of the month following six months of service.
Stock Option Plan
In connection with the Glen Fed Merger, the Bank is administering a stock
option plan that provided for the granting of options of Golden State common
stock to employees and directors. Upon the merger on September 11, 1998, all
options outstanding became exercisable.
F-56
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The following is a summary of the transactions under the stock option
plan:
<TABLE>
<CAPTION>
Weighted
Number of Range of Option Average Exercise
Shares Prices Price
------ ------ -----
<S> <C> <C> <C>
Outstanding at September 11, 1998 2,238,326 $9.00 - $35.00 $19.99
Canceled or expired 193,334 $28.50 - $28.50 $28.50
Exercised 51,205 $12.63 - $17.75 $14.80
Outstanding at December 31, 1998 1,993,787 $9.00 - $35.00 $19.30
</TABLE>
Information about stock options outstanding at December 31, 1998 was as
follows:
<TABLE>
<CAPTION>
Outstanding and Exercisable
---------------------------
Weighted Average Remaining Weighted Average
Exercise Price Range Contractual Life (in years) Number Exercise Price
- -------------------- --------------------------- ------ --------------
<S> <C> <C> <C>
$ 9.00 - $12.63 5.7 610,676 $11.16
$14.50 - $17.75 7.3 667,111 $16.49
$28.50 - $35.00 8.7 716,000 $28.86
</TABLE>
The stock option plan expired on August 18, 1998, as to the granting of
additional options.
(34) Incentive Plan
Effective October 1, 1995, FN Holdings entered into a management
incentive plan ("Incentive Plan") with certain executive officers of the Bank
("Participants"). Awards under the Incentive Plan were made in the form of
performance units. Each performance unit entitles Incentive Plan Participants to
receive cash and/or stock options ("Bonuses") based upon the Participants'
vested interest in a bonus pool. Generally, the Incentive Plan provides for the
payment of Bonuses, on a quarterly basis, to the Participants upon the
occurrence of certain events. Bonuses vest at 20% per year beginning October 1,
1995 and are subject to a cap of $50 million.
Bonuses are recorded by a charge to compensation and employee benefits
and an increase to other liabilities. During 1997 and 1996, accruals relative to
the Incentive Plan totalled $12.4 million and $35.6 million, respectively.
No expense was recorded in 1998.
The Glen Fed Merger constituted a change of control pursuant to the terms
of the Incentive Plan and, as such, cash payments were made to the Participants
on September 11, 1998.
(35) Special SAIF Assessment
On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act ("Act") of 1996 was enacted. The Act included a special assessment
("Special SAIF Assessment") related to the recapitalization of the Savings
Association insurance Fund ("SAIF"), which was levied based on a rate of 65.7
cents per $100 of SAIF-insured domestic deposits held as of March 31, 1995. As a
result of the Act, the Company recorded a pre-tax charge of $60.1 million on
September 30, 1996. The 1997 SAIF deposit premiums declined to 6.42 cents per
$100 of SAIF-insured deposits per year from the prior rate of 23 cents, while
the 1998 SAIF deposit premiums declined further to 5.40 cents per $100 of
SAIF-insured deposits.
F-57
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(36) Extraordinary Loss from Extinguishment of Debt
During 1996, the Bank repurchased $44 million aggregate principal amount
of the $50 million in 11.20% Senior Notes (as defined herein) assumed in the
SFFed Acquisition, resulting in an extraordinary loss of approximately $1.6
million, net of income taxes, on the early extinguishment of debt.
In connection with the Debt Tender Offers during 1998, GS Holdings
purchased $914.5 million aggregate principal amount of the FN Holdings Notes for
an aggregate purchase price, including accrued interest payable of $1.1 billion,
resulting in an extraordinary loss of $98.7 million, net of income taxes, on the
early extinguishment of such debt.
In connection with the Parent Holdings Defeasance during 1998, GS
Financial redeemed $455 million aggregate principal amount of the Parent
Holdings Notes for an aggregate redemption price, including accrued interest
payable, of $553.7 million. The after-tax redemption premiums and expenses paid
in connection with the Parent Holdings Defeasance totalled $51.6 million and are
reflected as extraordinary loss, net of taxes, on the consolidated statement of
income for the year ended December 31, 1998.
(37) Commitments and Contingencies
In the ordinary course of business, the Company has commitments and
contingent liabilities that are not reflected in the accompanying consolidated
financial statements. The Company, through FNMC, enters into financial
instruments with off-balance sheet risk through the origination and sale of
mortgage loans and the management of the related loss exposure caused by
fluctuations in interest rates. These financial instruments include commitments
to extend credit and purchase loans (mortgage loan pipeline) and mandatory and
optional forward commitments to sell loans.
The following is a summary of the Company's pipeline of loans in process
and mandatory forward commitments to sell loans at December 31, 1998 (in
thousands):
Commitments to originate and purchase loans $ 4,016,014
Mandatory commitments to sell loans 2,746,839
The Company's pipeline of loans in process includes loan applications in
various stages of processing. Until all required documentation is provided and
underwritten, there is no credit risk to the Company. There is no interest rate
risk until a rate commitment is extended by the Company to a borrower. Some of
these commitments will ultimately be denied by the Company or declined by the
borrower and therefore the commitment amounts do not necessarily represent
future cash requirements.
Loans in process for which rates were committed to the borrower totalled
approximately $1.6 billion at December 31, 1998. On a daily basis, the Company
determines what percentage of the portfolio of loans in process for which rate
commitments have been extended to a borrower to hedge. Both the anticipated
percentage of the pipeline that is expected to fund and the inherent risk
position of the portfolio are considered in making this determination.
Mandatory and optional delivery forward commitments to sell loans are used
by the Company to hedge its interest rate exposure from the time a loan has a
committed rate to the time the loan is sold. These instruments involve varying
degrees of credit and interest rate risk. Credit risk on these instruments is
controlled through credit approvals, limits and monitoring procedures. To the
extent that counterparties are not able to fulfill forward commitments, the
Company is at risk for any fluctuations in the market value of the mortgage
loans and locked pipeline.
Realized gains and losses on mandatory and optional-delivery forward
commitments are recognized in the period settlement occurs. Unrealized gain and
losses on mandatory and optional-delivery forward commitments are included in
the lower of cost or market valuation adjustment to mortgage loans held for
sale.
On September 28, 1994, the Company entered into an agreement with FNMA
pursuant to which FNMA provided credit enhancements for certain bond-financed
real estate projects originated by Old FNB. The agreement requires that the
Company pledge to FNMA collateral in the form of certain eligible securities
which are held by a third party trustee. The collateral requirement varies based
on the balance of the bonds outstanding, losses incurred (if any), as well as
other factors. At December 31, 1998, the Company had pledged as collateral
certain securities available for sale with a
F-58
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
carrying value of $75.3 million, of which $71.4 million was pledged as
collateral to guarantee credit enhancements on loans securitized by FNMA.
At December 31, 1998, mortgage-backed securities available for sale with a
carrying value of $116.5 million were pledged to FNMA associated with the sales
of certain securitized multi-family loans.
At December 31, 1998, the Bank had pledged as collateral certain
mortgage-backed securities available for sale with a carrying value of $213.2
million and $5.5 million to guarantee credit enhancements on loans securitized
by FNMA and FHLMC, respectively.
At December 31, 1998, the Bank had pledged as collateral certain
mortgage-backed securities available for sale with a carrying value of $36.2
million to guarantee state and local agency deposits.
At December 31, 1998, the Bank had pledged as collateral certain
mortgage-backed securities available for sale with a carrying value of $18.3
million to guarantee certain deposits with the Federal Reserve Bank.
In addition, the Bank retains principal and interest funds on securitized
loans with appropriate collateral held and monitored by the trustee. The pledge
agreement requires the collateral to be 150% of the average remittances for the
prior twelve months, to be adjusted quarterly. At December 31, 1998, the Bank
had pledged as collateral certain mortgage-backed securities available for sale
with a carrying value of $260.1 million.
At December 31, 1998, mortgage-backed securities available for sale and
mortgage-backed securities held to maturity of $8.4 billion and $2.5 billion,
respectively, were pledged as collateral for various obligations as discussed in
notes 11, 12, 22 and 23. At December 31, 1997, mortgage-backed securities
available for sale and mortgage-backed securities held to maturity of $4.1
billion and $1.3 billion, respectively, were pledged as collateral for various
obligations.
At December 31, 1998, $19.1 billion in residential loans were pledged as
collateral for FHLB advances.
At December 31, 1998 and 1997, loans receivable included approximately
$7.8 billion and $7.5 billion, respectively, of loans that had the potential to
experience negative amortization.
(38) Legal Proceedings
Goodwill Litigation Against the Government
The Bank is the plaintiff in a claim against the United States in the
lawsuit, California Federal Bank v. United States, Civil Action No. 92-138C (the
"California Federal Litigation"). In the California Federal Litigation, the Bank
alleges, among other things, that the United States breached certain contractual
commitments regarding the computation of its regulatory capital for which the
Bank seeks damages and restitution. The Bank's claims arose from changes,
mandated by the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), with respect to the rules for computing Old California
Federal's regulatory capital.
In connection with the Glen Fed Merger, the Bank is a plaintiff in a claim
against the United States in the lawsuit Glendale Federal Bank, Federal Savings
Bank v. United States, No. 90-772C ("Glendale Goodwill Litigation"). In the
Glendale Goodwill Litigation, Glendale Federal sued the United States Government
(the "Government") contending that FIRREA's treatment of supervisory goodwill
constituted a breach by the Government of its 1981 contract with the Bank, under
which the Bank merged with a Florida thrift and was permitted to include the
goodwill resulting from the merger in its regulatory capital. In July 1992, the
United States Court of Federal Claims (the "Claims Court") found in favor of
Glendale Federal's position, ruling that the Government breached its express
contractual commitment to permit Glendale Federal to include supervisory
goodwill in its regulatory capital and that Glendale Federal is entitled to seek
financial compensation.
The trial to determine damages commenced in the Claims Court on February
24, 1997 and the taking of testimony in the trial was completed on April 9,
1998. In lieu of traditional closing briefs, the Claims Court requested the
parties to respond to a series of written questions posed by the Court regarding
factual and legal issues raised in the damages
F-59
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
trial. Responses to those questions, as well as each party's reply to the
other's responses, have been filed with the Court and final oral arguments were
held on September 11, 1998. California Federal anticipates a decision on April
9, 1999.
In connection with the Cal Fed Acquisition, the Bank recorded as an asset
part of the estimated after-tax cash recovery from the California Federal
Litigation that will inure to the Bank, net of amounts payable to holders of the
Litigation Interests and the Secondary Litigation Interests in any such recovery
(the "Goodwill Litigation Asset"). In connection with the Glen Fed Merger, the
Bank recorded a second Goodwill Litigation Asset related to the estimated
after-tax cash recovery from the Glendale Goodwill Litigation that will inure to
the Bank, net of amounts payable to holders of the Litigation Tracking Warrants.
The Goodwill Litigation Asset related to the California Federal Litigation was
recorded at its estimated fair value of $100 million, net of estimated tax
liabilities, as of January 3, 1997. The Goodwill Litigation Asset related to the
Glendale Goodwill Litigation was recorded at its estimated fair value of $60
million, net of estimated tax liabilities, as of September 11, 1998. Both
Goodwill Litigation Assets are included in other assets in the consolidated
balance sheet as of December 31, 1998.
Other Litigation
In addition to the matters described above, the Company is involved in
legal proceedings on claims incidental to the normal conduct of its business.
Although it is impossible to predict the outcome of any outstanding legal
proceedings, management believes that such legal proceedings and claims,
individually or in the aggregate, will not have a material effect on the
financial condition or results of operations of the Company.
(39) Off-Balance-Sheet Activities
Credit Related Financial Instruments
The Company is a party to credit related financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit, standby letters of credit and commercial letters of credit. Such
commitments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheets.
The Company's exposure to credit loss is represented by the contractual
amount of these commitments. The Company uses the same credit policies in making
commitments as it does for on-balance sheet instruments.
Listed below are unfunded financial instruments whose contract amounts
represent credit risk at December 31, 1998 and 1997 (in thousands):
Contract Amount
---------------
Commitments to extend credit: 1998 1997
- ----------------------------- ---- ----
Unutilized consumer lines of credit $905,907 $465,292
Unutilized commercial lines of credit 169,536 23,277
Commercial and standby letters of credit 4,552 23,757
Unutilized consumer lines of credit are commitments to extend credit.
These lines are either secured or nonsecured and may be cancelled by the Company
if certain conditions of the contract are not met. Many consumer lines of credit
customers are not expected to fully draw down their total lines of credit and,
therefore, the total contractual amount of these lines does not necessarily
represent future cash requirements.
Unutilized commitments under commercial lines of credit are commitments
for possible future extensions of credit to existing customers. These lines of
credit are uncollateralized and usually do not contain a specified maturity date
and may not be drawn upon to the total extent to which the Company is committed.
Commercial and standby letters of credit are conditional commitments
issued by the Company to guarantee the performance of a customer to a third
party. Those letters of credit are primarily issued to support public and
private borrowing arrangements. Essentially all letters of credit issued have
expiration dates within five years. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan facilities
to customers. The Company generally holds collateral supporting those
commitments in an amount deemed to be necessary.
F-60
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Derivative Financial Instruments
The Company utilizes various derivative instruments for other-than-trading
purposes such as asset/liability management. The primary focus of the Company's
asset/liability management program is to measure and monitor the sensitivity of
the Company's net portfolio value and net income under varying interest rate
scenarios. On a quarterly basis, the Company simulates the net portfolio value
and net income expected to be earned over a twelve-month period following the
date of simulation. The simulation is based on a projection of market interest
rates at varying levels and estimates the impact of such market rates on
mortgage prepayment speeds, the levels of interest-earning assets and
interest-bearing liabilities during the measurement period. Based upon the
outcome of the simulation analysis, the Company may consider the use of
derivatives as a means of reducing the volatility of net portfolio value and
projected net income within certain ranges of projected changes in interest
rates. The Company evaluates the effectiveness of entering into any derivative
instrument agreement by measuring the cost of such an agreement in relation to
the reduction in net portfolio value and net income volatility within an assumed
range of interest rates.
Derivative financial instruments include swaps, futures, forwards, and
options contracts, all of which derive their value from underlying interest
rates. These transactions involve both credit and market risk. The notional
amounts are amounts on which calculations, payments, and the value of the
derivative are based. Notional amounts do not represent direct credit exposures.
Direct credit exposure is limited to the net difference between the calculated
amounts to be received and paid, if any.
The Company is exposed to credit-related losses in the event of
nonperformance by the counterparties to these agreements. The Company controls
the credit risk of its financial contracts through credit approvals, limits and
monitoring procedures, but does not expect any counterparties to fail their
obligations. The Company deals only with primary dealers and the FHLB of San
Francisco.
Derivative instruments are generally either negotiated over-the-counter
("OTC") contracts or standardized contracts executed on a recognized exchange.
Negotiated OTC derivative contracts are generally entered into between two
counterparties that negotiate specific agreement terms, including the underlying
instrument, amount, exercise prices and maturity.
Interest Rate Swaps
--------------------
The Company utilizes interest rate swaps primarily as an asset/liability
management strategy to hedge against the interest rate risk inherent in
fixed-rate FHLB advances. Interest rate swap agreements are contracts to make or
receive payments, such as making a series of floating rate payments in exchange
for receiving a series of fixed rate payments. Payments related to swap
contracts are made either monthly, quarterly or semi-annually by one of the
parties depending on the specific terms of the related contract. The notional
amount of the contracts, on which the payments are based, are not exchanged. The
primary risks associated with swaps are the exposure to movements in interest
rates and the ability of the counterparties to meet the terms of the contract.
There were no interest rate swap agreements outstanding at December 31,
1998. At December 31, 1997, interest rate swap agreements with a notional
balance of $400 million were outstanding. These agreements provided for the
Company to make payments at a variable rate determined by a specified index
(three month LIBOR) in exchange for receiving payments at a fixed rate. The
interest rate swap agreements matured in April of 1998. At December 31, 1997,
the weighted average pay rate was 5.76% and the weighted average receive rate
was 8.38%.
Principal Only Swaps
---------------------
The Company utilizes principal only ("PO") swap agreements to hedge
against prepayment risk in its mortgage servicing portfolio caused by declining
interest rates. PO swap agreements simulate the ownership of a PO strip, the
value of which is affected directly by prepayment rates themselves in an inverse
manner as servicing rights, which act in a manner similar to interest only
("IO") strips. Under the terms of the PO swap agreements, the counterparty to
the transaction purchases a PO strip and places the PO strip in a trust. The
contract calls for the Company to pay floating interest to the counterparty
based on: (i) an index tied to one month LIBOR and (ii) the notional balance of
the swap. The contract calls for the Company to receive cash from the
counterparty based on the cashflows received from the PO strip. The amounts to
be paid and to be received are then netted together each month. The structure of
this instrument results in increased cashflows and positive changes in the value
of the swap during a declining interest rate environment.
F-61
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
This positive change in the value of the swap is highly correlated to prepayment
activity. PO swap agreements present yield curve risk to the extent that short
term interest rates (which impact the cash amount that the Company pays on the
swap to the counterparty) rise while long term rates (which drive prepayment
rates) stay the same. A third type of risk associated with PO swaps is the
ability of the counterparties to meet the terms of the contract.
At December 31, 1998, PO swap agreements with a notional balance of $164.7
million were outstanding. During 1998, the calculated amount to be paid to and
to be received from the PO swap counterparties was $6.2 million and $11.2
million, respectively. The Company received $16.1 million from counterparties to
terminate PO swap agreements in 1998. At December 31, 1997, PO swap agreements
with a notional balance of $150.2 million were outstanding. During 1997, the
calculated amount to be paid to and to be received from the PO swap
counterparties was $5.2 million and $2.4 million, respectively. The Company
received $4.2 million from counterparties to terminate PO swap agreements in
1997.
Prepayment Linked Swaps
------------------------
The Company utilizes prepayment linked swap agreements to hedge against
prepayment risk in its mortgage servicing portfolio caused by declining interest
rates. Prepayment linked swap agreements are similar to interest rate floors,
discussed below. However, interest rate floor contracts provide for the
counterparty to make immediate payments to the Company if the floating rate
drops below a specified strike rate. Under the terms of the prepayment linked
swap agreements, the Company is to pay fixed interest to the counterparty based
on: (i) a fixed rate and (ii) the amortized notional balance of the swap. The
Company is to receive cash from the counterparty only after a sustained drop in
the 10-year Constant Maturity Treasury interest rate below a strike interest
rate. The amounts to be paid and to be received are netted together each month.
The structure of this instrument results in increased cashflows and positive
changes in the value of the swap during a sustained decline in the interest rate
environment. This positive change in the value of the swap is correlated to
prepayment activity. Prepayment linked swap agreements have basis risk and yield
curve risk. A third type of risk associated with prepayment linked swaps is the
ability of the counterparties to meet the terms of the contract.
At December 31, 1998, prepayment linked swap agreements with a notional
balance of $1.9 billion were outstanding. During 1998, the calculated amount to
be paid to and to be received from the prepayment linked swap counterparties was
$.2 million and $.8 million, respectively. No prepayment linked swap agreements
were terminated in 1998. At December 31, 1997, there were no prepayment linked
swap agreements outstanding.
Interest Rate Floors
---------------------
The Company currently uses interest rate floors to hedge against
prepayment risk in its mortgage servicing portfolio caused by declining interest
rates. Interest rate floors are interest rate protection instruments that
involve payment from the seller to the buyer of an interest differential. This
differential represents the difference between a long-term rate (e.g. 10-year
Constant Maturity Swaps in 1998, 10-year Constant Maturity Treasury in 1997) and
an agreed-upon rate, the strike rate, applied to a notional principal amount. By
purchasing a floor, the Company will be paid the differential by a counterparty,
should the current short-term rate fall below the strike level of the agreement.
The Company generally receives cash monthly on purchased floors (when the
current interest rate falls below the strike rate.) The unamortized premium, if
any, paid for interest rate purchased floor agreements are included with the
assets hedged. Interest rate floors are subject to basis risk because changes in
the relationship between prepayment rates and the interest rate may occur, as
well as market volatility and swap spread movement. In addition, a credit risk
associated with purchased interest rate floor agreements is the ability of the
counterparties to meet the terms of the contract.
At December 31, 1998 and 1997, the Company was a party to interest rate
floor contracts with a weighted average maturity of 4.8 years and 4.0 years,
respectively. At December 31, 1998, the notional amount of the remaining
interest rate floor contracts was $2.1 billion, the weighted average strike rate
was 5.31% and the monthly floating rate was 5.47%. During 1998, the Company
received cash from the interest rate floor counterparties in the amount of $4.8
million. At December 31, 1997, the notional amount of the remaining interest
rate floor contracts was $970 million, the weighted average strike rate was
5.79% and the monthly floating rate was 5.74%. During 1997, the Company received
cash from the interest rate floor counterparties in the amount of $.5 million.
The amount of the unamortized premium on the interest rate floors at December
31, 1998 and 1997 was $27.6 million and $6.5 million, respectively. At December
31, 1998, the floating rate exceeded the strike rate by 0.16%. At December 31,
1997, the strike rate exceeded the floating rate by 0.05%.
F-62
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Swaptions
---------
The Company also uses swaptions to hedge against the prepayment risk in
its mortgage servicing portfolio caused by declining interest rates. A swaption
(a combination of an interest rate swap and an option) is an over-the-counter
option that provides the right but not the obligation to enter into an interest
rate swap agreement at predetermined terms at some time in the future. The
unamortized premiums, if any, paid for swaptions are included with the assets
hedged. Swaptions are subject to basis risk because changes in the relationship
between prepayment rates and the interest rate may occur, as well as market
volatility and swap spread movement. In addition, a credit risk associated with
swaptions is the ability of the counterparties to meet the terms of the
contract.
At December 31, 1998, the Company was a party to swaption contracts with a
weighted average maturity of 2.8 years in which the Company paid the
counterparties premiums in exchange for the right but not the obligation to
purchase an interest rate swap agreement. Under the terms of the underlying
interest rate swap agreement, the Company would pay the variable rate tied to
three month LIBOR and would receive the fixed rate. At December 31, 1998, the
notional amount of the underlying interest rate swap contract was $2.3 billion,
the weighted average strike rate was 5.57% and three month LIBOR rate was 5.06%.
At December 31, 1998, the strike rate exceeded the floating rate by 0.51%. The
unamortized premium on the swaptions at December 31, 1998 was $60.2 million. At
December 31, 1997, there were no swaption contracts outstanding. During 1998,
there were no swaption contracts that expired or that were sold.
Information pertaining to the notional amounts of the Company's derivative
financial instruments is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
Notional Notional
Amount Credit Risk (1) Amount Credit Risk (1)
------ --------------- ------ ---------------
<S> <C> <C> <C> <C>
Interest rate swaps $ -- $ -- $ 400,000 $ 2,954
Principal only swaps 164,672 18,770 150,211 13,520
Prepayment linked swaps 1,850,000 1,255 -- --
Interest rate floors 2,075,000 32,229 970,000 18,024
Interest rate swaptions 2,345,000 89,332 -- --
---------- -------- ---------- -------
Total $6,434,672 $141,586 $1,520,211 $34,498
========== ======== ========== =======
</TABLE>
(1) Credit risk represents current replacement cost after the effects of
master netting agreements.
The maturity of derivative financial instruments used for
other-than-trading purposes at December 31, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Notional Amounts
----------------------------------------------------------------------
1999 2000 2001 2003 Total
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Principal only swaps $ 47,043 $9,105 $ 108,524 $ -- $ 164,672
Prepayment linked swaps 1,850,000 -- -- -- 1,850,000
Interest rate floors -- -- -- 2,075,000 2,075,000
Interest rate swaptions -- -- 2,345,000 -- 2,345,000
---------- ------ ---------- ---------- ----------
Total $1,897,043 $9,105 $2,453,524 $2,075,000 $6,434,672
========== ====== ========== ========== ==========
</TABLE>
F-63
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The year-end fair values of derivative financial instruments used for
other-than-trading purposes at December 31, 1998 and 1997 are listed below (in
thousands). Fair value amounts consist of unrealized gains and losses, accrued
interest receivable and payable, and premiums paid or received.
1998 1997
---- ----
Interest rate swaps $ -- $ 2,954
Principal only swaps 18,770 13,520
Prepayment linked swaps 1,255 --
Interest rate floors 32,229 18,024
Interest rate swaptions 89,332 --
-------- -------
Total $141,586 $34,498
======== =======
(40) Earnings per Common Share
Net income per share of common stock is based on the weighted average
number of common and common equivalent shares outstanding, excluding common
shares in treasury, during the period presented. Information used to calculate
basic and diluted earnings per share ("EPS") is as follows (dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- --------------------- ------------------------
Basic Diluted Basic Diluted Basic Diluted
EPS EPS EPS EPS EPS EPS
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary loss $398,088 $398,088 $94,948 $94,948 $535,309 $535,309
Extraordinary loss 150,333 150,333 -- -- 1,586 1,586
-------- -------- ------- ------- -------- --------
Net Income $247,755 $247,755 $94,948 $94,948 $533,723 $533,723
======== ======== ======= ======= ======== ========
Weighted average common
shares outstanding 78,046 78,046 56,723 56,723 56,723 56,723
Contingently issuable shares 1,511 1,511 -- -- -- --
-------- -------- ------- ------- -------- --------
Basic weighted average common
shares outstanding (i) 79,557 79,557 56,723 56,723 56,723 56,723
Effect of Dilutive Securities:
Options and warrants (ii) -- 1,595 -- -- -- --
Convertible preferred stock -- 389 -- -- -- --
-------- -------- ------- ------- -------- --------
Total 79,557 81,541 56,723 56,723 56,723 56,723
======== ======== ======= ======= ======== ========
Earnings per common share
before extraordinary item $5.00 $4.88 $1.67 $1.67 $9.44 $9.44
Extraordinary loss (1.89) (1.84) -- -- (0.03) (0.03)
----- ----- ----- ----- ----- -----
Earnings per common share $3.11 $3.04 $1.67 $1.67 $9.41 $9.41
===== ===== ===== ===== ===== =====
</TABLE>
(i) 1998 shares include the effect of 5,687,996 contingent shares
issuable to First Gibraltar and Hunter's Glen as contingent
consideration for the net tax benefits realized by the Bank during
1998. See note 41.
(ii) Golden State's diluted shares outstanding are not affected by the
LTW(TM)s until they become excercisable because the amount of the
proceeds from the Glendale Goodwill Litigation and the number of
shares of common stock to be issued cannot be determined until the
LTW(TM)s become exercisable.
F-64
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(41) Contingent Shares
During 1998, net tax benefits totalling $102.7 million were realized by
California Federal with respect to its gain from the Florida Branch Sale and the
receipt of a federal income tax refund in excess of the amount reflected on the
Company's consolidated balance sheets. Consistent with the terms of the Golden
State Merger agreement, a total of 5,687,996 shares of Golden State Common
Stock, valued at $102.7 million, are to be issued to First Gibraltar and
Hunter's Glen as a result of these benefits. In January 1999, a total of
5,540,319 shares of common stock, valued at $100 million, were issued. The
remaining 147,677 common shares, valued at $2.7 million, are expected to be
issued at a future date. Such contingent shares are included, to the extent
appropriate, in the 1998 basic and diluted EPS calculations. See note 40.
(42) Fair Value of Financial Instruments
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 967,950 $ 967,950 $ 412,311 $ 412,311
Securities available for sale 770,747 770,747 813,085 813,085
Securities held to maturity 250,964 251,489 58,299 58,299
Mortgage-backed securities
available for sale 12,947,992 12,947,992 5,076,598 5,076,598
Mortgage-backed securities
held to maturity 2,770,913 2,825,227 1,337,877 1,373,289
Loans held for sale 2,366,583 2,379,216 1,483,466 1,498,860
Loans receivable, net 30,280,944 30,561,022 19,424,410 19,786,805
Investment in FHLB 1,000,147 1,000,147 468,191 468,191
Accrued interest receivable 317,455 317,455 188,203 188,203
Mortgage servicing rights 943,581 989,683 536,703 673,975
Financial Liabilities:
Deposits 24,620,066 24,601,797 16,202,605 16,224,399
Securities sold under agreements
to repurchase 4,238,395 4,238,395 1,842,442 1,842,737
Borrowings:
Gross 22,375,557 22,425,592 11,232,931 11,427,457
Interest rate swap agreements (1) -- -- (401) (2,954)
----------- ----------- ----------- -----------
Total borrowings $22,375,557 $22,425,592 $11,232,530 $11,424,503
=========== =========== =========== ===========
Off-balance sheet net unrealized gains (losses):
Forward Commitments:
Commitments to originate loans -- $ 9,102 -- $ 7,552
Commitments to sell loans -- (5,412) -- (7,099)
Derivatives:
Interest rate swaps -- -- -- 2,954
Principal only swaps -- 18,770 -- 13,520
Prepayment linked swaps -- 1,255 -- --
Interest rate floors -- 32,229 -- 18,024
Interest rate swaptions -- 89,332 -- --
</TABLE>
(1) Designated as a hedge against FHLB advances.
F-65
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The carrying amounts in the table are included in the accompanying
consolidated balance sheet under the indicated captions, except for off-balance
sheet net unrealized gains (losses).
The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Company's financial
instruments. Much of the information used to determine fair value is highly
subjective. When applicable, readily available market information has been
utilized. However, for a significant portion of the Company's financial
instruments, active markets do not exist. Therefore, considerable judgment was
required in estimating fair value for certain items. The subjective factors
include, among other things, the estimated timing and amount of cash flows, risk
characteristics, and interest rates, all of which are subject to changes.
Cash and cash equivalents: Cash and cash equivalents are valued at their
carrying amounts included in the consolidated statement of financial condition,
which are reasonable estimates of fair value due to the relatively short period
to maturity of the instruments.
Securities and mortgage-backed securities: Securities and mortgage-backed
securities are valued at quoted market prices where available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable instruments.
Loans held for sale: Loans held for sale are valued based on quoted
market prices for mortgage-backed securities backed by similar loans.
Loans receivable, net: Fair values are estimated for loans in groups with
similar financial and risk characteristics. Loans are segregated by type
including residential, multi-family and commercial. Each loan type is further
segmented into fixed and variable interest rate terms and by performing and
non-performing categories in order to estimate fair values.
For performing residential mortgage loans, fair value is estimated by
discounting contractual cash flows adjusted for prepayment estimates using
discount rates based on secondary market sources. The fair value of performing
commercial and multi-family loans is calculated by discounting scheduled
principal and interest cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the respective loan type.
Fair value for non-performing loans is based on discounting estimated
cash flows using a rate commensurate with the risk associated with the estimated
cash flows, or underlying collateral values, where appropriate.
Investment in FHLB: Since no secondary market exists for FHLB stock and
the stock is bought and sold at par by FHLB, fair value of these financial
instruments approximates the carrying value.
Accrued interest: The carrying amounts of accrued interest approximate
their fair values.
Mortgage servicing rights: The fair value of mortgage servicing rights is
based on market prices for comparable mortgage servicing contracts, when
available, or alternatively a valuation model that calculates the present value
of future net servicing income. In using the valuation model, the Company
incorporates assumptions that market participants would use in estimating future
net servicing income, which include estimates of the cost of servicing, the
discount rate, mortgage escrow earnings rate, an inflation rate, ancillary
income, prepayment speeds and default rates and losses.
Deposits: The fair values of demand deposits, passbook accounts, money
market accounts, and other deposits immediately withdrawable, by definition,
approximate carrying values for the respective financial instruments. For fixed
maturity deposits, the fair value was estimated by discounting expected cash
flows by the current offering rates of deposits with similar terms and
maturities.
Securities sold under agreements to repurchase: The fair value of
securities sold under agreements to repurchase is estimated using a discounted
cash flow analysis based on interest rates currently offered on such repurchase
agreements with similar maturities.
F-66
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Borrowings: The fair value of borrowings, other than FHLB advances, is
estimated using discounted cash flow analyses based on current incremental rates
for similar borrowing arrangements. The fair values of FHLB advances are
estimated using a discounted cash flow analysis based on interest rates
currently offered on advances with similar maturities.
Off-balance sheet financial instruments:
FORWARD COMMITMENTS
Fair values of the Company's commitments to originate loans are estimated
using the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present creditworthiness
of the counterparties. For fixed-rate commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
Fair values of forward commitments to sell loans are determined using current
estimated replacement costs.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are recorded at fair value based on the
estimated amounts that the Company would receive or pay to terminate the
contracts at the reporting date (i.e., mark-to-market value). Dealer quotes are
available for substantially all of the Company's derivative financial
instruments.
F-67
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(43) Selected Quarterly Financial Data (Unaudited)
--------------------------------------------
The following table presents selected quarterly financial data for the
years ended December 31, 1998 and 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
December 31, September 30, June 30, March 31,
1998 1998 1998 1998 Total 1998
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Total interest income $853,515 $618,337 $543,539 $533,422 $2,548,813
Total interest expense (588,117) (450,026) (398,536) (382,866) (1,819,545)
-------- -------- -------- -------- ----------
Net interest income 265,398 168,311 145,003 150,556 729,268
Provision for loan losses (10,000) (10,000) (10,000) (10,000) (40,000)
-------- -------- -------- -------- ----------
Net interest income after
provision for loan losses 255,398 158,311 135,003 140,556 689,268
Total noninterest income 93,897 198,368 94,956 89,778 476,999
Total noninterest expense (260,769) (200,517) (157,461) (145,256) (764,003)
-------- -------- -------- -------- ----------
Income before income taxes, minority
interest and extraordinary item 88,526 156,162 72,498 85,078 402,264
Income tax (expense) benefit (45,494) (71,973) 237,708 (13,890) 106,351
-------- -------- -------- -------- ----------
Income before minority interest
and extraordinary item 43,032 84,189 310,206 71,188 508,615
Minority interest (27,929) (36,406) (22,662) (23,530) (110,527)
-------- -------- -------- -------- ----------
Income before extraordinary item 15,103 47,783 287,544 47,658 398,088
Extraordinary loss (70,326) (80,007) -- -- (150,333)
-------- -------- -------- -------- ----------
Net (loss) income available to
common stockholders $(55,223) $(32,224) $287,544 $ 47,658 $ 247,755
======== ======== ======== ======== ==========
Earnings per share:
Basic
Before extraordinary item $ 0.11 $ 0.68 $ 5.07 $ 0.84 $ 5.00
Extraordinary item (0.52) (1.14) -- -- (1.89)
-------- -------- -------- -------- ----------
Net income $ (0.41) $ (0.46) $ 5.07 $ 0.84 $ 3.11
Diluted
Before extraordinary item $ 0.11 $ 0.65 $ 5.07 $ 0.84 $ 4.88
Extraordinary item (0.51) (1.09) -- -- (1.84)
-------- -------- -------- -------- ----------
Net income $ (0.40) $ (0.44) $ 5.07 $ 0.84 $ 3.04
======== ======== ======== ======== ==========
</TABLE>
F-68
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
December 31, September 30, June 30, March 31,
1997 1997 1997 1997 Total 1997
------------ ------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Total interest income $530,809 $531,303 $527,837 $512,751 $2,102,700
Total interest expense (383,286) (380,268) (375,468) (359,395) (1,498,417)
-------- -------- -------- -------- ----------
Net interest income 147,523 151,035 152,369 153,356 604,283
Provision for loan losses (19,950) (19,950) (19,950) (19,950) (79,800)
-------- -------- -------- -------- ----------
Net interest income after
provision for loan losses 127,573 131,085 132,419 133,406 524,483
Total noninterest income 108,351 94,846 82,448 78,839 364,484
Total noninterest expense (170,443) (154,758) (171,644) (153,724) (650,569)
-------- -------- -------- -------- ----------
Income before income taxes
and minority interest 65,481 71,173 43,223 58,521 238,398
Income tax expense (9,888) (12,208) (9,025) (10,194) (41,315)
-------- -------- -------- -------- ----------
Income before minority interest 55,593 58,965 34,198 48,327 197,083
Minority interest (24,961) (25,938) (26,864) (24,372) (102,135)
-------- -------- -------- -------- ----------
Net income available to
common stockholders $ 30,632 $ 33,027 $ 7,334 $ 23,955 $ 94,948
======== ======== ======== ======== ==========
Earnings per share:
Basic $0.54 $0.58 $0.13 $0.42 $1.67
Diluted $0.54 $0.58 $0.13 $0.42 $1.67
</TABLE>
(44) Condensed Parent Company Financial Information
The following represents condensed balance sheets of the Company (parent
company only) at December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cash $ 16,756 $ --
Investment in subsidiaries 1,809,306 843,507
Other assets and deferred charges 3,149 15,077
---------- --------
Total assets $1,829,211 $858,584
========== ========
Liabilities, Minority Interest and Stockholders' Equity
Parent Holdings Notes $ -- $455,000
Discount on borrowings -- (3,907)
Accrued interest payable -- 11,843
Other liabilities 247,433 484
---------- --------
Total liabilities 247,433 463,420
Minority interest - FN Holdings Preferred Stock -- 25,680
Total stockholders' equity 1,581,778 369,484
---------- --------
Total liabilities, minority interest and stockholders' equity $1,829,211 $858,584
========== ========
</TABLE>
The following represents parent company only condensed statements of income
for the years ended December 31, 1998, 1997 and 1996 (in thousands):
F-69
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dividends received from GS Financial Corp. $ 38,200 $ 56,876 $ 57,902
Interest expense 39,354 57,613 40,494
Noninterest expense 377 1,850 1,167
-------- -------- --------
39,731 59,463 41,661
Income before equity in undistributed
net income of subsidiaries (1,531) (2,587) 16,241
Equity in undistributed net income of subsidiaries 243,523 104,493 519,621
-------- -------- --------
Income before income taxes and minority interest 241,992 101,906 535,862
Income tax (benefit) expense (6,341) 5,833 2,676
-------- -------- --------
Income before minority interest 248,333 107,739 538,538
Minority interest - FN Holdings Preferred Stock dividends 578 12,791 4,815
-------- -------- --------
Net income $247,755 $ 94,948 $533,723
======== ======== ========
</TABLE>
The following represents parent company only statements of cash flows for
the years ended December 31, 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 247,755 $ 94,948 $ 533,723
Adjustments to reconcile net income to net cash
provided by operating activities:
Accretion of discount on Parent Holdings Notes -- 744 523
Amortization of deferred issuance costs -- 1,825 1,167
(Increase) decrease other assets and deferred charges (693) 876 (2,332)
(Decrease) increase in other liabilities (2,890) 1,775 (2,163)
Increase (decrease) in accrued interest payable 33,167 (6) 11,849
Minority interest - FN Holdings Preferred Stock 578 12,791 4,815
Equity in undistributed net income of subsidiaries (243,523) (104,493) (519,621)
----------- --------- ---------
Net cash provided by operating activities 34,394 8,460 27,961
----------- --------- ---------
Cash flows provided by investing activities:
Redemption of FN Holdings' class C common stock -- -- 124,670
----------- --------- ---------
Net cash provided by investing activities -- -- 124,670
----------- --------- ---------
Cash flows used in financing activities:
Proceeds from issuance of Parent Holdings Notes -- -- 434,083
Exercise of stock options 644 -- --
Redemption of Series A Preferred Stock (68) -- --
Sale of treasury stock 218 -- --
Capital contribution 1,464,361 49 1,819
Capital distribution (1,482,793) -- (434,083)
Dividends -- (8,509) (154,450)
----------- --------- ---------
Net cash used in financing activities (17,638) (8,460) (152,631)
----------- --------- ---------
Net change in cash and cash equivalents 16,756 -- --
Cash and cash equivalents at beginning of year -- -- --
----------- --------- ---------
Cash and cash equivalents at end of year $ 16,756 $ -- $ --
=========== ========= =========
</TABLE>
F-70
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Supplemental Disclosure of Cash Flow Information:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash paid for interest $28,438 $56,875 $28,122
Non-cash investing and financing activities:
Preferred stock dividends reinvested 107 2,227 792
Reduction of loans through redemption of and
dividends on class C common stock -- -- 46,769
Dividend to Parent 230,161 -- --
</TABLE>
(45) Subsequent Event (Unaudited)
10 5/8% Preferred Stock
On February 5, 1999, the Board of Directors of the Bank resolved to
redeem all outstanding shares of the 10 5/8% Preferred Stock on April 1, 1999 at
$105.313 per share plus declared and unpaid dividends. Such shares will be
purchased by GS Holdings.
F-71
<PAGE>
EXHIBIT 2.2
AMENDMENT NO. 1
AMENDMENT NO. 1, dated as of July 13, 1998, by and among First Nationwide
(Parent) Holdings Inc., a Delaware corporation, First Nationwide Holdings Inc.,
a Delaware corporation, Golden State Bancorp Inc., a Delaware corporation,
Golden State Financial Corporation, a Delaware corporation, First Gibraltar
Holdings Inc., a Delaware corporation, and Hunter's Glen/Ford Ltd., Texas
limited partnership (collectively, the "Parties"), to the Agreement and Plan of
Reorganization (the "Agreement"), dated as of February 4, 1998, by and among the
Parties. Capitalized terms which are not otherwise defined herein shall have the
meanings set forth in the Agreement.
WHEREAS, in accordance with Section 8.3 of the Agreement, the Parties desire
to amend the Agreement as set forth herein:
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, the Parties hereby agree as follows:
1. Section 1.6(c)(ii)(C) of the Agreement is hereby amended by adding the
following new language at the end of subsection (3) thereof after the words
"Effective Date" but before the period:
, plus
(4) if the closing of the sale of assets and the assumption of
liabilities contemplated by the Purchase and Sale Agreement, dated as of
March 29, 1998, by and between CFB and Union Planters Bank of Florida(the
"Florida Branch Sale"), occurs on or before the Effective Date, then for the
first Taxable Period immediately following the Effective Date, any federal
income tax savings resulting from the Florida Branch Sale. For this purpose,
the amount of federal income tax savings resulting from the Florida Branch
Sale shall be an amount equal to (i) the product of the amount of the gain
recognized by CFB for federal income tax purposes as a result of the Florida
Branch Sale and the highest marginal federal income tax rate applicable to
corporations for the taxable year in which the Florida Branch Sale occurs,
less (ii) the amount of any federal income taxes actually paid as a result
of such sale (including any payment in lieu of federal income taxes under
the Tax Sharing Agreement(as defined in Section 6.14)) by CFB.
2. Section 1.6(c)(ii)(A) of the Agreement is hereby amended by adding the
following new sentence at the end of such section:
In the calculation of the Tax Benefits there shall be excluded any
deductions resulting from or arising in connection with the refinancing of
all of the long-term debt of FNH and Parent Holdings and the purchasing of
all of the preferred stock of CFB, in each case outstanding as of the date
hereof, pursuant to the refinancing transactions contemplated to be
consummated immediately after the consummation of the transactions
contemplated by this Agreement, or any transactions with substantially
similar purpose or effect.
3. Section 6.7(b) of the Agreement is hereby deleted in its entirety and
replaced with the following new Section 6.7(b):
Parent Holdings shall use its reasonable best efforts to cause the
persons serving as officers and directors of Golden State immediately prior
to the Effective Time to be covered for a period of six (6) years from the
Effective Time (the "Coverage Period") by the directors' and officers'
liability insurance policy maintained by Golden State (except that effective
as of the Effective Time the single aggregate coverage limit shall be
increased to $100 million, and provided that Parent Holdings may substitute
for such policy, as amended pursuant hereto, policies of directors' and
officers' liability insurance of at least the same coverage and amounts and
containing terms and conditions which are not less advantageous to such
directors and officers of Golden State than the terms and conditions of such
policy, as amended pursuant hereto) with respect to acts and omissions
occurring prior to the Effective Time which were committed by such officers
and directors in their capacity as such; provided that Parent Holdings shall
not be required as to any such policy to pay premiums in excess of 300% of
the amount currently expended annually by Golden State to obtain such
insurance, and if such insurance cannot be obtained for such premium Parent
Holdings shall obtain for such persons
A-45
<PAGE>
the maximum coverage that may be obtained for such premiums. It is the
understanding of the parties hereto that the obligations of Parent Holdings
contemplated by the preceding sentence are expected to be satisfied through
the purchase by Parent Holdings, by means of the payment of a single premium
prior to the Effective Time, of a directors' and officers' liability
insurance policy with a single aggregate coverage limit of $100 million, and
shall be so satisfied for so long as such policy remains in effect during
the Coverage Period.
4. Section 6.14(a)(ii) and Section 6.14(b)(i) of the Agreement are hereby
amended by deleting the words "Merger Sub" and inserting instead the words "New
FNH".
5. All references to "this Agreement" in the Agreement shall be deemed to
refer to the Agreement as amended hereby.
6. Each of the Parties represents to the other that (i) it has full
corporate (or partnership) power and authority to execute and deliver this
Amendment and, subject to the terms and conditions set forth in the Agreement,
to consummate the transactions contemplated hereby, (ii) the execution and
delivery of this Amendment by such party have been duly and validly approved by
the Board of Directors of such party and no other corporate proceedings on the
part of such party are necessary in connection with the execution and delivery
of this Amendment by such party, and (iii) this Amendment has been duly and
validly executed and delivered by such party and constitutes a valid and binding
obligation of such party, enforceable against such party in accordance with its
terms.
7. Except as expressly amended by this Amendment, the Agreement is hereby
ratified and confirmed in all respects.
8. This Amendment may be executed in two or more counterparts, each of which
shall be deemed an original and all of which shall be considered one and the
same agreement, and shall become effective when counterparts have been signed by
each of the Parties and delivered to the other Parties, it being understood that
all Parties need not sign the same counterpart.
9. This Amendment shall be governed and construed in accordance with the
laws of the State of Delaware, without regard to any applicable conflicts of law
provisions.
A-46
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed by
their respective officers thereunto duly authorized as of the date first above
written.
GOLDEN STATE BANCORP INC.
By: /s/ Richard A. Fink
-----------------------
Name: Richard A. Fink
Title: Vice Chairman
GOLDEN STATE FINANCIAL CORPORATION
By: /s/ Richard A. Fink
-----------------------
Name: Richard A. Fink
Title: Vice President
FIRST NATIONWIDE (PARENT)
HOLDINGS INC.
By: /s/ Glenn P. Dickes
-----------------------
Name: Glenn P. Dickes
Title: Vice President
FIRST NATIONWIDE HOLDINGS INC.
By: /s/ Glenn P. Dickes
-----------------------
Name: Glenn P. Dickes
Title: Vice President
FIRST GIBRALTAR HOLDINGS INC.
By: /s/ Glenn P. Dickes
-----------------------
Name: Glenn P. Dickes
Title: Vice President
HUNTER'S GLEN/FORD, LTD.
By: /s/ Gerald J. Ford
-----------------------
Name: Gerald J. Ford
Title: General Partner
A-47
<PAGE>
BYLAWS OF GOLDEN STATE BANCORP INC.
Adopted June, 23, 1997
As Amended - Effective May 18, 1999
ARTICLE I
OFFICES
SECTION 1. Registered Office. Golden State Bancorp Inc. (hereinafter
referred to as the "Corporation") shall at all times maintain a registered
office in the State of Delaware, which, except as otherwise determined by the
Board of Directors of the Corporation (hereinafter referred to as the "Board"),
shall be in the City of Wilmington, County of New Castle.
SECTION 2. Other Offices. The Corporation may also have offices at such
other places within or without the State of Delaware as the Board shall from
time to time designate or the business of the Corporation shall require.
ARTICLE II
Stockholders
SECTION 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at such places within or without the State of
Delaware as may from time to time be designated by the Board and specified in
the notice of meeting.
SECTION 2. Annual Meeting. The annual meeting of the stockholders of
the Corporation for the election of directors and for the transaction of any
other business of the Corporation shall be held on such date and time as shall
be designated from time to time by the Board and stated in the notice of the
meeting.
SECTION 3. Special Meetings. A special meeting of the stockholders may
be called by the Chairman of the Board of Directors of the Corporation or a
majority of the Board then in office, and shall be called by the Chairman of the
Board of Directors of the Corporation or by a majority of the Board of Directors
upon the written request of the holders of not less than 10% of the outstanding
capital stock of the Corporation entitled to vote at a meeting. Business to be
transacted at any special meeting of the stockholders called upon the written
request of stockholders in accordance with this Section 3 shall be limited to
the business set forth in such written request and any other business or
proposals as the Board of Directors shall determine and shall be set forth in
the notice of such meeting.
SECTION 4. Conduct of Meetings. Annual and special meetings of the
stockholders shall be conducted in accordance with Delaware law unless otherwise
prescribed by the Bylaws. The Chairman of the Board, or in the absence of the
Chairman of the Board, the highest ranking officer of the Corporation who is
present, or such other person as the Board shall have designated, shall call to
order any meeting of the stockholders and act as chairman of the meeting. The
Secretary of the Corporation, if present at the meeting, shall be the secretary
of the meeting. In
1
<PAGE>
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman of the meeting shall appoint. The chairman
of any meeting of the stockholders, unless otherwise prescribed by law or
regulation or unless the Chairman of the Board has otherwise determined, shall
determine the order of business and the procedure at the meeting.
SECTION 5. Notice of Meetings. Written notice stating the place, day
and hour of the meeting and the purpose or purposes for which the meeting of the
stockholders is called shall be delivered not less than ten nor more than sixty
days before the date of the meeting, either personally or by mail, by or at the
direction of the Chairman of the Board, the Secretary or the directors
requesting the meeting, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed given when deposited in the
United States mail, postage prepaid, addressed to the stockholder at his or her
address as it appears on the stock transfer books or records of the Corporation
as of the record date prescribed in Section 6 of this Article II. When any
meeting of the stockholders either annual or special, is adjourned for more than
thirty days or if after adjournment, a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given as in the case
of an original meeting. It shall not be necessary to give any notice of the time
and place of any other adjourned meeting of the stockholders, other than an
announcement at the meeting at which such adjournment is taken.
SECTION 6. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of the stockholders
or any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose under Delaware law, the Board may fix, in advance, a date as the
record date for any such determination of stockholders. Such date shall not be
more than sixty days and not less than ten days before the date of such meeting,
nor more than sixty days prior to any other action.
SECTION 7. Voting Lists. The Secretary of the Corporation, or other
officer or agent of the Corporation having charge of the stock transfer books
for shares of the capital stock of the Corporation, shall prepare and make, at
least ten days before each meeting of the stockholders, a complete list of the
stockholders entitled to vote at such meeting, or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting as required by
applicable law. Such list shall also be produced and kept open at the time and
place of the meeting during the whole time thereof and shall be subject to the
inspection of any stockholder present at the meeting. The stock transfer books
shall be the only evidence as to who are the stockholders entitled to examine
the stock transfer books, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 8. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote at a meeting of the stockholders, represented in
person or by proxy, shall constitute a quorum at a meeting. If less than a
majority of the outstanding shares are represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business
2
<PAGE>
may be transacted which might have been transacted at the meeting as originally
called. The stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stock holders to leave less than a quorum.
SECTION 9. Proxies. At any meeting of the stockholders, every
stockholder having the right to vote shall be entitled to vote in person, or by
proxy appointed by an instrument in writing and complying with the requirements
of Delaware law.
SECTION 10. Voting by the Corporation. Neither treasury shares of its
own capital stock held by the Corporation, nor shares held by another
corporation, a majority of the shares of which entitled to vote for the election
of directors are held by the Corporation, shall be entitled to vote or be
counted for quorum purposes at any meeting of the stockholders; provided,
however, that the Corporation may vote shares of its capital stock held by it,
or by any such other corporation, if such shares of capital stock are held by
the Corporation or such other corporation in a fiduciary capacity.
SECTION 11. "Advance Notice of New Business at Annual Meetings. At the
annual meeting of stockholders only such business shall be conducted that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or by the Chairman or (c) otherwise properly brought before the annual
meeting by any stockholder of the Corporation (I) who is a stockholder of record
on the date of the giving of the notice provided for in this Section 11 and on
the record date for the determination of stockholders entitled to vote at such
annual meeting and (ii) who complies with the notice procedures set forth in
this Section 11.
In addition to any other applicable requirements for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than ninety (90) days nor more than one-hundred twenty (120) days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description
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of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of such stockholder, (iii) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
such stockholder, (iv) a description of all arrangements or understandings
between such stockholder and any other person or persons (including their names)
in connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business and (v) a representation
that such stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 11, provided, however, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 11 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
The provisions of this Section 11 shall not prevent the consideration and
approval or disapproval at the stockholders' meeting of reports of officers,
directors and committees of the Board of Directors, but, in connection with such
reports, no new business shall be acted upon at such meeting unless stated,
filed and received as herein provided.
SECTION 12. Informal Action by Stockholders. Any action required to be
taken at a meeting of the stockholders, or any other action which may be taken
at a meeting of stockholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be signed by all of the
stockholders entitled to vote with respect to the subject matter of such action.
SECTION 13. Inspectors of Election. In advance of any meeting of
stockholders, the Board may appoint any persons other than nominees for office
as inspectors of election to act at such meeting or any adjournment thereof. If
inspectors of election be not so appointed, or if any persons so appointed fail
to appear or refuse to act, the presiding officer of any such meeting may, and
on the request of any stockholder or a stockholder's proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more stockholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed. The duties of
such inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of the proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result, and such acts as may
be proper to conduct the election or vote with fairness to all stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be
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managed by or under the direction of the Board. The Board shall annually elect a
Chairman of the Board and a President, and may elect one or more Vice Chairman
from among its members, and shall designate, when present, either the Chairman
or the President or a Vice Chairman to preside at its meeting.
SECTION 2. Number. The Board shall consist of not less than five nor
more than fifteen members. The exact number of directors has been initially
fixed in the Corporation's Certificate of Incorporation at nine, but may be
changed from time to time by the Board pursuant to resolutions adopted by a
majority of the entire Board.
SECTION 3. Election of Directors. The Board shall be divided into three
classes, a nearly equal in number as possible: the first class, the second class
and the third class. Each director shall serve for a term ending on the third
annual meeting following the annual meeting of the stockholders at which such
director was elected; provided, however, that the directors first elected to the
first class shall serve for a term ending upon the election of directors at the
annual meeting next following the end of the calendar year 1996, the directors
first elected to the second class shall serve for a term ending upon the
election of directors at the second annual meeting next following the end of the
calendar year 1996, and the directors first elected to the third class shall
serve for a term ending upon the election of directors at the third annual
meeting next following the end of calendar year 1996.
At each annual election commencing at the first annual meeting of the
stockholders, the successors to the class of directors whose term expires at
that time shall be elected by the stockholders to hold office for a term of
three years to succeed those directors whose term expires, so that the term of
one class of directors shall expire each year, unless, by reason of any
intervening changes in the authorized number of directors, the Board shall have
designated one or more directorships whose term then expires as directorships of
another class in order more nearly to achieve equality of number of directors
among the classes.
Notwithstanding the requirement that the three classes shall be as nearly
equal in number of directors as possible, in the event of any changes in the
authorized number of directors, each director then continuing to serve as such
shall nevertheless continue as a director of the class of which he or she is a
member until the expiration of his or her current term, or his or her prior
resignation, disqualification, disability or removal. Stockholders shall be
entitled to cumulate their votes in the election of directors in the manner
provided in Section 214 of the Delaware General Corporation Law.
SECTION 4. Advance Notice for Nomination of Directors. Only persons who
are nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation, except as may be otherwise provided in
the Certificate of Incorporation with respect to the right of holders of
preferred stock of the Corporation to nominate and elect a specified number of
directors in certain circumstances. Nominations of persons for election to the
Board of Directors may be made at any annual meeting of stockholders, or at any
special meeting of stockholders called for the purpose of electing directors,
(a) by or at the direction of the Board of Directors (or any duly authorized
committee thereof) or (b) by any stockholder of the Corporation (i) who is a
stockholder of record on the date of the giving of the notice provided for
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in this Section 4 and on the record date for the determination of stockholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section 4.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than ninety (90) days nor more than
one hundred twenty (120) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated
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in accordance with the procedures set forth in this Section 4. If the Chairman
of the meeting determines that a nomination was not made in accordance with the
foregoing procedures, the Chairman shall declare to the meeting that the
nomination was defective and such defective nomination shall be disregarded.
SECTION 5. Regular Meetings. Meetings of the Board shall be held at
such time, and at such places within or without the State of Delaware, as shall
be fixed by the Board. No call shall be required for regular meetings for which
the time and place has been fixed.
Members of the Board of Directors may participate in regular meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other.
SECTION 6. Special Meetings. Special Meetings of the Board may be
called by or at the request of the Chairman of the Board, the President or a
majority of the directors. The persons authorized to call special meetings of
the Board may fix any place as the place for holding any special meeting of the
Board called by such persons.
Members of the Board of Directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other.
SECTION 7. Notice. Written notice of any special meeting of the Board
shall be given to each director at least one day prior thereto delivered
personally, by facsimile or by telegram or at least 2 days prior thereto
delivered by a guaranteed overnight delivery service or at least five days prior
thereto delivered by mail at the last address given by the director to the
Corporation for such purpose. Such notice shall be deemed to be delivered when
deposited in the United States mail so addressed, with postage thereon prepaid,
if mailed, when deposited with the delivery service, if sent by guaranteed
overnight delivery, when the facsimile confirmation is received, if sent by
facsimile or when delivered to the telegraph company if sent by telegram. Any
director may waive notice of any meeting by a writing filed with the Secretary.
The attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except in the event a director attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any meeting of the Board need be specified in the notice or
waiver of notice of such meeting.
SECTION 8. Quorum. A majority of the number of directors fixed pursuant
to Section 2 of this Article II shall constitute a quorum for the transaction of
business at any meeting of the Board, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 6 of this Article III.
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SECTION 9. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board.
SECTION 10. Action Without a Meeting. Any action required or permitted
to be taken by the Board at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
SECTION 11. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the Corporation addressed to the
Chairman of the Board, the President or the Board. Unless otherwise specified
therein, such resignation shall take effect upon receipt thereof.
SECTION 12. Vacancies. Any vacancy occurring in the Board may be filled
in accordance with the Certificate of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the Board, a reasonable fixed sum,
and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the Board. Members of either
standing or special committees may be allowed such compensation for actual
attendance at committee meetings as the Board may determine. Directors may also,
subject to applicable law, be entitled to receive stock options and benefits
under a retirement plan.
SECTION 14. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board at which action is taken shall be presumed to
have assented to the action taken unless his or her dissent or abstention shall
be entered in the minutes of the meeting or unless he or she shall file a
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Corporation within five days after the
date a copy of the minutes of the meeting is received. Such right to dissent
shall not apply to a director who voted in favor of such action.
SECTION 15. Removal. At a meeting of stockholders called expressly for
that purpose, a director may be removed only for cause as determined by the
affirmative vote of the holders of a majority of the shares then entitled to
vote in an election of directors, which vote may only be taken at a meeting of
stockholders called expressly for that purpose. Cause for removal shall be
deemed to exist only if the director whose removal is proposed has been
convicted of a felony by a court of competent jurisdiction or has been adjudged
by a court of competent jurisdiction to be liable for gross negligence or
misconduct in the performance of such director's duty to the Corporation and
such adjudication is no longer subject to direct appeal.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. Appointment. The Board, by resolution adopted by a majority
of the
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Board, may designate the Chief Executive Officer and two or more of the other
directors to constitute an Executive Committee. The designation of any committee
pursuant to this Article IV and the delegation of authority thereto shall not
operate to relieve the Board, or any director, of any responsibility imposed by
law or regulation, except to the extent provided by law.
SECTION 2. Authority. The Executive Committee, when the Board is not in
session, shall have and may exercise all of the authority of the Board except to
the extent, if any, that such authority shall be limited by the resolution
appointing the Executive Committee, or as otherwise expressly provided by law,
the Certificate of Incorporation or the Bylaws.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the Executive Committee shall hold office until a
successor is designated as a member of the Executive Committee.
SECTION 4. Meetings. Regular meetings of the Executive Committee may be
held without notice at such times and places as the Executive Committee may fix
from time to time. Special meetings of the Executive Committee may be called by
any member thereof upon not less than one day's notice stating the place, date
and hour of the meeting, which notice may be written or oral. Any member of the
Executive Committee may waive notice of any meeting and no notice of any meeting
need be given to any member thereof who attends in person. The notice of a
meeting of the Executive Committee need not state the business proposed to be
transacted at the meeting.
Regular or special meetings may be held by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other.
SECTION 5. Quorum. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the Executive Committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. Action Without a Meeting. Any action required or permitted
to be taken by the Executive Committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the Executive Committee.
SECTION 7. Vacancies. Any vacancy in the Executive Committee may be
filled by resolution adopted by a majority of the Board.
SECTION 8. Resignations and Removal. Any member of the Executive
Committee may be removed at any time with or without cause by resolution adopted
by a majority of the Board. Any member of the Executive Committee may resign
from the Executive Committee at any time by giving written notice to the
Chairman of the Board, the President or the Board. Unless otherwise specified
thereon, such resignation shall take effect upon receipt. The acceptance of such
resignation
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shall not be necessary to make it effective.
SECTION 9. Procedure. The Executive Committee shall elect a presiding
officer from its members and may fix its own rules of procedures which shall not
be inconsistent with the Bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board for its information.
SECTION 10. Other Committees. The Board may by resolution establish any
of an audit committee, a nominating committee or such other committees composed
of directors as they may determine to be necessary or appropriate for the
conduct of the business of the Corporation and may prescribe the duties,
constitution and procedures thereof.
ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall be a
Chairman of the Board, a Vice Chairman, a Chief Executive Officer, a President,
one or more Vice Presidents, a Secretary and a Treasurer or a Vice President in
charge of financial matters, each of whom shall be elected by the Board. Any
number of such offices may be held by the same person. The Board may designate
one or more Vice Presidents as Executive Vice President, Senior Vice President
or such other designation as the Board may determine. The Board may also elect
or authorize the appointment of such other officers as the business of the
Corporation may require. The officers shall have such authority and perform such
duties as the Board may from time to time authorize or determine. In the absence
of action by the Board, the officers shall have such powers and duties as
generally pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the Corporation
shall be elected annually at the first meeting of the Board held after each
annual meeting of the stockholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until his or her successor shall have been duly
elected and qualified or until his or her death, resignation or removal in the
manner hereinafter provided. Election or appointment of an officer, employee or
agent shall not by itself create any contractual rights. The Board may authorize
the Corporation to enter into an employment contract with any officer, but no
contract shall impair the right of the Board to remove any officer at any time
in accordance with Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by the Board whenever in
its judgment the best interests of the Corporation will be served thereby, but
such removal, other than for cause, shall be without prejudice to the contract
rights, if any, of the person so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by a majority
vote of the Board for the unexpired portion of the term.
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SECTION 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the Board or its delegees.
ARTICLE VI
CONTRACTS, LOANS, CHECK AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by applicable law, the
Certificate of Incorporation or the Bylaws, the Board may authorize any officer,
employee or agent of the Corporation to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board. Such authority may be general or confined to specific
instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees or
agents of the Corporation in such manner as shall from time to time be
determined by the Board.
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any duly authorized depositories as the Board may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing shares of
capital stock of the Corporation shall be in such form as shall be determined by
the Board. Such certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer or any other officer of the Corporation authorized by
the Board, attested by the Secretary or an Assistant Secretary, and sealed with
the corporate seal or a facsimile thereof. The signatures of such officers upon
a certificate may be facsimiles if the certificate is manually signed on behalf
of a transfer agent or a registrar other than the Corporation itself or one of
its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares issued and date
of issue, shall be entered on the stock transfer books of the Corporation. All
Certificates surrendered to the Corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in the
case of a lost, stolen or destroyed certificate, a new certificate may be issued
therefor upon such terms and indemnity to the Corporation as the Board may
prescribe as sufficient to indemnify the Corporation against any claim that may
be made against it on account of such loss, theft or destruction.
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SECTION 2. Transfer of Shares. Transfer of shares of capital stock of
the Corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record thereof or by his or
her legal representative, who shall furnish proper evidence of such authority,
or by his or her attorney thereunto duly authorized by power of attorney duly
executed and filed with the Corporation. Such transfer shall be made only on
surrender for cancellation of the certificate for such shares. The person in
whose name shares of capital stock stand on the books of the Corporation shall
be deemed by the Corporation to be the owner thereof for all purposes.
ARTICLE VIII
FISCAL YEAR, ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 31st day of
December of each year. The Corporation shall be subject to an annual audit as of
the end of its fiscal year by independent public accountants appointed by and
responsible to the Board. The appointment of such accountants shall be subject
to annual ratification by the stockholders.
ARTICLE IX
DIVIDENDS
Subject to applicable law, the Certificate of Incorporation or the
Bylaws, the Board may, from time to time, declare and the Corporation may pay,
dividends on the outstanding shares of capital stock of the Corporation.
ARTICLE X
CORPORATE SEAL
The corporation seal of the Corporation shall be in such form as the
Board shall prescribe.
ARTICLE XI
AMENDMENTS
Bylaws may be adopted, amended or repealed by the vote of two thirds of
the outstanding stock of the Corporation entitled to vote thereon or by a
resolution adopted by a majority of the directors then in office.
ARTICLE XII
INDEMNIFICATION
SECTION 1. Actions, Suits or Proceedings Other than by or in the Right
of the Corporation. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suite or proceeding, whether civil,
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criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he or she is or was or has
agreed to become a director or officer of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a director or
officer of another corporation, partnership, limited liability company, limited
liability partnership, joint venture, trust or other enterprise, or by reason of
any action alleged to have been taken or omitted in such capacity, against
costs, charges, expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonable incurred by him or her or on
his or her behalf in connection with such action, suit or proceeding and any
appeal therefrom, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be within the scope of his or her authority and
in, or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
SECTION 2. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he or she is or was or has agreed to become a director or officer of
the Corporation, or is or was serving or has agreed to serve at the request of
the Corporation as a director or officer of another corporation, partnership,
limited liability company, limited liability partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against costs, charges and expenses (including
attorneys' fees) actually and reasonably incurred by him or her or on his or her
behalf in connection with the defense or settlement of such action or suit and
any appeal therefrom, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interest of the
Corporation except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for gross negligence or misconduct in the performance of his or her duty
to the Corporation unless and only to the extent that the Court of Chancery of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of such liability but in view of
all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such costs, charges and expenses which the Court of Chancery or
such other court shall deem proper.
SECTION 3. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this Article XII, to
the extent that a director or officer has been successful, on the merits or
otherwise, including, without limitation, the dismissal of an action without
prejudice, in defense of any action, suite or proceeding referred to in Sections
1 and 2 of this Article XII, or in defense of any claim, issue or matter
therein, he or she shall be indemnified against all costs, charges and expenses
(including attorneys' fees) actually and reasonably incurred by him
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or her or on his or her behalf in connection therewith.
SECTION 4. Determination of Right to Indemnification. Any
indemnification under Sections 1 and 2 of this Article XII (unless ordered by a
court) shall be paid by the Corporation unless a determination is made by (i)
the board of directors by a majority vote of the directors who were not parties
to such action, suit or proceeding, or if such majority of disinterested
directors so directs, (ii) by independent legal counsel in a written opinion, or
(iii) by the stockholders, that indemnification of the director or officer is
not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Sections 1 and 2 of this Article XII.
SECTION 5. Advance of Costs, Charges and Expenses. Costs, charges and
expenses (including attorneys' fees) incurred by a person referred to in
Sections 1 or 2 of this Article XII in defending a civil or criminal action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding; provided, however, that the
payment of such costs, charges and expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer) in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article XII. Such costs, charges and
expenses incurred by other employees and agents may be so paid upon such terms
and conditions, if any, as the majority of the directors deems appropriate. The
majority of the directors may, in the manner set forth above, and upon approval
of such director or officer of the Corporation, authorize the Corporation's
counsel to represent such person, in any action, suit or proceeding, whether or
not the Corporation is a party to such action, suit or proceeding.
SECTION 6. Procedure for Indemnification. Any indemnification under
Sections 1, 2 and 3, or advance of costs, charges and expenses under Section 5
of this Article XII shall be made promptly, and in any event within 60 days,
upon the written request of the director or officer. The right to
indemnification or advances as granted by this Article XII shall be enforceable
by the director or officer in any court of competent jurisdiction, if the
Corporation denies such request, in whole or in part, or if no disposition
thereof is made within 60 days. Such person's costs and expenses incurred in
connection with successfully establishing his or her right to indemnification,
in whole or in part, in any such action shall also be indemnified by the
Corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of costs, charges and expenses under
Section 5 of this Article XII where the required undertaking, if any, has been
received by the Corporation) that the claimant has not met the standard of
conduct set forth in Sections 1 or 2 of this Article XII, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its board of directors, its independent legal counsel and
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she as met the applicable standard of conduct set forth in
Sections 1 or 2 of this Article XII, nor the fact that there has been an actual
determination by the Corporation (including its board of directors, its
14
<PAGE>
independent legal counsel and its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
SECTION 7. Settlement. The Corporation shall not be obligated to
reimburse the costs of any settlement to which it has not agreed. If in any
action, suit or proceeding, including any appeal, within the scope of Sections 1
or 2 of this Article XII, the person to be indemnified shall have unreasonably
failed to enter into a settlement thereof, then, notwithstanding any other
provision hereof, the indemnification obligation of the Corporation to such
person in connection with such action, suit or proceeding shall not exceed the
total of the amount at which settlement could have been made and the expenses
incurred by such person prior to the time such settlement could reasonably have
been effected.
SECTION 8. Subsequent Amendment. No amendment, termination or repeal of
this Article XII or of relevant provisions of the Delaware General Corporation
Law or any other applicable laws shall affect or impair in any way the rights of
any director or officer of the Corporation to indemnification under the
provisions hereof with respect to any action, suit or proceeding arising out of,
or relating to, any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or appeal.
SECTION 9. Other Rights: Continuation of Right to Indemnification. The
indemnification provided by this Article XII shall not be deemed exclusive of
any other rights to which a director, officer, employee or agent seeking
indemnification may be entitled under any law (common or statutory), agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding office or while employed by or acting as agent for the Corporation, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent, and shall inure to the benefit of the estate, heirs, executors and
administrators of such person. Nothing contained in this Article XII shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth herein. All rights to
indemnification under this Article XII shall be deemed to be a contract between
the Corporation and each director or officer of the Corporation who serves or
served in such capacity at any time while this Article XII is in effect. Any
repeal or modification of this Article XII or any repeal or modification of
relevant provisions of the Delaware General Corporation Law or any other
applicable laws shall not in any way diminish any rights to indemnification of a
director, officer, employee or agent or the obligations of the Corporation
arising hereunder. This Article XII shall be binding upon any successor
Corporation to this Corporation, whether by way of acquisition, merger,
consolidation or otherwise.
SECTION 10. Insurance. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, limited liability company, limited liability
15
<PAGE>
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her or on his or her behalf
in any such capacity, or arising out of his or her status as such, whether or
not the Corporation would have the power to indemnify him or her against such
liability under the provisions of this Article XII; provided, that such
insurance is available on acceptable terms, which determination shall be made by
a vote of a majority of the directors.
SECTION 11. Savings Clause. If this Article XII or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer of the
Corporation as to costs, charges and expenses (including attorneys' fees),
judgments, fine and amounts paid in settlement with respect to any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article XII that shall not have been
invalidated and to the full extent permitted by applicable law.
SECTION 12. Subsequent Legislation. If the Delaware General Corporation
Law is amended after approval by the stockholders of this Article to further
expand the indemnification permitted to directors and officers of the
Corporation, then the corporation shall indemnify such persons to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
16
<PAGE>
-----------------------
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
12 1/2% Senior Exchange Notes due 2003
-----------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 10, 1998
Supplementing the Indenture, dated
as of April 15, 1996, Between
First Nationwide (Parent) Holdings Inc. and
The Bank of New York, as Trustee
-----------------------
THE BANK OF NEW YORK,
AS TRUSTEE
-----------------------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of September 10, 1998 (the
"First Supplemental Indenture"), among FIRST NATIONWIDE (PARENT) HOLDINGS INC.,
a Delaware corporation (the "Company"), and THE BANK OF NEW YORK (the
"Trustee"), as Trustee under the Indenture referred to herein.
WHEREAS, the Company and the Trustee heretofore executed and delivered
an Indenture, dated as of April 15, 1996 (the "Indenture") in respect of the
12 1/2% Senior Exchange Notes due 2003 (the "Securities"); and
WHEREAS, Section 5.01 of the Indenture provides that if First
Nationwide Holdings Inc. ("FN Holdings") merges with or into any other person
and FN Holdings is not the survivor in such merger that the survivor of the
merger must expressly assume by supplemental indenture all of the obligations of
the Company under the Securities and the Indenture and that such surviving
person shall be the successor Company and shall succeed to, and be substituted
for, the Company under the Indenture; and
WHEREAS, Section 1.01 of the Indenture defines "FN Holdings" as FN
Holdings and its successors; and
WHEREAS, Section 4.07(a) of the Indenture requires that to the extent
any shares of Capital Stock of FN Holdings are beneficially owned by the
Permitted Holders that the Company shall not permit such shares of FN Holding to
be held of record by any person other than the Company; and
WHEREAS, pursuant to Sections 5.01 and 1.01 of the Indenture the
surviving person in a merger with FN Holdings would become both the "Company"
and "FN Holdings" for purposes of the Indenture and Section 4.07(a) does not
make provision for the circumstance in which FN Holdings and the Company are the
same entity as a result of compliance with Section 5.01 of the Indenture; and
WHEREAS, the Company and the Trustee desire to cure such ambiguity,
omission, defect or inconsistency in the Indenture; and
WHEREAS, Section 9.01(1) of the Indenture provides that the Company and
the Trustee may amend the Indenture and the Securities without notice to or
consent of any Holders of the Securities in order to cure any ambiguity,
omission, defect or inconsistency; and
2
<PAGE>
WHEREAS, this First Supplemental Indenture has been duly authorized
by all necessary corporate action on the part of the Company.
NOW, THEREFORE, the Company and the Trustee agree as follows
for the equal and ratable benefit of the Holders of the Securities:
ARTICLE I
AMENDMENT
SECTION 1.1. Amendment to Section 4.07. Section 4.07(a) of the
Indenture is hereby amended by adding the following at the end of the first
sentence thereof:
; provided, however, that the foregoing shall have no application if, as
a result of compliance with the provisions of Section 5.01 hereof, the
Company and FN Holdings are the same Person.
ARTICLE II
MISCELLANEOUS
SECTION 2.1. Interpretation. Upon execution and delivery of this First
Supplemental Indenture, the Indenture shall be modified and amended in
accordance with this First Supplemental Indenture, and all the terms and
conditions of both shall be read together as though they constitute one
instrument, except that, in case of conflict, the provisions of this First
Supplemental Indenture will control. The Indenture, as modified and amended by
this First Supplemental Indenture, is hereby ratified and confirmed in all
respects and shall bind every Holder of Securities. In case of conflict between
the terms and conditions contained in the Securities and those contained in the
Indenture, as modified and amended by this First Supplemental Indenture, the
provisions of the Indenture, as modified and amended by this First Supplemental
Indenture, shall control.
SECTION 2.2. Conflict with Trust Indenture Act. If any provision of
this First Supplemental Indenture limits, qualifies or conflicts with any
provision of the TIA that is required under the TIA to be part of and govern any
provision of this First Supplemental Indenture, the provision of the TIA shall
control. If any provi-
3
<PAGE>
sion of this First Supplemental Indenture modifies or excludes any provision of
the TIA that may be so modified or excluded, the provision of the TIA shall be
deemed to apply to the Indenture as so modified or to be excluded by this First
Supplemental Indenture, as the case may be.
SECTION 2.3. Severability. In case any provision in this First
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 2.4. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 2.5. Headings. The Article and Section headings of this First
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part of this First Supplemental Indenture and shall in no
way modify or restrict any of the terms or provisions hereof.
SECTION 2.6. Benefits of First Supplemental Indenture, etc. Nothing in
this First Supplemental Indenture or the Securities, express or implied, shall
give to any Person, other than the parties hereto and thereto and their
successors hereunder and thereunder and the Holders of the Securities, any
benefit of any legal or equitable right, remedy or claim under the Indenture,
this First Supplemental Indenture or the Securities.
SECTION 2.7. Successors. All agreements of the Company in this First
Supplemental Indenture shall bind its successors. All agreements of the Trustee
in this First Supplemental Indenture shall bind its successors.
SECTION 2.8. Trustee Not Responsible for Recitals. The recitals
contained herein shall be taken as the statements of the Company and the Trustee
assumes no responsibility for their correctness.
SECTION 2.9. Certain Duties and Responsibilities of the Trustee. In
entering into this First Supplemental Indenture, the Trustee shall be entitled
to the benefit of every provision of the Indenture relating to the conduct or
affecting the liability or affording protection to the Trustee, whether or not
elsewhere herein so provided.
4
<PAGE>
SECTION 2.10. Governing Law. This First Supplemental Indenture shall be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 2.11. Counterpart Originals. The parties may sign any number of
copies of this First Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed as of the date first written above.
FIRST NATIONWIDE (PARENT)
HOLDINGS INC.
By: /s/ Glenn P. Dickes
----------------------------------------
Name: Glenn P. Dickes
Title: Vice President and Secretary
THE BANK OF NEW YORK, as Trustee
By: _______________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed as of the date first written above.
FIRST NATIONWIDE (PARENT)
HOLDINGS INC.
By:
--------------------------------------
Name: Glenn P. Dickes
Title: Vice President and Secretary
THE BANK OF NEW YORK, as Trustee
By: /s/ THOMAS C. KNIGHT
--------------------------------------
Name: THOMAS C. KNIGHT
Title: ASSISTANT VICE PRESIDENT
<PAGE>
---------------------------
FIRST NATIONWIDE HOLDINGS INC.
10 5/8% Senior Subordinated Exchange Notes Due 2003
---------------------------
SECOND SUPPLEMENTAL INDENTURE
Dated as of September 11, 1998
Supplementing the Indenture, dated
as of September 19, 1996, As Supplemented, Between
First Nationwide Holdings Inc. and
The Bank of New York, as Trustee
---------------------------
THE BANK OF NEW YORK,
AS TRUSTEE
---------------------------
<PAGE>
SECOND SUPPLEMENTAL INDENTURE, dated as of September 11, 1998 (the
"Second Supplemental Indenture"), among FIRST NATIONWIDE HOLDINGS INC., a
Delaware corporation (the "Company"), NEW FIRST NATIONWIDE HOLDINGS INC., a
Delaware corporation to be renamed Golden State Holdings Inc. ("New FNH"), and
THE BANK OF NEW YORK (the "Trustee"), as Trustee under the Indenture referred to
herein.
WHEREAS, the Company and the Trustee heretofore executed and delivered
an Indenture, dated as of September 19, 1996, as supplemented by the First
Supplemental Indenture dated as of January 3, 1997 (the "Indenture") in respect
of the 10 5/8% Senior Subordinated Exchange Notes Due 2003 (the "Securities");
and
WHEREAS, the Company and New FNH have entered into the Assignment and
Assumption Agreement, dated as of September 11, 1998, pursuant to which the
Company will transfer all of its assets to New FNH and New FNH will assume all
of the liabilities of the Company (the "Asset Transfer"); and
WHEREAS, Section 5.01(a) of the Indenture provides that if the Company
transfers all or substantially all its assets to any other Person, such Person
must expressly assume by supplemental indenture all of the obligations of the
Company under the Securities and the Indenture and that such transferee Person
shall be the successor Company and shall succeed to, and be substituted for, the
Company under the Indenture; and
WHEREAS, Section 10.01(2) of the Indenture provides that the Company
and the Trustee may amend the Indenture and the Securities without notice to or
consent of any Holders of the Securities in order to comply with Article V of
the Indenture; and
WHEREAS, this Second Supplemental Indenture has been duly authorized by
all necessary corporate action on the part of each of the Company and New FNH.
NOW, THEREFORE, the Company, the Trustee and New FNH agree as follows
for the equal and ratable benefit of the Holders of the Securities:
2
<PAGE>
ARTICLE I
ASSUMPTION BY SUCCESSOR CORPORATION
SECTION 1.1. Assumption of the Securities. New FNH, as the transferee
Person in the Asset Transfer, hereby expressly assumes the due and punctual
payment of the principal of and interest on the Securities and all obligations
of the Company under the Securities and the Indenture and shall be the successor
to the Company under the Indenture.
SECTION 1.2. Release of the Company. Upon New FNH becoming the
successor Company under the Indenture, the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities.
SECTION 1.3. Trustee's Acceptance. The Trustee hereby accepts this
Second Supplemental Indenture and agrees to perform the same under the terms and
conditions set forth in the Indenture.
ARTICLE II
Miscellaneous
SECTION 2.1. Effect of Supplemental Indenture. Upon the later to occur
of (i) the execution and delivery of this Second Supplemental Indenture by the
Company, New FNH and the Trustee and (ii) the consummation of the Asset
Transfer, the Indenture shall be supplemented in accordance herewith, and this
Second Supplemental Indenture shall form a part of the Indenture for all
purposes, and every Holder of Securities heretofore or hereafter authenticated
and delivered under the Indenture shall be bound thereby.
SECTION 2.2. Indenture Remains in Full Force and Effect. Except as
supplemented hereby, all provisions in the Indenture shall remain in full force
and effect.
SECTION 2.3. Indenture and Supplemental Indenture Construed Together.
This Second Supplemental Indenture is an indenture supplemental to and
3
<PAGE>
in implementation of the Indenture, and the Indenture and this Second
Supplemental Indenture shall henceforth be read and construed together.
SECTION 2.4. Confirmation and Preservation of Indenture. The Indenture
as supplemented by this Second Supplemental Indenture is in all respects
confirmed and preserved.
SECTION 2.5. Conflict with Trust Indenture Act. If any provision of
this Second Supplemental Indenture limits, qualifies or conflicts with any
provision of the TIA that is required under the TIA to be part of and govern any
provision of this Second Supplemental Indenture, the provision of the TIA shall
control. If any provision of this Second Supplemental Indenture modifies or
excludes any provision of the TIA that may be so modified or excluded, the
provision of the TIA shall be deemed to apply to the Indenture as so modified or
to be excluded by this Second Supplemental Indenture, as the case may be.
SECTION 2.6. Severability. In case any provision in this Second
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 2.7. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 2.8. Headings. The Article and Section headings of this Second
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part of this Second Supplemental Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
SECTION 2.9. Benefits of Second Supplemental Indenture, etc. Nothing in
this Second Supplemental Indenture or the Securities, express or implied, shall
give to any Person, other than the parties hereto and thereto and their
successors hereunder and thereunder and the Holders of the Securities, any
benefit of any legal or equitable right, remedy or claim under the Indenture,
this Second Supplemental Indenture or the Securities.
SECTION 2.10. Successors. All agreements of New FNH and the Company in
this Second Supplemental Indenture shall bind their respective succes-
4
<PAGE>
sors. All agreements of the Trustee in this Second Supplemental Indenture shall
bind its successors.
SECTION 2.11. Trustee Not Responsible for Recitals. The recitals
contained herein shall be taken as the statements of the Company and New FNH,
and the Trustee assumes no responsibility for their correctness.
SECTION 2.12. Certain Duties and Responsibilities of the Trustee. In
entering into this Second Supplemental Indenture, the Trustee shall be entitled
to the benefit of every provision of the Indenture relating to the conduct or
affecting the liability or affording protection to the Trustee, whether or not
elsewhere herein so provided.
SECTION 2.13. Governing Law. This Second Supplemental Indenture shall
be governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 2.14. Counterpart Originals. The parties may sign any number of
copies of this Second Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Second
Supplemental Indenture to be duly executed as of the date first written above.
FIRST NATIONWIDE
HOLDINGS INC.
By: /s/ Glenn P. Dickes
---------------------------------------
Name: Glenn P. Dickes
Title: Vice President and Secretary
NEW FIRST NATIONWIDE
HOLDINGS INC.
By: /s/ Glenn P. Dickes
---------------------------------------
Name: Glenn P. Dickes
Title: Vice President and Secretary
THE BANK OF NEW YORK, as Trustee
By:
---------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Second
Supplemental Indenture to be duly executed as of the date first written above.
FIRST NATIONWIDE
HOLDINGS INC.
By:
---------------------------------------
Name:
Title:
NEW FIRST NATIONWIDE
HOLDINGS INC.
By:
---------------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By: /s/ THOMAS C. KNIGHT
---------------------------------------
Name: THOMAS C. KNIGHT
Title: ASSISTANT VICE PRESIDENT
<PAGE>
---------------------------
GOLDEN STATE HOLDINGS INC.
10 5/8% Senior Subordinated Exchange Notes Due 2003
---------------------------
THIRD SUPPLEMENTAL INDENTURE
Dated as of September 14, 1998
Supplementing the Indenture dated as of September 19, 1996,
as Supplemented, Between Golden State Holdings Inc.
(formerly known as New First Nationwide Holdings Inc.),
as successor to First Nationwide Holdings Inc.,
and The Bank of New York, as Trustee
---------------------------
THE BANK OF NEW YORK,
AS TRUSTEE
---------------------------
<PAGE>
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE, dated as of September 14, 1998 (the
"Third Supplemental Indenture"), among GOLDEN STATE HOLDINGS INC. (formerly
known as New First Nationwide Holdings Inc.), a Delaware corporation (the
"Company"), as successor to First Nationwide Holdings Inc., and THE BANK OF NEW
YORK (the "Trustee"), as Trustee under the Indenture referred to herein.
WHEREAS, the Company and the Trustee heretofore executed and delivered
an Indenture, dated as of September 19, 1996, as supplemented (the "Indenture"),
in respect of the Company's $575 million aggregate principal amount of 10 5/8%
Senior Subordinated Exchange Notes Due 2003 (the "Securities"); and
WHEREAS, Section 10.02 of the Indenture provides that the Company and
the Trustee may amend the Indenture with the consent of the Holders of at least
a majority in aggregate principal amount of the Securities then outstanding; and
WHEREAS, the Holders of at least 50% in aggregate principal amount of
the Securities outstanding have consented to the amendments effected by this
Third Supplemental Indenture; and
WHEREAS, this Third Supplemental Indenture has been duly authorized by
all necessary corporate action on the part of the Company.
NOW, THEREFORE, the Company and the Trustee agree as follows for the
equal and ratable benefit of the Holders of the Securities:
ARTICLE I
AMENDMENT
Upon the commencement of the Offer (as such term is defined in the
offer letter dated September 14, 1998 from the Company) each of the following
shall occur:
SECTION 1.1. Deletions. Sections 4.02, 4.03, 4.04, 4.05, 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 6.01(5) and 6.01(8) of the Indenture are hereby amended
by deleting all such sections and all references thereto in their entirety.
2
<PAGE>
SECTION 1.2. Amendment to Section 5.01. Section 5.01 of the Indenture
is hereby amended by deleting in its entirety subsection (iii) of Section 5.01.
SECTION 1.3. Amendment to Section 6.03. Section 6.01(3) of the
Indenture is hereby amended to read in its entirety as follows:
the Company fails to comply with Section 4.06 (other than a failure to
purchase Securities) and such failure continues for 30 days after the
notice specified below;
SECTION 1.4. Conforming Amendments. The form of Security and the
outstanding Securities are hereby amended to make any and all changes that
correspond to the amendments to the Indenture set forth in Sections 1.1 through
1.3 of this Third Supplemental Indenture.
SECTION 1.5. Trustee's Acceptance. The Trustee hereby accepts this
Third Supplemental Indenture and agrees to perform the same under the terms and
conditions set forth in the Indenture.
ARTICLE II
Miscellaneous
SECTION 2.1. Interpretation. Upon execution and delivery of this Third
Supplemental Indenture, the Indenture shall be modified and amended in
accordance with this Third Supplemental Indenture, and all the terms and
conditions of both shall be read together as though they constitute one
instrument, except that, in case of conflict, the provisions of this Third
Supplemental Indenture will control. The Indenture, as modified and amended by
this Third Supplemental Indenture, is hereby ratified and confirmed in all
respects and shall bind every Holder of Securities. In case of conflict between
the terms and conditions contained in the Securities and those contained in the
Indenture, as modified and amended by this Third Supplemental Indenture, the
provisions of the Indenture, as modified and amended by this Third Supplemental
Indenture, shall control.
SECTION 2.2. Conflict with Trust Indenture Act. If any provision of
this Third Supplemental Indenture limits, qualifies or conflicts with any
provision of the TIA that is required under the TIA to be part of and govern any
provision of this Third Supplemental Indenture, the provision of the TIA shall
control. If any provision of this
3
<PAGE>
Third Supplemental Indenture modifies or excludes any provision of the TIA that
may be so modified or excluded, the provision of the TIA shall be deemed to
apply to the Indenture as so modified or to be excluded by this Third
Supplemental Indenture, as the case may be.
SECTION 2.3. Severability. In case any provision in this Third
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 2.4. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 2.5. Headings. The Article and Section headings of this Third
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part of this Third Supplemental Indenture and shall in no
way modify or restrict any of the terms or provisions hereof.
SECTION 2.6. Benefits of Third Supplemental Indenture, etc. Nothing in
this Third Supplemental Indenture or the Securities, express or implied, shall
give to any Person, other than the parties hereto and thereto and their
successors hereunder and thereunder and the Holders of the Securities, any
benefit of any legal or equitable right, remedy or claim under the Indenture,
this Third Supplemental Indenture or the Securities.
SECTION 2.7. Successors. All agreements of the Company in this Third
Supplemental Indenture shall bind its successors. All agreements of the Trustee
in this Third Supplemental Indenture shall bind its successors.
SECTION 2.8. Trustee Not Responsible for Recitals. The recitals
contained herein shall be taken as the statements of the Company and the Trustee
assumes no responsibility for their correctness.
SECTION 2.9. Certain Duties and Responsibilities of the Trustee. In
entering into this Third Supplemental Indenture, the Trustee shall be entitled
to the benefit of every provision of the Indenture relating to the conduct or
affecting the liability or affording protection to the Trustee, whether or not
elsewhere herein so provided.
4
<PAGE>
SECTION 2.10. Governing Law. This Third Supplemental Indenture shall be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 2.11. Counterpart Originals. The parties may sign any number of
copies of this Third Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third
Supplemental Indenture as of the date first above written.
GOLDEN STATE HOLDINGS INC.
By: /s/ Richard H. Terzian
-----------------------------------
Name: Richard H. Terzian
Title: Chief Financial Officer
THE BANK OF NEW YORK,
as Trustee
By:
-----------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third
Supplemental Indenture as of the date first above written.
GOLDEN STATE HOLDINGS INC.
By:
-----------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By: /s/ THOMAS C. KNIGHT
-----------------------------------
Name: THOMAS C. KNIGHT
Title: ASSISTANT VICE PRESIDENT
<PAGE>
---------------------------
FIRST NATIONWIDE HOLDINGS INC.
9 1/8% Senior Subordinated Exchange Notes Due 2003
---------------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 11, 1998
Supplementing the Indenture, dated
as of January 31, 1996, Between
First Nationwide Holdings Inc. and
The Bank of New York, as Trustee
---------------------------
THE BANK OF NEW YORK,
AS TRUSTEE
---------------------------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of September 11, 1998 (the
"First Supplemental Indenture"), among FIRST NATIONWIDE HOLDINGS INC., a
Delaware corporation (the "Company"), NEW FIRST NATIONWIDE HOLDINGS INC., a
Delaware corporation to be renamed Golden State Holdings Inc. ("New FNH"), and
THE BANK OF NEW YORK (the "Trustee"), as Trustee under the Indenture referred to
herein.
WHEREAS, the Company and the Trustee heretofore executed and delivered
an Indenture, dated as of January 31, 1996 (the "Indenture") in respect of the
9 1/8% Senior Subordinated Exchange Notes Due 2003 (the "Securities"); and
WHEREAS, the Company and New FNH have entered into the Assignment and
Assumption Agreement, dated as of September 11, 1998, pursuant to which the
Company will transfer all of its assets to New FNH and New FNH will assume all
of the liabilities of the Company (the "Asset Transfer"); and
WHEREAS, Section 5.01(i) of the Indenture provides that if the Company
transfers all or substantially all its assets to any other Person, such Person
must expressly assume by supplemental indenture all of the obligations of the
Company under the Securities and the Indenture and that such transferee Person
shall be the successor Company and shall succeed to, and be substituted for, the
Company under the Indenture; and
WHEREAS, Section 10.01(2) of the Indenture provides that the Company
and the Trustee may amend the Indenture and the Securities without notice to or
consent of any Holders of the Securities in order to comply with Article V of
the Indenture; and
WHEREAS, this First Supplemental Indenture has been duly authorized by
all necessary corporate action on the part of each of the Company and New FNH.
NOW, THEREFORE, the Company, the Trustee and New FNH agree as follows
for the equal and ratable benefit of the Holders of the Securities:
2
<PAGE>
ARTICLE I
ASSUMPTION BY SUCCESSOR CORPORATION
SECTION 1.1. Assumption of the Securities. New FNH, as the transferee
Person in the Asset Transfer, hereby expressly assumes the due and punctual
payment of the principal of and interest on the Securities and all obligations
of the Company under the Securities and the Indenture and shall be the successor
to the Company under the Indenture.
SECTION 1.2. Release of the Company. Upon New FNH becoming the
successor Company under the Indenture, the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities.
SECTION 1.3. Trustee's Acceptance. The Trustee hereby accepts this
First Supplemental Indenture and agrees to perform the same under the terms and
conditions set forth in the Indenture.
ARTICLE II
Miscellaneous
SECTION 2.1. Effect of Supplemental Indenture. Upon the later to occur
of (i) the execution and delivery of this First Supplemental Indenture by the
Company, New FNH and the Trustee and (ii) the consummation of the Asset
Transfer, the Indenture shall be supplemented in accordance herewith, and this
First Supplemental Indenture shall form a part of the Indenture for all
purposes, and every Holder of Securities heretofore or hereafter authenticated
and delivered under the Indenture shall be bound thereby.
SECTION 2.2. Indenture Remains in Full Force and Effect. Except as
supplemented hereby, all provisions in the Indenture shall remain in full force
and effect.
SECTION 2.3. Indenture and Supplemental Indenture Construed Together.
This First Supplemental Indenture is an indenture supplemental to and in
3
<PAGE>
implementation of the Indenture, and the Indenture and this First Supplemental
Indenture shall henceforth be read and construed together.
SECTION 2.4. Confirmation and Preservation of Indenture. The Indenture
as supplemented by this First Supplemental Indenture is in all respects
confirmed and preserved.
SECTION 2.5. Conflict with Trust Indenture Act. If any provision of
this First Supplemental Indenture limits, qualifies or conflicts with any
provision of the TIA that is required under the TIA to be part of and govern any
provision of this First Supplemental Indenture, the provision of the TIA shall
control. If any provision of this First Supplemental Indenture modifies or
excludes any provision of the TIA that may be so modified or excluded, the
provision of the TIA shall be deemed to apply to the Indenture as so modified or
to be excluded by this Second Supplemental Indenture, as the case may be.
SECTION 2.6. Severability. In case any provision in this First
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 2.7. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 2.8. Headings. The Article and Section headings of this First
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part of this First Supplemental Indenture and shall in no
way modify or restrict any of the terms or provisions hereof.
SECTION 2.9. Benefits of First Supplemental Indenture, etc. Nothing in
this First Supplemental Indenture or the Securities, express or implied, shall
give to any Person, other than the parties hereto and thereto and their
successors hereunder and thereunder and the Holders of the Securities, any
benefit of any legal or equitable right, remedy or claim under the Indenture,
this First Supplemental Indenture or the Securities.
SECTION 2.10. Successors. All agreements of New FNH and the Company in
this First Supplemental Indenture shall bind their respective successors.
4
<PAGE>
All agreements of the Trustee in this First Supplemental Indenture shall bind
its successors.
SECTION 2.11. Trustee Not Responsible for Recitals. The recitals
contained herein shall be taken as the statements of the Company and New FNH,
and the Trustee assumes no responsibility for their correctness.
SECTION 2.12. Certain Duties and Responsibilities of the Trustee. In
entering into this First Supplemental Indenture, the Trustee shall be entitled
to the benefit of every provision of the Indenture relating to the conduct or
affecting the liability or affording protection to the Trustee, whether or not
elsewhere herein so provided.
SECTION 2.13. Governing Law. This First Supplemental Indenture shall be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 2.14. Counterpart Originals. The parties may sign any number of
copies of this First Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First
Supplemental Indenture to be duly executed as of the date first written above.
FIRST NATIONWIDE
HOLDINGS INC.
By: /s/ Glenn P. Dickes
-------------------------------------------
Name: Glenn P. Dickes
Title: Vice President and Secretary
NEW FIRST NATIONWIDE
HOLDINGS INC.
By: /s/ Glenn P. Dickes
-------------------------------------------
Name: Glenn P. Dickes
Title: Vice President and Secretary
THE BANK OF NEW YORK, as Trustee
By:
-------------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First
Supplemental Indenture to be duly executed as of the date first written above.
FIRST NATIONWIDE
HOLDINGS INC.
By:
-------------------------------------------
Name:
Title:
NEW FIRST NATIONWIDE
HOLDINGS INC.
By:
-------------------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By: /s/ THOMAS C. KNIGHT
-------------------------------------------
Name: THOMAS C. KNIGHT
Title: ASSISTANT VICE PRESIDENT
<PAGE>
---------------------------
GOLDEN STATE HOLDINGS INC.
9 1/8% Senior Subordinated Exchange Notes Due 2003
---------------------------
SECOND SUPPLEMENTAL INDENTURE
Dated as of September 14, 1998
Supplementing the Indenture dated as of January 31, 1996,
as Supplemented, Between Golden State Holdings Inc.
(formerly known as New First Nationwide Holdings Inc.),
as successor to First Nationwide Holdings Inc.,
and The Bank of New York, as Trustee
---------------------------
THE BANK OF NEW YORK,
AS TRUSTEE
---------------------------
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE, dated as of September 14, 1998 (the
"Second Supplemental Indenture"), among GOLDEN STATE HOLDINGS INC. (formerly
known as New First Nationwide Holdings Inc.), a Delaware corporation (the
"Company"), as successor to First Nationwide Holdings Inc., and THE BANK OF NEW
YORK (the "Trustee"), as Trustee under the Indenture referred to herein.
WHEREAS, the Company and the Trustee heretofore executed and delivered
an Indenture, dated as of January 31, 1996, as supplemented (the "Indenture"),
in respect of the Company's $140 million aggregate principal amount of 9 1/8%
Senior Subordinated Exchange Notes Due 2003 (the "Securities"); and
WHEREAS, Section 10.02 of the Indenture provides that the Company and
the Trustee may amend the Indenture with the consent of the Holders of at least
a majority in aggregate principal amount of the Securities then outstanding; and
WHEREAS, the Holders of at least 50% in aggregate principal amount of
the Securities outstanding have consented to the amendments effected by this
Second Supplemental Indenture; and
WHEREAS, this Second Supplemental Indenture has been duly authorized by
all necessary corporate action on the part of the Company.
NOW, THEREFORE, the Company and the Trustee agree as follows for the
equal and ratable benefit of the Holders of the Securities:
ARTICLE I
AMENDMENT
Upon the commencement of the Offer (as such term is defined in the
offer letter dated September 14, 1998 from the Company) each of the following
shall occur:
SECTION 1.1. Deletions. Sections 4.02, 4.03, 4.04, 4.05, 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 6.01(5) and 6.01(8) of the Indenture are hereby amended
by deleting all such sections and all references thereto in their entirety.
2
<PAGE>
SECTION 1.2. Amendment to Section 5.01. Section 5.01 of the Indenture
is hereby amended by deleting in its entirety subsection (iii) of Section 5.01.
SECTION 1.3. Amendment to Section 6.03. Section 6.01(3) of the
Indenture is hereby amended to read in its entirety as follows:
the Company fails to comply with Section 4.06 (other than a failure to
purchase Securities) and such failure continues for 30 days after the
notice specified below;
SECTION 1.4. Conforming Amendments. The form of Security and the
outstanding Securities are hereby amended to make any and all changes that
correspond to the amendments to the Indenture set forth in Sections 1.1 through
1.3 of this Second Supplemental Indenture.
SECTION 1.5. Trustee's Acceptance. The Trustee hereby accepts this
Second Supplemental Indenture and agrees to perform the same under the terms and
conditions set forth in the Indenture.
ARTICLE II
Miscellaneous
SECTION 2.1. Interpretation. Upon execution and delivery of this Second
Supplemental Indenture, the Indenture shall be modified and amended in
accordance with this Second Supplemental Indenture, and all the terms and
conditions of both shall be read together as though they constitute one
instrument, except that, in case of conflict, the provisions of this Second
Supplemental Indenture will control. The Indenture, as modified and amended by
this Second Supplemental Indenture, is hereby ratified and confirmed in all
respects and shall bind every Holder of Securities. In case of conflict between
the terms and conditions contained in the Securities and those contained in the
Indenture, as modified and amended by this Second Supplemental Indenture, the
provisions of the Indenture, as modified and amended by this Second Supplemental
Indenture, shall control.
SECTION 2.2. Conflict with Trust Indenture Act. If any provision of
this Second Supplemental Indenture limits, qualifies or conflicts with any
provision of the TIA that is required under the TIA to be part of and govern any
provision of this Second Supplemental Indenture, the provision of the TIA shall
control. If any provision
3
<PAGE>
of this Second Supplemental Indenture modifies or excludes any provision of the
TIA that may be so modified or excluded, the provision of the TIA shall be
deemed to apply to the Indenture as so modified or to be excluded by this Second
Supplemental Indenture, as the case may be.
SECTION 2.3. Severability. In case any provision in this Second
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 2.4. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 2.5. Headings. The Article and Section headings of this Second
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part of this Second Supplemental Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
SECTION 2.6. Benefits of Second Supplemental Indenture, etc. Nothing in
this Second Supplemental Indenture or the Securities, express or implied, shall
give to any Person, other than the parties hereto and thereto and their
successors hereunder and thereunder and the Holders of the Securities, any
benefit of any legal or equitable right, remedy or claim under the Indenture,
this Second Supplemental Indenture or the Securities.
SECTION 2.7. Successors. All agreements of the Company in this Second
Supplemental Indenture shall bind its successors. All agreements of the Trustee
in this Second Supplemental Indenture shall bind its successors.
SECTION 2.8. Trustee Not Responsible for Recitals. The recitals
contained herein shall be taken as the statements of the Company and the Trustee
assumes no responsibility for their correctness.
SECTION 2.9. Certain Duties and Responsibilities of the Trustee. In
entering into this Second Supplemental Indenture, the Trustee shall be entitled
to the benefit of every provision of the Indenture relating to the conduct or
affecting the liability or affording protection to the Trustee, whether or not
elsewhere herein so provided.
4
<PAGE>
SECTION 2.10. Governing Law. This Second Supplemental Indenture shall
be governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 2.11. Counterpart Originals. The parties may sign any number of
copies of this Second Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Supplemental Indenture as of the date first above written.
GOLDEN STATE HOLDINGS INC.
By: /s/ Richard H. Terzian
----------------------------------------
Name: Richard H. Terzian
Title: Chief Financial Officer
THE BANK OF NEW YORK,
as Trustee
By:
----------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Supplemental Indenture as of the date first above written.
GOLDEN STATE HOLDINGS INC.
By:
--------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Trustee
By: /s/ THOMAS C. KNIGHT
--------------------------------------
Name: THOMAS C. KNIGHT
Title: ASSISTANT VICE PRESIDENT
<PAGE>
---------------------------
FIRST NATIONWIDE HOLDINGS INC.
12 1/4% Senior Exchange Notes Due 2001
---------------------------
SECOND SUPPLEMENTAL INDENTURE
Dated as of September 11, 1998
Supplementing the Indenture, dated
as of July 15, 1994, As Supplemented, Between
First Nationwide Holdings Inc. and
State Street Bank and Trust Company
(as successor to The First National Bank of Boston), as Trustee
---------------------------
STATE STREET BANK AND TRUST COMPANY,
AS TRUSTEE
---------------------------
<PAGE>
SECOND SUPPLEMENTAL INDENTURE, dated as of September 11, 1998 (the
"Second Supplemental Indenture"), among FIRST NATIONWIDE HOLDINGS INC., a
Delaware corporation (the "Company"), NEW FIRST NATIONWIDE HOLDINGS INC., a
Delaware corporation to be renamed Golden State Holdings Inc. ("New FNH"), and
STATE STREET BANK AND TRUST COMPANY (the "Trustee"), as Trustee under the
Indenture referred to herein.
WHEREAS, the Company and the Trustee heretofore executed and delivered
an Indenture, dated as of July 15, 1994, as supplemented by the First
Supplemental Indenture dated as of January 17, 1997 (the "Indenture"), in
respect of the 12 1/4% Senior Exchange Notes Due 2001 (the "Securities"); and
WHEREAS, the Company and New FNH have entered into the Assignment and
Assumption Agreement, dated as of September 11, 1998, pursuant to which the
Company will transfer all of its assets to New FNH and New FNH will assume all
of the liabilities of the Company (the "Asset Transfer"); and
WHEREAS, Section 5.01(i) of the Indenture provides that if the Company
transfers all or substantially all its assets to any other Person, such Person
must expressly assume by supplemental indenture all of the obligations of the
Company under the Securities and the Indenture and that such transferee Person
shall be the successor Company and shall succeed to, and be substituted for, the
Company under the Indenture; and
WHEREAS, Section 9.01(2) of the Indenture provides that the Company and
the Trustee may amend the Indenture and the Securities without notice to or
consent of any Holders of the Securities in order to comply with Article V of
the Indenture; and
WHEREAS, this Second Supplemental Indenture has been duly authorized by
all necessary corporate action on the part of each of the Company and New FNH.
NOW, THEREFORE, the Company, the Trustee and New FNH agree as follows
for the equal and ratable benefit of the Holders of the Securities:
2
<PAGE>
ARTICLE I
ASSUMPTION BY SUCCESSOR CORPORATION
SECTION 1.1. Assumption of the Securities. New FNH, as the transferee
Person in the Asset Transfer, hereby expressly assumes the due and punctual
payment of the principal of and interest on the Securities and all obligations
of the Company under the Securities and the Indenture and shall be the successor
to the Company under the Indenture.
SECTION 1.2. Release of the Company. Upon New FNH becoming the
successor Company under the Indenture, the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities.
SECTION 1.3. Trustee's Acceptance. The Trustee hereby accepts this
Second Supplemental Indenture and agrees to perform the same under the terms and
conditions set forth in the Indenture.
ARTICLE II
Miscellaneous
SECTION 2.1. Effect of Supplemental Indenture. Upon the later to occur
of (i) the execution and delivery of this Second Supplemental Indenture by the
Company, New FNH and the Trustee and (ii) the consummation of the Asset
Transfer, the Indenture shall be supplemented in accordance herewith, and this
Second Supplemental Indenture shall form a part of the Indenture for all
purposes, and every Holder of Securities heretofore or hereafter authenticated
and delivered under the Indenture shall be bound thereby.
SECTION 2.2. Indenture Remains in Full Force and Effect. Except as
supplemented hereby, all provisions in the Indenture shall remain in full force
and effect.
SECTION 2.3. Indenture and Supplemental Indenture Construed Together.
This Second Supplemental Indenture is an indenture supplemental to and
3
<PAGE>
in implementation of the Indenture, and the Indenture and this Second
Supplemental Indenture shall henceforth be read and construed together.
SECTION 2.4. Confirmation and Preservation of Indenture. The Indenture
as supplemented by this Second Supplemental Indenture is in all respects
confirmed and preserved.
SECTION 2.5. Conflict with Trust Indenture Act. If any provision of
this Second Supplemental Indenture limits, qualifies or conflicts with any
provision of the TIA that is required under the TIA to be part of and govern any
provision of this Second Supplemental Indenture, the provision of the TIA shall
control. If any provision of this Second Supplemental Indenture modifies or
excludes any provision of the TIA that may be so modified or excluded, the
provision of the TIA shall be deemed to apply to the Indenture as so modified or
to be excluded by this Second Supplemental Indenture, as the case may be.
SECTION 2.6. Severability. In case any provision in this Second
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 2.7. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 2.8. Headings. The Article and Section headings of this Second
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part of this Second Supplemental Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
SECTION 2.9. Benefits of Second Supplemental Indenture, etc. Nothing in
this Second Supplemental Indenture or the Securities, express or implied, shall
give to any Person, other than the parties hereto and thereto and their
successors hereunder and thereunder and the Holders of the Securities, any
benefit of any legal or equitable right, remedy or claim under the Indenture,
this Second Supplemental Indenture or the Securities.
SECTION 2.10. Successors. All agreements of New FNH and the Company in
this Second Supplemental Indenture shall bind their respective succes-
4
<PAGE>
sors. All agreements of the Trustee in this Second Supplemental Indenture shall
bind its successors.
SECTION 2.11. Trustee Not Responsible for Recitals. The recitals
contained herein shall be taken as the statements of the Company and New FNH,
and the Trustee assumes no responsibility for their correctness.
SECTION 2.12. Certain Duties and Responsibilities of the Trustee. In
entering into this Second Supplemental Indenture, the Trustee shall be entitled
to the benefit of every provision of the Indenture relating to the conduct or
affecting the liability or affording protection to the Trustee, whether or not
elsewhere herein so provided.
SECTION 2.13. Governing Law. This Second Supplemental Indenture shall
be governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 2.14. Counterpart Originals. The parties may sign any number of
copies of this Second Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Second
Supplemental Indenture to be duly executed as of the date first written above.
FIRST NATIONWIDE HOLDINGS INC.
By: /s/ Glenn P. Dickes
----------------------------------------
Name: Glenn P. Dickes
Title: Vice President and Secretary
NEW FIRST NATIONWIDE HOLDINGS INC.
By: /s/ Glenn P. Dickes
----------------------------------------
Name: Glenn P. Dickes
Title: Vice President and Secretary
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
----------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Second
Supplemental Indenture to be duly executed as of the date first written above.
FIRST NATIONWIDE HOLDINGS INC.
By:
----------------------------------------
Name: Glenn P. Dickes
Title: Vice President and Secretary
NEW FIRST NATIONWIDE HOLDINGS INC.
By:
----------------------------------------
Name: Glenn P. Dickes
Title: Vice President and Secretary
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: /s/ GHC .C MA
----------------------------------------
Name: GHC .C MA
Title: ASSISTANT VICE PRESIDENT
<PAGE>
-------------------------
GOLDEN STATE HOLDINGS INC.
12 1/4% Senior Exchange Notes Due 2001
-------------------------
THIRD SUPPLEMENTAL INDENTURE
Dated as of September 14, 1998
Supplementing the Indenture dated as of July 15, 1994,
as Supplemented, Between Golden State Holdings Inc.
(formerly known as New First Nationwide Holdings Inc.),
as successor to First Nationwide Holdings Inc.,
and State Street Bank and Trust Company
(as successor to The First National Bank of Boston), as Trustee
-------------------------
STATE STREET BANK AND TRUST COMPANY,
AS TRUSTEE
-------------------------
<PAGE>
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE, dated as of September 14, 1998 (the
"Third Supplemental Indenture"), among GOLDEN STATE HOLDINGS INC. (formerly
known as New First Nationwide Holdings Inc.), a Delaware corporation (the
"Company"), as successor to First Nationwide Holdings Inc., and STATE STREET
BANK AND TRUST COMPANY (the "Trustee"), as Trustee under the Indenture referred
to herein.
WHEREAS, the Company and the Trustee heretofore executed and delivered
an Indenture, dated as of July 15, 1994, as supplemented (the "Indenture"), in
respect of the Company's $200 million aggregate principal amount of 12 1/4%
Senior Exchange Notes Due 2001 (the "Securities"); and
WHEREAS, Section 9.02 of the Indenture provides that the Company and
the Trustee may amend the Indenture with the consent of the Holders of at least
a majority in aggregate principal amount of the Securities then outstanding; and
WHEREAS, the Holders of at least 50% in aggregate principal amount of
the Securities outstanding have consented to the amendments effected by this
Third Supplemental Indenture; and
WHEREAS, this Third Supplemental Indenture has been duly authorized by
all necessary corporate action on the part of the Company.
NOW, THEREFORE, the Company and the Trustee agree as follows for the
equal and ratable benefit of the Holders of the Securities:
ARTICLE I
AMENDMENT
Upon the commencement of the Offer (as such term is defined in the
offer letter dated September 14, 1998 from the Company) each of the following
shall occur:
SECTION 1.1. Deletions. Sections 4.02, 4.03, 4.04, 4.05, 4.07, 4.08,
4.09, 4.10, 4.11, 6.01(5) and 6.01(8) of the Indenture are hereby amended by
deleting all such sections and all references thereto in their entirety.
2
<PAGE>
SECTION 1.2. Amendment to Section 5.01. Section 5.01 of the Indenture
is hereby amended by deleting in its entirety subsection (iii) of Section 5.01.
SECTION 1.3. Amendment to Section 6.03. Section 6.01(3) of the
Indenture is hereby amended to read in its entirety as follows:
the Company fails to comply with Section 4.06 (other than a failure to
purchase Securities) and such failure continues for 30 days after the
notice specified below;
SECTION 1.4. Conforming Amendments. The form of Security and the
outstanding Securities are hereby amended to make any and all changes that
correspond to the amendments to the Indenture set forth in Sections 1.1 through
1.3 of this Third Supplemental Indenture.
SECTION 1.5. Trustee's Acceptance. The Trustee hereby accepts this
Third Supplemental Indenture and agrees to perform the same under the terms and
conditions set forth in the Indenture.
ARTICLE II
Miscellaneous
SECTION 2.1. Interpretation. Upon execution and delivery of this Third
Supplemental Indenture, the Indenture shall be modified and amended in
accordance with this Third Supplemental Indenture, and all the terms and
conditions of both shall be read together as though they constitute one
instrument, except that, in case of conflict, the provisions of this Third
Supplemental Indenture will control. The Indenture, as modified and amended by
this Third Supplemental Indenture, is hereby ratified and confirmed in all
respects and shall bind every Holder of Securities. In case of conflict between
the terms and conditions contained in the Securities and those contained in the
Indenture, as modified and amended by this Third Supplemental Indenture, the
provisions of the Indenture, as modified and amended by this Third Supplemental
Indenture, shall control.
SECTION 2.2. Conflict with Trust Indenture Act. If any provision of
this Third Supplemental Indenture limits, qualifies or conflicts with any
provision of the TIA that is required under the TIA to be part of and govern any
provision of this Third Supplemental Indenture, the provision of the TIA shall
control. If any provision of this
3
<PAGE>
Third Supplemental Indenture modifies or excludes any provision of the TIA that
may be so modified or excluded, the provision of the TIA shall be deemed to
apply to the Indenture as so modified or to be excluded by this Third
Supplemental Indenture, as the case may be.
SECTION 2.3. Severability. In case any provision in this Third
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 2.4. Terms Defined in the Indenture. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Indenture.
SECTION 2.5. Headings. The Article and Section headings of this Third
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part of this Third Supplemental Indenture and shall in no
way modify or restrict any of the terms or provisions hereof.
SECTION 2.6. Benefits of Third Supplemental Indenture, etc. Nothing in
this Third Supplemental Indenture or the Securities, express or implied, shall
give to any Person, other than the parties hereto and thereto and their
successors hereunder and thereunder and the Holders of the Securities, any
benefit of any legal or equitable right, remedy or claim under the Indenture,
this Third Supplemental Indenture or the Securities.
SECTION 2.7. Successors. All agreements of the Company in this Third
Supplemental Indenture shall bind its successors. All agreements of the Trustee
in this Third Supplemental Indenture shall bind its successors.
SECTION 2.8. Trustee Not Responsible for Recitals. The recitals
contained herein shall be taken as the statements of the Company and the Trustee
assumes no responsibility for their correctness.
SECTION 2.9. Certain Duties and Responsibilities of the Trustee. In
entering into this Third Supplemental Indenture, the Trustee shall be entitled
to the benefit of every provision of the Indenture relating to the conduct or
affecting the liability or affording protection to the Trustee, whether or not
elsewhere herein so provided.
4
<PAGE>
SECTION 2.10. Governing Law. This Third Supplemental Indenture shall be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 2.11. Counterpart Originals. The parties may sign any number of
copies of this Third Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third
Supplemental Indenture as of the date first above written.
GOLDEN STATE HOLDINGS INC.
By: /s/ Richard H. Terzian
------------------------------
Name: Richard H. Terzian
Title: Chief Financial Officer
STATE STREET BANK AND TRUST
COMPANY,
as Trustee
By:
------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third
Supplemental Indenture as of the date first above written.
GOLDEN STATE HOLDINGS INC.
By:
------------------------------
Name:
Title:
STATE STREET BANK AND TRUST
COMPANY,
as Trustee
By: /s/ GHI C. MAN
------------------------------
Name: GHI C. MAN
Title: ASSISTANT VICE PRESIDENT
<PAGE>
AMENDMENT NO.1 TO TAX SHARING AGREEMENT
AMENDMENT NO. 1, dated as of September 11, 1998, by and
among Mafco Holdings Inc., a Delaware corporation ("Parent"), Golden State
Bancorp Inc., a Delaware corporation ("Golden State"), First Nationwide Holdings
Inc., a Delaware corporation ("FNH"), California Federal Bank, A Federal Savings
Bank, a federally chartered stock savings bank ("CFB"), and New First Nationwide
Holdings Inc., a Delaware corporation to be renamed "Golden State Holdings Inc."
("New FNH," and together with Parent, Golden State, FNH and CFB, the "Parties"),
to the Tax Sharing Agreement entered into as of January 1, 1994, by and among
Parent, FNH and CFB, as successor to First Madison Bank, FSB (the "Tax Sharing
Agreement").
WHEREAS, pursuant to Section 6.14 of the Agreement and Plan of
Reorganization, dated as of February 4, 1998, as amended (the "Agreement"), by
and among Golden State, FNH, Golden State Financial Corporation, a Delaware
corporation, First Nationwide (Parent) Holdings Inc., a Delaware corporation,
First Gibraltar Holdings Inc., a Delaware corporation, and Hunter's Glen/Ford,
Ltd., a Texas limited partnership, the Parties desire to amend the Tax Sharing
Agreement as set forth herein (capitalized terms used and not otherwise defined
herein have the meanings assigned to them in the Agreement);
NOW THEREFORE, in consideration of the foregoing, and intending
to be legally bound hereby, the Parties hereby agree as follows:
1. For any taxable period commencing on or after the Effective
Time, (i) Golden State shall, as of the Effective Time, replace Parent under the
Tax Sharing Agreement and will assume all of the rights and obligations of
Parent under the Tax Sharing Agreement with respect to such taxable periods;
(ii) New FNH shall, as of the Effective Time, replace FNH under the Tax Sharing
Agreement and will assume all of the rights and obligations of FNH under the Tax
Sharing Agreement with respect to such taxable periods; and (iii) CFB shall
continue to be bound by the Tax Sharing Agreement with respect to such taxable
periods.
2. For any taxable period ending on or before the Effective Time,
(i) New FNH shall, as of the Effective Time, be the successor to FNH under the
Tax Sharing Agreement, and will assume all of the rights and obligations of FNH
under the Tax Sharing Agreement with respect to any such taxable period, and
(ii) CFB and
<PAGE>
Parent shall continue to be bound by the Tax Sharing Agreement with respect to
any such taxable period.
3. All references to "this Agreement" in the Tax Sharing Agreement
shall be deemed to refer to the Tax Sharing Agreement as amended hereby.
4. Except as expressly amended by this Amendment, the Tax Sharing
Agreement is hereby ratified and confirmed in all respects.
5. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original and all of which shall be considered one
and the same agreement, and shall become effective when counterparts have been
signed by each of the Parties and delivered to the other Parties, it being
understood that all Parties need not sign the same counterpart.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
MAFCO HOLDINGS INC.
By: /s/ Glenn P. Dickes
--------------------------------------------
Name: Glenn P. Dickes
Title: Senior Vice President and Secretary
GOLDEN STATE BANCORP INC.
By:
--------------------------------------------
Name: James R. Eller
Title: Secretary
FIRST NATIONWIDE HOLDINGS INC.
By: /s/ Joram C. Salig
--------------------------------------------
Name: Joram C. Salig
Title: Vice President and Assistant Secretary
NEW FIRST NATIONWIDE HOLDINGS INC.
By: /s/ Joram C. Salig
--------------------------------------------
Name: Joram C. Salig
Title: Vice President and Assistant Secretary
CALIFORNIA FEDERAL BANK, A FEDERAL
SAVINGS BANK
By:
--------------------------------------------
Name: Eric K. Kawamura
Title: Senior Vice President
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment
to be executed by their respective officers thereunto duly authorized as of
the date first above written
MAFCO HOLDINGS INC.
By:
--------------------------------------------
Name: Glenn P. Dickes
Title: Senior Vice President and Secretary
GOLDEN STATE BANCORP INC.
By: /s/ James R. Eller
--------------------------------------------
Name: James R. Eller
Title: Secretary
FIRST NATIONWIDE HOLDINGS INC.
By:
--------------------------------------------
Name: Joram C. Salig
Title: Vice President and Assistant Secretary
NEW FIRST NATIONWIDE HOLDINGS INC.
By:
--------------------------------------------
Name: Joram C. Salig
Title: Vice President and Assistant Secretary
CALIFORNIA FEDERAL BANK, A FEDERAL
SAVINGS BANK
By:
--------------------------------------------
Name: Eric K. Kawamura
Title: Senior Vice President
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Amendment
to be executed by their respective officers thereunto duly authorized as of
the date first above written.
MAFCO HOLDINGS INC.
By:
--------------------------------------------
Name: Glenn P. Dickes
Title: Senior Vice President and Secretary
GOLDEN STATE BANCORP INC.
By:
--------------------------------------------
Name: James R. Eller
Title: Secretary
FIRST NATIONWIDE HOLDINGS INC.
By:
--------------------------------------------
Name: Joram C. Salig
Title: Vice President and Assistant Secretary
NEW FIRST NATIONWIDE HOLDINGS INC.
By:
--------------------------------------------
Name: Joram C. Salig
Title: Vice President and Assistant Secretary
CALIFORNIA FEDERAL BANK, A FEDERAL
SAVINGS BANK
By: /s/ Eric K. Kawamura
--------------------------------------------
Name: Eric K. Kawamura
Title: Senior Vice President
<PAGE>
Tax Sharing Modification Agreement
(Florida Branch Sale)
Agreement made as of the 22nd day of December 1998 by and between Mafco
Holdings Inc. ("Mafco") and Golden State Bancorp Inc. ("Golden State").
WHEREAS, pursuant to the Agreement and Plan of Reorganization dated as of
February 4, 1998, as amended (the "Merger Agreement") Golden State is obligated
to issue shares of its common stock (the "Florida Shares") to First Gibraltar
Holdings Inc. and Hunter's Glen/Ford, Ltd. (collectively, the "Contingent Share
Recipients") on account of any federal income tax savings resulting from the
sale of the Florida Branches (the "Florida Branch Sale") of California Federal
Bank ("Cal Fed");
WHEREAS, pursuant to the Merger Agreement, the amount of federal income
tax savings resulting from the Florida Branch Sale is defined (the "Florida Tax
Savings") to be an amount equal to (i) the product of the amount of the gain
recognized by Cal Fed for federal income tax purposes as a result of the Florida
Branch Sale and the highest marginal federal income tax rate applicable to
corporations for the taxable year in which the Florida Branch Sale occurred less
(ii) the amount of any federal income taxes actually paid by Cal Fed as a result
of such sale, including any payment in lieu of federal income taxes under the
Tax Sharing Agreement dated as of January 1, 1994 among Mafco, Cal Fed and
others (the "Tax Sharing Agreement");
WHEREAS, as of November 1, 1998, Golden State has estimated the Florida
Tax Savings to be $34,000,000 based upon, among other things, the estimated tax
payment to be made under the Tax Sharing Agreement calculated at a two percent
(2%) estimated rate (the "Estimated Tax Rate");
WHEREAS, Mafco has agreed if, at any time (i) it is determined that Cal
Fed was subject to a tax rate higher than the Estimated Tax Rate and therefore
should have made additional payments under the Tax Sharing Agreement as a result
of the gain on the Florida Branch Sale and (ii) Golden State has issued the
Florida Shares, then Mafco will waive its rights to any additional payment under
the Tax Sharing Agreement as a consequence of the gain on the Florida Branch
Sale;
NOW, THEREFORE, subject to the next succeeding sentence, Mafco hereby
waives its rights to any payment due it under the Tax Sharing Agreement as a
consequence of the gain on the Florida Branch Sale being taxed at a rate in
excess of the Estimated Tax Rate, such excess (the "Excess Amount") being for
purposes of this
<PAGE>
Agreement (A) (i) the 1998 federal income tax payment due from Cal Fed under the
Tax Sharing Agreement less (ii) the 1998 federal income tax payment due from Cal
Fed under the Tax Sharing Agreement excluding the gain on the Florida Branch
Sale IN EXCESS OF (B) the gain on the Florida Branch Sale times the Estimated
Tax Rate. The Excess Amount will be reduced (and, accordingly, Mafco will remain
entitled to payment under the Tax Sharing Agreement of the amount of such
reduction) to the extent, but only to the extent, that the Contingent Share
Recipients are required to make a payment to Golden State under Section
1.6(c)(iv) of the Merger Agreement as a result of any adjustment to the Florida
Tax Savings.
Golden State hereby agrees to the foregoing and, to the extent
appropriate, will itself, and will cause its subsidiaries as successors under
the Tax Sharing Agreement to, implement the provisions of this Agreement to the
extent they modify or supercede the relevant provisions of the Tax Sharing
Agreement.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first above written.
MAFCO HOLDINGS INC. GOLDEN STATE BANCORP INC.
By: /s/ Glenn P. Dickes By: /s/ Eric K. Kawamura
---------------------- ----------------------
Glenn P. Dickes Eric K. Kawamura
Senior Vice President Senior Vice President
-2-
<PAGE>
RICHARD P. HODGE
Executive Employment Agreement
<TABLE>
<CAPTION>
<S> <C>
o Term
January 1, 1999 - December 31, 2001
o Base Salary
$400,000 per year; if adjusted upward at sole discretion of Company, increased
amount becomes Base Salary.
o Benefits
Standard employee benefits, additional life insurance coverage (two times Base
Salary), executive medical, annual medical exam, automobile.
o Death
Estate gets 60% of Base Salary for balance of term.
o Disability
After six months, Company can terminate; employee gets 60% of Base Salary for
balance of term; life and medical insurance continue for the shorter of employee's
disability or until age 65.
o Cause
Upon gross neglect, conviction of felony, conviction of any crime relating to
Company property, willful misconduct or material breach by employee or material
prejudice to Company, Company can terminate without further liability.
o Company Breach
Employee receives Base Salary and all benefits for longer of balance of term;
employee obligated to mitigate (minimum of one year base salary).
o Other Provisions
Protection of confidential information, non-compete during term, assignment of
inventions, legal fees to employee if he prevails in action for breach or injunction;
legal fees to Company if it prevails in action for injunction.
</TABLE>
<PAGE>
Employment Agreement
EMPLOYMENT AGREEMENT, dated as of January 1, 1999, between California
Federal Bank, a Federal Savings Bank (the "Company") and Richard P. Hodge (the
"Executive").
The Company wishes to employ the Executive, and the Executive wishes to
accept such employment, on the terms and conditions set forth in this Agreement.
Accordingly, the Company and the Executive hereby agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment, Duties. The Company hereby employs the Executive
for the Term (as defined in Section 2.1), to render exclusive (except as
otherwise provided herein) and full-time services to the Company as Executive
Vice President or in such other executive position as may be mutually agreed
upon by the Company and the Executive, and to perform such other duties
consistent with such position as may be assigned to the Executive by the Board
of Directors or any officer of the Company senior to the Executive.
1.2 Acceptance. The Executive hereby accepts such employment and
agrees to render the services described above. During the Term, the Executive
agrees to serve the Company faithfully and to the best of the Executive's
ability, to devote the Executive's entire business time, energy and skill to
such employment, and to use the Executive's best efforts, skill and ability to
promote the Company's interests. The Executive further agrees to accept
election, and to serve during all or any part of the Term, as an officer or
director of the Company and of any subsidiary or affiliate of the Company,
without any compensation therefor other than that specified in this Agreement,
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be. The
Executive hereby represents and warrants that the Executive is not subject to
any other agreement, including without limitation, any agreement not to compete
or confidentiality agreement, which would be violated by the Executive's
performance of services hereunder.
1.3 Location. The duties to be performed by the Executive hereunder
shall be performed primarily at the office of the Company in Dallas, Texas, with
up to one week per month at the office of the Company in San Francisco,
California, in each case subject to reasonable other travel requirements on
behalf of the Company.
2. Term of Employment; Certain Post-Term Benefits.
2.1 The Term. The term of the Executive's employment under this
Agreement (the "Term") shall commence January 1, 1999 and shall end on December
31, 2001.
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2.2 Special Curtailment. The Term shall end earlier than the
original December 31, 2001 termination date provided in Section 2.1 if sooner
terminated pursuant to Section 4. Non-extension of the Term shall not be deemed
to be a wrongful termination of the Term or this Agreement by the Company
pursuant to Section 4.4.
3. Compensation; Benefits.
3.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable semi-monthly in arrears, at the annual rate of not
less than $400,000, less such deductions or amounts to be withheld as required
by applicable law and regulations (the "Base Salary"). In the event that the
Company, in its sole discretion, from time to time determines to increase the
Base Salary, such increased amount shall, from and after the effective date of
the increase, constitute "Base Salary" for purposes of this Agreement.
3.2 Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the Executive
during the Term in the performance of the Executive's services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as the Company customarily may require of its officers
provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Chairman or Vice Chairman of the Board
of Directors, the President of the Company, or the Board of Directors. The
Company acknowledges that the Executive shall be permitted to travel first class
when traveling on behalf of the Company.
3.3 Paid Time Off. During the Term, the Executive shall be entitled
to paid time off ("PTO") of five weeks taken in accordance with the PTO policy
of the Company during each year of the Term.
3.4 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, group insurance or other so-called "fringe"
benefit plan which the Company provides to its employees generally, together
with executive medical benefits for the Executive, the Executive's spouse and
the Executive's children as from time to time in effect for officers of the
Company generally.
3.5 Additional Benefits. During the Term, the Executive shall be
entitled to such other benefits as are specified in Appendix I to this
Agreement.
2
<PAGE>
4. Termination.
4.1 Death. If the Executive shall die during the Term, the Term
shall terminate and no further amounts or benefits shall be payable hereunder,
except that the Executive's legal representatives shall be entitled to receive
continued payments in an amount equal to 60% of the Base Salary, in the manner
specified in Section 3.1, until the end of the Term (as in effect immediately
prior to the Executive's death).
4.2 Disability. If during the Term the Executive shall become
physically or mentally disabled, whether totally or partially, such that the
Executive is unable to perform the Executive's services hereunder for (I) a
period of six consecutive months or (ii) for shorter periods aggregating six
months during any twelve month period, the Company may at any time after the
last day of the six consecutive months of disability or the day on which the
shorter periods of disability shall have equaled an aggregate of six months, by
written notice to the Executive (but before the Executive has recovered from
such disability), terminate the Term and no further amounts or benefits shall be
payable hereunder, except that the Executive shall be entitled to receive (I)
continued payments in an amount equal to 60% of the Base Salary, in the manner
specified in Section 3.1, until the end of the Term and (ii) such amounts and
benefits, if any, specified in Paragraph 5 of Appendix I. If the Executive shall
die before receiving all payments to be made by the Company in accordance with
the foregoing, such payments shall be made to a beneficiary designated by the
Executive on a form prescribed for such purpose by the Company, or in the
absence of such designation to the Executive's legal representative.
4.3 Cause. In the event of gross neglect by the Executive of the
Executive's duties hereunder, conviction of the Executive of any felony,
conviction of the Executive of any lesser crime or offense involving the
property of the Company or any of its subsidiaries or affiliates, willful
misconduct by the Executive in connection with the performance of any material
portion of the Executive's duties hereunder, breach by the Executive of any
material provision of this Agreement, the Company's employment policies
including the Code of Ethics, or any other conduct on the part of the Executive
which would make the Executive's continued employment by the Company materially
prejudicial to the best interests of the Company, the Company may at any time by
written notice to the Executive terminate the Term and, upon such termination,
this Agreement shall terminate and the Executive shall be entitled to receive no
further amounts or benefits hereunder, except any as shall have been earned to
the date of such termination. Termination for cause under the foregoing sentence
shall also include the bases therefore set forth in the provisions of 12 C.F.R.
Section 563.39(b)(1) or successor regulation defining termination for cause in
employment agreements for employees of a savings association.
4.4 Company Breach. In the event of (a) the breach of any material
provision of this Agreement by the Company, (b) the assignment to Executive of
duties materially inconsistent with his status as Executive Vice President of
the Company or an adverse alteration in the nature of Executive's
responsibilities or (c) a reduction by the Company in the Executive's Base
Salary or bonus or a failure by the Company to pay any such amounts when due,
the
3
<PAGE>
Executive shall be entitled to terminate the Term upon 60 days' prior written
notice to the Company. Upon such termination, or in the event the Company
terminates the Term or this Agreement other than pursuant to the provisions of
Section 4.2 or 4.3, the Company shall continue to provide the Executive (I)
payments of Base Salary in the manner and amounts specified in section 3.1 and
(ii) fringe benefits and additional benefits in the manner and amounts specified
in Sections 3.4 and 3.5, until the end of the Term (the "Damage Period"). The
Company's obligations pursuant to this Section 4.4 are subject to the
Executive's duty to mitigate damages by seeking other employment provided,
however, that the Executive shall not be required to accept a position of lesser
importance or of substantially different character than the position held with
the Company immediately prior to the effective date of termination or in a
location outside of the Dallas, Texas metropolitan area. To the extent that the
Executive shall earn compensation during the Damage Period (without regard to
when such compensation is paid), the Base Salary payments to be made by the
Company pursuant to this Section 4.4 shall be correspondingly reduced.
Notwithstanding anything in this Section 4.4 to the contrary, the total of all
post-termination Base Salary payments to be made under this Section 4.4 shall
not be less than the Executive's annual Base Salary at the date of termination.
At the end of the Term the Company shall pay to Executive, subject to applicable
withholding requirements, the amount due under the preceding sentence in a lump
sum payment.
4.5 Termination Under Banking Laws.
4.5.1 If the Executive is suspended or temporarily prohibited from
participating in the conduct of the Company's affairs by a notice served under
Section 8(e)(3) or (g)(1) of Federal Deposit Insurance Act (the "FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)) the Company's obligations under this Agreement
shall be suspended as of the date of service unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Company may in its
discretion (I) pay the Executive all or part of the compensation withheld while
its obligations hereunder were suspended, and (ii) reinstate (in whole or in
part) any of its obligations which were suspended.
4.5.2 If the Executive is removed or permanently prohibited from
participating in the conduct of the Company's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the Company under this Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
4.5.3 If the Company is in default (as defined in Section 3(x)(1)
of the FDIA), all obligations under this Agreement shall terminate as of the
date of default, but this Section 4.5.3 shall not affect any vested rights of
the Company or of the Executive.
4
<PAGE>
4.5.4 All obligations of the Company under this Agreement may be
terminated, except to the extent determined that continuation of this Agreement
is necessary for the continued operation of the Company, (i) by the Director of
the Office of Thrift Supervision (the "Director") or his or her designee, at the
time Federal Deposit Insurance Corporation or Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of the Company
under the authority contained in Section 13(c) of the FDIA; or (ii) 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 operations of the
Company or when the Company is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
4.6 Litigation Expenses. Except as provided for in Section 5.7. if
the Company and the Executive become involved in any action, suit or proceeding
relating to the alleged breach of this Agreement by the Company or the
Executive, and if a judgment in such action, suit or proceeding is rendered in
favor of the Executive, the Company shall reimburse the Executive for all
expenses (including reasonable attorneys' fees) incurred by the Executive in
connection with such action, suit or proceeding. Such costs shall be paid to the
Executive promptly upon presentation of expense statements or other supporting
information evidencing the incurrence of such expenses.
5. Protection of Confidential Information; Non-Competition.
5.1 In view of the fact that the Executive's work for the Company
will bring the Executive into close contact with many confidential affairs of
the Company not readily available to the public, and plans for future
developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know how,"
trade secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, other business affairs of
the Company, and any information whatsoever concerning any director, officer,
employee or agent of the Company or their respective family members learned by
the Executive heretofore or hereafter, and not to disclose them to anyone
outside of the Company, either during or after the Executive's employment with
the Company, except in the course of performing the Executive's duties hereunder
or with the Company's express written consent. The foregoing prohibitions shall
include, without limitation, directly or indirectly publishing (or causing,
participating in, assisting or providing any statement, opinion or information
in connection with the publication of) any diary, memoir, letter, story,
photograph, interview, article, essay, account or description (whether
fictionalized or not) concerning any of the foregoing, publication being deemed
to include any presentation or reproduction of any written, verbal or visual
material in any communication medium, including any book, magazine, newspaper,
theatrical production or movie, or television or radio programming or
commercial; and
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<PAGE>
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's business
and all property associated therewith, which the Executive may then possess or
have under the Executive's control.
5.2 During the Term, the Executive shall not, directly or
indirectly, enter the employ of, or render any services to, any person, firm or
corporation engaged in any business competitive with the business of the Company
or of any of its subsidiaries or affiliates; the Executive shall not engage in
such business on the Executive's own account; and the Executive shall not become
interested in any such business, directly or indirectly, as an individual,
partner, shareholder, director, officer, principal, agent, employee, trustee,
consultant, or in any other relationship or capacity provided, however, that
nothing contained in this Section 5.2 shall be deemed to prohibit the Executive
from acquiring, solely as an investment, up to five percent (5%) of the
outstanding shares of capital stock of any public corporation.
5.3 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies:
5.3.1 The right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account for
and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any of
the provisions of the preceding paragraph, and the Executive hereby agrees to
account for and pay over such Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2, or
any part thereof, hereafter are construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2, or
any part thereof, are held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to
6
<PAGE>
reduce the duration and/or area of such provision and in its reduced form, said
provision shall then be enforceable.
5.6 The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Sections 5.1 and 5.2 upon the courts of any
state within the geographical scope of such covenants. In the event that the
courts of any one or more of such states shall hold such covenants wholly
unenforceable by reason of the breadth of such covenants or otherwise, it is the
intention of the parties hereto that such determination not bar or in any way
affect the Company's right to the relief provided above in the courts of any
other states within the geographical scope of such covenants as to breaches of
such covenants in such other respective jurisdictions, the above covenants as
they relate to each state being for this purpose severable into diverse and
independent covenants.
5.7 In the event that any action, suit or other proceeding in law
or in equity is brought to enforce the covenants contained in sections 5.1 and
5.2 or to obtain money damages for the breach thereof, and such action results
in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive in
such action, suit or other proceeding shall (on demand of the Executive) be paid
by the Company.
6. Inventions and Patents.
6.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the Company,
provided that such Inventions grew out of the Executive's work with the Company
or any of its subsidiaries or affiliates, are related in any manner to the
business (commercial or experimental) of the Company or any of its subsidiaries
or affiliates or are conceived or made on the Company's time or with the use of
the Company's facilities or materials. The Executive shall further: (a) promptly
disclose such Inventions to the Company; (b) assign to the Company, without
additional compensation, all patent and other rights to such Inventions for the
United States and foreign countries; (c) sign all papers necessary to carry out
the foregoing; and (d) give testimony in support of the Executive's
inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Executive within two
years after the termination of the Executive's employment by the Company, it is
to be presumed that the Invention was conceived or made during the Term.
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<PAGE>
6.3 The Executive agrees that the Executive will not assert any
rights to any Invention as having been made or acquired by the Executive prior
to the date of this Agreement, except for Inventions, if any, disclosed to the
company in writing prior to the date hereof.
7. Intellectual Property.
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited to,
all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the Term, free and clear of any claims by the Executive (or anyone claiming
under the Executive) of any kind or character whatsoever (other than the
Executive's right to receive payments hereunder). The Executive shall, at the
request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable to
evidence, establish, maintain, perfect, protect, enforce or defend its right,
title or interest in or to any such properties.
8. Indemnification.
The Company will indemnify the Executive, to the maximum extent
permitted by applicable law, against all costs, charges and expenses incurred or
sustained by the Executive in connection with any action, suit or proceeding to
which the Executive may be made a party by reason of the Executive being an
officer, director or employee of the Company or of any subsidiary or affiliate
of the Company.
9. Notices.
All notices, requests, consents and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, sent by overnight courier or
mailed first class, postage prepaid, by registered or certified mail (notices
mailed shall be deemed to have been given on the date mailed), as follows (or to
such other address as either party shall designate by notice in writing to the
other in accordance herewith):
If to the Company, to:
California Federal Bank, A Federal Savings Bank
200 Crescent Court: Suite 1350
Dallas, Texas 75201
Attention: Gerald J. Ford
8
<PAGE>
with a copy to:
MacAndrews & Forbes Holdings Inc.
35 East 62nd Street
New York, New York 10021
Attention: General Counsel
If to the Executive, to:
Richard P. Hodge
3348 Remington Drive
Plano, Texas 75023
10. General.
10.1 This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely in New York.
10.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
10.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof, including, but not limited to, that
employment agreement between the Executive and the Company dated February 1,
1995. No representation, promise or inducement has been made by either party
that is not embodied in this Agreement, and neither party shall be bound by or
liable for any alleged representation promise or inducement not so set forth.
10.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate which has
the financial resources to meet the Company's obligations hereunder or (ii) to
third parties in connection with any sale, transfer or other disposition of all
or substantially all of its business or assets; in any event the obligations of
the Company hereunder shall be binding on its successors or assigns, whether by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
10.5 This Agreement may be amended, modified, superseded, canceled,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties hereto, or in the case of a
waiver, by the party waiving
9
<PAGE>
compliance. The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect the right at a
later time to enforce the same. No waiver by either party of the breach of any
term or covenant contained in this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
11. Subsidiaries and Affiliates.
11.1 As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business entity in question, and the term "affiliate" shall
mean and include any corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the corporation or other
business entity in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
CALIFORNIA FEDERAL BANK,
A Federal Savings Bank
By: /s/ Gerald J. Ford
------------------------
Gerald J. Ford
Chairman of the Board
/s/ Richard P. Hodge
------------------------
Richard P. Hodge
10
<PAGE>
APPENDIX I
Additional Benefits:
1. Medical Examination. The Executive shall be reimbursed by the
Company for the reasonable cost of one annual medical examination upon
presentation of an expense statement.
2. Automobile. The Company shall afford the Executive the right to
use an automobile on a continuing basis and shall provide garaging near the
Executive's office, all on the following basis. The Company shall pay, upon
presentation of an expense statement, all reasonable expenses associated with
the operation of such automobile and the rental of such garage space in the same
manner as is, from time to time, in effect with respect to executive officers of
the Company generally, including, without limitation, all reasonable maintenance
and insurance expenses. The automobile furnished by the Company shall be a late
model top-of-the-line luxury automobile to be reasonably selected by the
Executive. Upon the expiration of the Term, the Executive promptly shall return
the automobile to the Company.
3. Insurance. The Company agrees to provide the Executive with
additional term life insurance coverage with a face amount of two (2) times the
then current Base Salary, on the following basis. The Executive may select a
plan of his choice and may designate the beneficiary of such plan. The Company
shall pay, upon presentation of an expense statement, the periodic premiums
relating to such additional term life insurance payable during the Term.
4. Club Membership. The company shall reimburse the Executive, upon
presentation of an expense statement, for all reasonable initiation fees and
periodic dues for membership in a golf or social club of the Executive's choice.
5. Disability. If the Company elects to terminate the Term pursuant
to Section 4.2 of the Agreement, in addition to the amounts payable under such
Section, for the shorter of the period the Executive remains disabled or until
the Executive has attained the age of 65, the Company shall continue to provide
benefits for the Executive under the corporate group life insurance plan and for
the Executive, his spouse and children under the corporate group medical
(including the executive medical plan) insurance plan, to the extent permitted
by such plans and to the extent such benefits continue to be provided to the
Company's employees or officers, as applicable, generally.
11
<PAGE>
PURCHASE AND ASSUMPTION AGREEMENT
dated as of
October 30, 1998
between
NORWEST BANK NEVADA, NATIONAL ASSOCIATION
and
CALIFORNIA FEDERAL BANK, A FEDERAL SAVINGS BANK
<PAGE>
TABLE OF CONTENTS
ARTICLE I
CERTAIN DEFINITIONS
1.1 Certain Definitions
1.2 Accounting Terms
1.3 Interpretation
ARTICLE 2
THE P&A TRANSACTION
2.1 Purchase and Sale of Assets
2.2 Assumption of Liabilities
2.3 Purchase Price
2.4 Assumption of IRA and Keogh Account Deposits
2.5 Sale and Transfer of Servicing and Escrows
ARTICLE 3
CLOSING PROCEDURE; ADJUSTMENTS
3.1 Closing
3.2 Payment at Closing
3.3 Adjustment of Purchase Price
3.4 [intentionally omitted]
3.5 Proration; Other Closing Date Adjustments
3.6 Seller Deliveries
3.7 Purchaser Deliveries
3.8 Delivery of the Loan Documents
3.9 Collateral Assignments and Filing
3.10 Owned Real Property Filings
3.11 Title Policies
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<PAGE>
ARTICLE 4
TRANSITIONAL MATTERS
4.1 Transitional Arrangements
4.2 Customers
4.3 Direct Deposits
4.4 Direct Debits
4.5 Escheat Deposits
4.6 Maintenance of Records
4.7 Interest Reporting and Withholding
4.8 Negotiable Instruments
4.9 ATM/Debit Cards; POS Cards
4.10 Leasing of Personal Property
4.11 Data Processing Conversion for the Branches and Handling of Certain
Items
4.12 Information Regarding Mortgage Loans
4.13 Employee Training
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
5.1 Corporate Organization and Authority
5.2 No Conflicts
5.3 Approvals and Consents
5.4 Tenants
5.5 Leases
5.6 [intentionally omitted]
5.7 Litigation and Undisclosed Liabilities
5.8 Regulatory Matters
5.9 Compliance with Laws
5.10 Loans
5.11 Financial and Deposit Data
5.12 Records
5.13 Title to Assets
5.14 Branch Leases
5.15 [intentionally omitted]
5.16 Deposits
5.17 Environmental Laws; Hazardous Substances
5.18 Brokers' Fees
5.19 Limitations on Representations and Warranties
iii
<PAGE>
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
6.1 Corporate Organization and Authority
6.2 No Conflicts
6.3 Approvals and Consents
6.4 Regulatory Matters
6.5 Litigation and Undisclosed Liabilities
6.6 Operation of the Branches
6.7 Financing Available
6.8 Brokers' Fees
ARTICLE 7
COVENANTS OF THE PARTIES
7.1 Activity in the Ordinary Course
7.2 Access and Confidentiality
7.3 Regulatory Approvals
7.4 Consents
7.5 Efforts to Consummate; Further Assurances
7.6 Solicitation of Accounts
7.7 Insurance
7.8 [intentionally omitted]
7.9 Servicing Prior to Closing Date
ARTICLE 8
TAXES AND EMPLOYEE BENEFITS
8.1 Tax Representations
8.2 Proration of Taxes
8.3 Sales and Transfer Taxes
8.4 Information Returns
8.5 Payment of Amount Due under Article 8
8.55 Like Kind Exchange
8.6 Assistance and Cooperation
8.7 Transferred Employees
8.8 Branch Employee Representations
iv
<PAGE>
ARTICLE 9
CONDITIONS TO CLOSING
9.1 Conditions to Obligations of Purchaser
9.2 Conditions to Obligations of Seller
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Environmental Matters
ARTICLE 11
TERMINATION
11.1 Termination
11.2 Effect of Termination
ARTICLE 12
INDEMNIFICATION AND OTHER REMEDIES
12.1 Indemnification
12.2 Loans
12.3 [intentionally omitted]
12.4 Exclusivity
12.5 AS-IS Sale; Waiver of Warranties
v
<PAGE>
ARTICLE 13
MISCELLANEOUS
13.1 Survival
13.2 Assignment
13.3 Binding Effect
13.4 Public Notice
13.5 Notices
13.6 Expenses
13.7 Governing Law
13.8 Entire Agreement; Amendments
13.9 Third Party Beneficiaries
13.10 Counterparts
13.11 Headings
13.12 [intentionally omitted]
13.13 Severability
vi
<PAGE>
List of Schedules
Schedule 1.1(b) Branches/Real Properties
Schedule 1.1(d) Excluded Deposits
Schedule 1.1(e) Other Loans
Schedule 2.1(a)(vii) Other Assets
Schedule 2.2(a)(v) Accrued Liabilities
Schedule 2.4(c) Excluded IRA/Keogh Account Deposits
Schedule 3.6(a) Form of Deed
Schedule 3.6(b) Form of Bill of Sale
Schedule 3.6(c) Form of Assignment and Assumption Agreement
Schedule 3.6(d) Form of Lease Assignment
Schedule 3.6(e) Form of Landlord Consent
Schedule 3.6(g) Form of Certificate of Officer [Seller]
Schedule 3.7(d) Form of Certificate of Officer [Purchaser]
Schedule 4.11 Schedule of Processing Fees
Schedule 5.4 Tenant Leases
Schedule 5.7 Litigation and Undisclosed Liabilities
Schedule 5.10(a)(ix) Exceptions to Seller's Sole Ownership of Loans
Schedule 5.10(f)(i) Form of Affidavit of Lost Note
Schedule 5.10(k) Exceptions to Rights of Mortgagors
Schedule 5.16 Deposits - Compliance with Laws and Contracts
Schedule 5.17 Environmental Matters
Schedule 8.1 Outstanding Tax Liabilities
vii
<PAGE>
This PURCHASE AND ASSUMPTION AGREEMENT, dated as of October
30, 1998 ("Agreement"), between Norwest Bank Nevada, National Association
("Seller") and California Federal Bank, A Federal Savings Bank ("Purchaser").
RECITALS
A. Seller. Seller is a national banking association, organized under the
laws of the United States, with its principal office located in Las Vegas,
Nevada.
B. Purchaser. Purchaser is a federal savings bank, organized under the
laws of the United States, with its principal office located in San Francisco,
California.
C. The Merger. Wells Fargo & Company, a Delaware corporation ("WFC"), has
proposed to merge (the "Merger") with a wholly-owned subsidiary of Norwest
Corporation, a Delaware corporation ("Norwest") pursuant to the terms of an
Agreement and Plan of Merger, dated as of June 7, 1998 and amended and restated
as of September 10, 1998, by and among WFC, Norwest and WFC Holding Corporation
(the "Merger Agreement"). Following the Merger, Norwest will change its name to
"Wells Fargo & Company".
In connection with the consummation of the Merger, Purchaser desires to
acquire from Seller, and Seller desires to transfer to Purchaser, certain
banking operations in the State of Nevada, in accordance with and subject to the
terms and conditions of this Agreement.
Purchaser understands and acknowledges that if the P&A Transaction (as
defined below) shall not be consummated on or before the one hundred eightieth
(180th) day following the Merger, such banking operations will be transferred
to an independent trustee for disposition.
D. Continuation of Service. Purchaser and Seller each intend to continue
providing retail and business banking services in the geographic regions served
by the Branches (as defined below) to be acquired by Purchaser under this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and obligations set forth herein, the parties agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Certain Definitions. The terms set forth below are used in this
Agreement with the following meanings:
<PAGE>
"Accrued Interest" means, as of any date, (a) with respect to a
Deposit, interest which is accrued on such Deposit to but excluding such
date and not yet posted to the relevant deposit account and (b) with
respect to a Loan, interest which is accrued on such Loan to but
excluding such date and not yet paid.
"Accrued Liabilities" has the meaning set forth in Section 2.2(a).
"ACH Direct Deposit Cut-Off Date" has the meaning set forth in
Section 4.3.
"Adjusted Payment Amount" has the meaning set forth in Section 3.3.
"Adjustment Date" has the meaning set forth in Section 3.3.
"Affiliate" means, with respect to any person, any other person
directly or indirectly controlling, controlled by or under common control
with such person. As used in this definition, the term "person" shall be
broadly interpreted to include, without limitation, any corporation,
company, partnership and individual or group.
"Agreement" means this Purchase and Assumption Agreement, including
all schedules, exhibits and addenda, each as amended from time to time in
accordance with Section 13.8(b).
"Asbestos Hazard" means the presence of asbestos in a parcel of
Owned Real Property or the improvements thereon as of the date hereof
which, under applicable laws, must be immediately remediated in order to
allow continuation of the current operation of the Branch within such
Owned Real Property using the current improvements thereon.
"Assets" has the meaning set forth in Section 2.1(a).
"Assignment and Assumption Agreement" has the meaning set forth in
Section 3.6(c).
"Branch Employees" means the employees of the Seller working at the
Branches at the Closing Date (including, without limitation, those
employees who on the Closing Date are on family and medical leave,
military leave or personal, short-term disability or pregnancy leave and
who are eligible to return to work under Seller's policies), subject to
any transfers permitted pursuant to Section 7.1 and replacement in the
ordinary course of business of employees who may leave Seller's employ
between the date hereof and the Closing Date.
"Branch Leases" means the leases under which Seller leases land
and/or buildings used as Branches, including without limitation ground
leases.
2
<PAGE>
"Branches" means each of the banking offices of Seller at the
locations identified on Schedule 1.1(b) hereto.
"Burdensome Condition" has the meaning set forth in Section 9.1(a).
"Business Day" means a day on which banks are generally open for
business in Nevada and which is not a Saturday or Sunday.
"Cash on Hand" means, as of any date, all petty cash, vault cash,
teller cash, ATM cash, prepaid postage and cash equivalents held at a
Branch.
"Closing" and "Closing Date" refer to the closing of the P&A
Transaction, which is to be held at such time and date as provided in
Article 3 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Deposit-Related Loans" means all loans secured by a Deposit as of
the close of business on the Closing Date that are linked to an open
account and are not sixty (60) or more days delinquent as of the Closing
Date.
"Deposit(s)" means deposit liabilities with respect to deposit
accounts booked by Seller at the Branches, as of the close of business of
the day prior to the Closing Date, which constitute "deposits" for
purposes of the Federal Deposit Insurance Act, 12 U.S.C. 1813, including
collected and uncollected deposits and Accrued Interest, but excluding (a)
deposit liabilities with respect to accounts booked by Seller at any
Branch and under or pursuant to any judgment, decree or order of any
court; (b) deposit liabilities with respect to accounts registered in the
name of a trust for which Seller serves as trustee (other than IRA and
Keogh Account deposit liabilities), (c) deposit liabilities with respect
to accounts booked by Seller at any Branch for which Seller serves as
guardian or custodian (other than IRA and Keogh Account deposit
liabilities); (d) Excluded IRA/Keogh Account Deposits, and (e) other
deposit liabilities, if any, designated as "Excluded Deposits" on Schedule
1.1(d) as updated thirty (30) days after the date hereof by agreement
between Seller and Purchaser.
"Draft Closing Statement" means a draft closing statement, prepared
by Seller, as of the close of business of the third (3??rd??) business day
preceding the Closing Date setting forth an estimated calculation of both
the Purchase Price and the Estimated Payment Amount.
"Encumbrances" means all mortgages, claims, charges, liens,
encumbrances, easements, limitations, restrictions, commitments and
security interests, except for statutory liens securing tax and/or other
payments not yet due, liens incurred in the ordinary course of business,
including without limitation liens in favor of mechanics or materialmen,
and such other liens, charges, security
3
<PAGE>
interests or encumbrances as do not materially detract from the value or
materially and adversely affect the use of the properties or assets
subject thereto or affected thereby or which otherwise do not materially
impair the value of or business operations at such properties and except
for obligations pursuant to applicable escheat and unclaimed property laws
relating to the Escheat Deposits.
"Environmental Consultant" has the meaning specified in Section
10.1(b).
"Environmental Hazard" means the presence of any Hazardous
Substance in violation of, and reasonably likely to require material
remediation costs under, applicable Environmental Laws; provided, however,
that the definition of Environmental Hazard shall not include asbestos and
asbestos-containing materials.
"Environmental Law" means any Federal or state law, statute, rule,
regulation, code, order, judgment, decree, injunction or agreement with
any Federal or state governmental authority, (a) relating to the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or any
other natural resource) or to human health or safety or (b) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of
hazardous substances, in each case as amended and now in effect.
Environmental Laws include, without limitation, the Clean Air Act (42 USC
7401 et seq.); the Comprehensive Environmental Response Compensation and
Liability Act (42 USC 9601 et seq.); the Resource Conservation and
Recovery Act (42 USC 96901 et seq.); the Federal Water Pollution Control
Act (33 USC 1251 et seq.); and the Occupational Safety and Health Act (29
USC 651 et seq.); provided, however, that the definition of
"Environmental Law" shall not include any Federal or state law, statute,
rule, regulation, code, order, judgment, decree, injunction or agreement
with any governmental authority relating to asbestos or
asbestos-containing materials.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Escheat Deposits" means, as of any date, Deposits and safe deposit
box contents, in each case held on such date at the Branches which become
subject to escheat, after the Closing Date and in the calendar year in
which the Closing occurs, to any governmental authority pursuant to
applicable escheat and unclaimed property laws.
"Estimated Payment Amount" has the meaning set forth in Section
3.2(a).
"Estimated Purchase Price" means the Purchase Price as set forth on
the Draft Closing Statement.
4
<PAGE>
"Excluded IRA/Keogh Account Deposits" has the meaning set forth in
Schedule 2.4(c).
"Excluded Deposits" means, if any, the deposit liabilities set
forth in Schedule 1.1(d).
"FDIA" means the Federal Deposit Insurance Act, as amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Funds Rate" on any day means the per annum rate of
interest (rounded upward to the nearest 1/100 of 1%) which is the weighted
average of the rates on overnight federal funds transactions arranged on
such day or, if such day is not a Business Day, the previous Business Day,
by federal funds brokers computed and released by the Federal Reserve Bank
of New York (or any successor) in substantially the same manner as such
Federal Reserve Bank currently computes and releases the weighted average
it refers to as the "Federal Funds Effective Rate" at the date of this
Agreement.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"FedWire Direct Deposit Cut-off Date" has the meaning set forth in
Section 4.3.
"Final Closing Statement" means a final closing statement, prepared
by Seller, as of the thirtieth (30th) day following the Closing Date
setting forth both the Purchase Price and the Adjusted Payment Amount.
"Grant Deeds" has the meaning set forth in Section 3.6(a).
"Hazardous Substance" means any substance, whether liquid, solid or
gas (a) listed, identified or designated as hazardous or toxic to a level
which requires remediation under any Environmental Law; (b) which,
applying criteria specified in any Environmental Law, is hazardous or
toxic; or (c) the use or disposal of which is regulated under
Environmental Law; provided, however, that the definition of Hazardous
Substance shall not include asbestos and asbestos-containing material.
"IRA" means an "individual retirement account" or similar account
created by a trust for the exclusive benefit of any individual or his
beneficiaries in accordance with the provisions of Section 408 of the
Code.
"IRS" means the Internal Revenue Service.
5
<PAGE>
"Keogh Account" means an account created by a trust for the benefit
of employees (some or all of whom are owner-employees) and that complies
with the provisions of Section 401 of the Code.
"Landlord Consents" has the meaning set forth in Section 3.6(e).
"Lease Agreement" means a lease entered into pursuant to Section
10.1(c) upon such specific terms and conditions as contemplated by such
Section and such other commercially reasonable terms and conditions as are
customary in a "triple net" lease of a bank branch facility.
"Lease Assignment" has the meaning set forth in Section 3.6(d).
"Liabilities" has the meaning set forth in Section 2.2.
"Loans" means, collectively, the Deposit-Related Loans, Mortgage
Loans, Overdraft Loans and Other Loans, excluding the interest of any
participants in such Loans, as set forth in the magnetic media delivered
to Purchaser on October 16, 1998 as further described as set forth in
Schedule 1.1(e), as updated as of the Closing Date.
"Loan Documents" means all documents included in Seller's file or
imaging system with respect to a Loan including, without limitation,
notes, security agreements, deeds of trust, mortgages, loan agreements,
including building and loan agreements, guarantees, sureties and insurance
policies (including title insurance policies) and all modifications,
waivers and consents relating to any of the foregoing.
"Loan Value" means, with respect to a Loan and as of a date, the
unpaid principal balance of any such loan plus Accrued Interest thereon,
net of the interest in such loan of any participant, as of such date.
"Loss" means the amount of losses, liabilities, damages (including
forgiveness or cancellation of obligations) and expenses (including
reasonable expenses of investigation and reasonable attorneys' fees and
expenses in connection with any action, suit or proceeding) incurred or
suffered by the indemnified party or its Affiliates in connection with the
matters described in Section 12.1, less the amount of the economic benefit
(if any) to the indemnified party or its Affiliates occurring or
reasonably anticipated to occur in connection with any such damage, loss,
liability or expense (including Tax benefits obtainable under applicable
law, amounts recovered under insurance policies net of deductibles,
recovery by setoffs or counterclaims, and other economic benefits).
"Material Adverse Effect" means (a) with respect to Seller, a
material adverse effect on the business or direct economic results of
operations of the
6
<PAGE>
Branches, taken as a whole, or on the ability of Seller to timely
consummate the P&A Transaction as contemplated by this Agreement, and (b)
with respect to Purchaser, a material adverse effect on the business or
operations of Purchaser or on the ability of Purchaser to perform any of
its financial or other obligations under this Agreement, including the
ability of Purchaser to timely consummate the P&A Transaction contemplated
by this Agreement. In determining whether a Material Adverse Effect has
occurred, the effect of any change in Federal or state banking laws or
regulations, any change in GAAP or regulatory accounting principles, any
adverse change in general economic conditions, including, without
limitation, the interest rate environment, or in the depository
institution industry generally shall be excluded.
"Merger Approvals" means, collectively, all regulatory and
stockholder approvals, authorizations, consents and waivers required to
permit consummation of the Merger.
"Mortgage" means a mortgage securing a Mortgage Loan.
"Mortgagor" means a borrower under a Mortgage Loan.
"Mortgage Loan" means a loan that is 100% owned by Seller and
secured by a first mortgage on 1-4 family residential real property.
"Mortgage Note" means the note evidencing the Mortgage Loan.
"OCC" means the Office of the Comptroller of the Currency.
"Order" has the meaning set forth in Section 9.1(b).
"Original Purchaser Plans" has the meaning set forth in
Section 12.1(a).
"Other Assets" has the meaning set forth in Section 2.1(a).
"Other Loans" means the loans to the borrowers described on
Schedule 1.1(e) to be attached hereto (including loan commitments
referred to thereon).
"Overdraft Loans" means unsecured overdraft loans, including
negotiable order of withdrawal line of credit accounts, relating to the
Deposits, as of the close of business on the Closing Date, plus accrued
interest, which do not exceed the applicable credit limit and are linked
to any open account and are not sixty (60) or more days delinquent as of
the Closing Date.
"Owned Real Property" means Real Property where Seller owns both the
real property and improvements thereon that are used for Branches.
7
<PAGE>
"P&A Transaction" means the purchase and sale of Assets and the
assumption of Liabilities described in Section 2.1 and 2.2
"Personal Property" means all of the personal property of Seller
located in the Branches consisting of the trade fixtures, shelving,
furniture, on-premises ATMs, equipment (other than (a) automated teller
and platform equipment, (b) telephone equipment, and (c) Seller's training
equipment), security systems, safe deposit boxes (exclusive of contents),
vaults, sign structures (exclusive of signage containing any trade name,
trademark or service mark, if any, of Seller, Norwest, WFC, or any of
their respective Affiliates) and supplies excluding any items consumed or
disposed of, but including new items acquired or obtained, in the ordinary
course of the operation of the Branches through the Closing Date. If,
prior to the Closing Date, an item of Personal Property is stolen,
destroyed or otherwise lost, such item shall be excluded from the P&A
Transaction, and the term "Personal Property" as used herein shall exclude
such item. If, prior to the Closing Date, an item of Personal Property is
damaged by fire or other casualty, such item, if reasonably repairable,
shall be sold to Purchaser (in accordance with the provisions hereof) and
the insurance proceeds relating to such item shall be assigned to
Purchaser, it being understood that if such item is not reasonably
repairable or is underinsured or uninsured, it shall be excluded from the
P&A Transaction. Personal Property does not include any personal property
or equipment subject to a Personal Property Lease.
"Personal Property Leases" means the leases under which Seller
leases certain Personal Property in the Branches. Seller shall cancel all
such Personal Property Leases as of the Closing.
"Purchase Price" has the meaning set forth in Section 2.3.
"Real Property" means the parcels of real property on which the
Branches listed on Schedule 1.1(b) are located, including any improvements
thereon, which Schedule indicates whether or not such real property is
Owned Real Property.
"Records" means all records and original documents, or where
reasonable and appropriate copies thereof, in Seller's possession that
pertain to and are utilized by Seller to administer, reflect, monitor,
evidence or record information respecting the business or conduct of the
Branches (including transaction tickets through the Closing Date and all
records for closed accounts located in Branches and excluding any other
transaction tickets and records for closed accounts) and all such records
and original documents, or where reasonable and appropriate copies
thereof, regarding the Assets, or the Deposits, including all such records
maintained on electronic or magnetic media in the electronic data base
system of Seller reasonably accessible by Branch, or to comply with the
applicable laws and governmental regulations to which the Deposits are
subject, including but not limited to applicable unclaimed property and
escheat laws. The parties understand and agree that it shall be reasonable
and appropriate to provide copies
8
<PAGE>
of all Records except notes and deeds of trust, which shall be provided in
original or in whatever other form or medium then maintained by Seller,
subject to the provisions relating to lost note affidavits in Sections
5.10.
"Regulatory Approvals" means all approvals, authorizations, waivers
or consents of or notices to any governmental agencies or authorities
required for or in connection with consummation of the P&A Transaction,
including the following: (i) approvals under Section 18(c) and 18(d) of
the FDIA and, if applicable, under Section 10(e) of the Home Owners' Loan
Act; (ii) any approval required under Nevada law; and (iii) expiration of
the waiting period provided for in Section 18(c) of the FDIA.
"Safe Deposit Agreements" means the agreements relating to safe
deposit boxes located in the Branches.
"Seller's knowledge" or other similar phrases means information that
is actually known to any officer of Seller who holds the title of Senior
Vice President or above and has responsibility with respect to management
of operations conducted at the Branches.
"Tax Returns" means any return or other report required to be filed
with respect to any Tax, including declaration of estimated tax and
information returns.
"Taxes" means any federal, state, local, or foreign taxes, including
but not limited to taxes on or measured by income, estimated income,
franchise, capital stock, employee's withholding, non-resident alien
withholding, backup withholding, social security, occupation,
unemployment, disability, value added taxes, taxes on services, real
property, personal property, sales, use, excise, transfer, gross receipts,
inventory and merchandise, business privilege, and other taxes or
governmental fees or charges or amounts required to be withheld and paid
over to any government in respect of any tax or governmental fee or
charge, including any interest, penalties, or additions to tax on the
foregoing whether or not disputed.
"Tenant Leases" means leases or subleases between Seller and
tenants, if any, listed on Schedule 5.4.
"Title Commitment" has the meaning set forth in Section 3.11.
"Title Company" has the meaning set forth in Section 3.11.
"Title Policy" has the meaning set forth in Section 3.11.
"Transaction Account" means any account at a Branch in respect of
which deposits therein are withdrawable in practice upon demand or upon
which third
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party drafts may be drawn by the depositor, including checking accounts,
negotiable order of withdrawal accounts and money market deposit accounts.
"Transferred Employees" means Employees who accept offers of
employment from Purchaser or an Affiliate of Purchaser as contemplated in
Section 8.7.
1.2 Accounting Terms. All accounting terms not otherwise defined herein
shall have the respective meanings assigned to them in accordance with
consistently applied generally accepted accounting principles as in effect from
time to time in the United States of America ("GAAP").
1.3 Interpretation. All references in this Agreement to Articles or
Sections are references to Articles or Sections of this Agreement, unless some
other reference is clearly indicated. The rule of construction against the
draftsman shall not be applied in interpreting and construing this Agreement.
ARTICLE 2
THE P&A TRANSACTION
2.1 Purchase and Sale of Assets. (a) Subject to the terms and conditions
set forth in this Agreement, at the Closing, Seller shall grant, sell, convey,
assign, transfer and deliver to Purchaser, and Purchaser shall purchase and
accept from Seller, all of Seller's right, title and interest, as of the Closing
Date, in and to the following (collectively, the "Assets"):
(i) Cash on Hand;
(ii) the Owned Real Property;
(iii) the Personal Property;
(iv) the Loans including Accrued Interest, and servicing rights
related thereto pursuant to Section 2.5;
(v) the Branch Leases and Tenant Leases;
(vi) the Safe Deposit Agreements;
(vii) Other Assets as described in Schedule 2.1(a)(vii); and
(viii) the Records.
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(b) Purchaser understands and agrees that it is purchasing only the
Assets (and assuming only the Liabilities) specified in this Agreement and,
except as may be expressly provided for in this Agreement, Purchaser has no
interest in or right to any other business relationship which Seller may have
with any customer of the Branches, including, without limitation: (i) any
deposit account or other service of Seller at any other office of Seller which
may be linked to the Deposits; (ii) any deposit account which sweeps from the
Branch to a third party; (iii) any merchant card banking business; and (iv) any
cash management service (e.g., sweep accounts, cash concentrator accounts,
controlled disbursement accounts) which Seller may provide to any customer of
the Branches. No credit card relationships are being sold. No right to the use
of any sign, trade name, trademark or service mark, if any, of Seller, Norwest,
WFC, or any of their respective Affiliates, is being sold.
2.2 Assumption of Liabilities. (a) Subject to the terms and conditions
set forth in this Agreement, at the Closing, Purchaser shall assume, pay,
perform and discharge all duties, responsibilities, obligations or liabilities
of Seller (whether accrued, contingent or otherwise) to be discharged,
performed, satisfied or paid on or after the Closing Date, with respect to the
following (collectively, the "Liabilities"):
(i) the Deposits together with Accrued Interest thereon,
including IRA and Keogh Accounts to the extent contemplated by Section
2.4;
(ii) the Branch Leases and Tenant Leases;
(iii) the Safe Deposit Agreements;
(iv) the Loans, and the servicing of the Loans pursuant to
Section 2.5; and
(v) the Accrued Liabilities, if any, described in Schedule
2.2(a)(v).
(b) Notwithstanding anything to the contrary in this Agreement, Purchaser
shall not assume or be bound by any duties, responsibilities, obligations or
liabilities of Seller, or of any of Seller's Affiliates, of any kind or nature,
known, unknown, contingent or otherwise, other than the Liabilities.
2.3 Purchase Price. The purchase price ("Purchase Price") for the Assets
shall be the sum of:
(a) An amount equal to 9.0% of the balance (including Accrued Interest)
of the Deposits on the day prior to the Closing Date;
(b) The aggregate amount of Cash on Hand as of the Closing Date;
(c) The aggregate net book value of all the Assets, other than Cash on
Hand and the Loans, as reflected on the books of Seller as of the close of
business of the
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month-end day most recently preceding the Closing Date, excluding the net book
value of any Owned Real Property leased pursuant to Section 10.1(c); and
(d) The aggregate Loan Value of the Loans as of the close of business of
the day prior to the Closing Date.
2.4 Assumption of IRA and Keogh Account Deposits. (a) With respect to
Deposits in IRAs, Seller will use reasonable efforts and will cooperate with
Purchaser in taking any action reasonably necessary to accomplish either the
appointment of Purchaser as successor custodian or the delegation to Purchaser
(or to an Affiliate of Purchaser) of Seller's authority and responsibility as
custodian of all such IRA deposits except self-directed IRA deposits, including,
but not limited to, sending to the depositors thereof appropriate notices,
cooperating with Purchaser (or such Affiliate) in soliciting consents from such
depositors, and filing any appropriate applications with applicable regulatory
authorities. If any such delegation is made to Purchaser (or such Affiliate),
Purchaser (or such Affiliate) will perform all of the duties so delegated and
comply with the terms of Seller's agreement with the depositor of the IRA
deposits affected thereby.
(b) With respect to Deposits in Keogh Accounts, Seller shall cooperate
with Purchaser to invite depositors thereof to direct a transfer of each such
depositor's Keogh Account and the related Deposits to Purchaser (or an Affiliate
of Purchaser), as trustee thereof, and to adopt Purchaser's (or such
Affiliate's) form of Keogh Master Plan as a successor to that of Seller.
Purchaser (or such Affiliate) will assume no Keogh Accounts unless Purchaser (or
such Affiliate) has received the documents necessary for such assumption at or
before the Closing. With respect to any owner of a Keogh Account who does not
adopt Purchaser's (or such Affiliate's) form of Keogh Master Plan, Seller will
use reasonable efforts in order to enable Purchaser (or such Affiliate) to
retain such Keogh Accounts at the Branches.
(c) If, notwithstanding the foregoing, as of the Closing Date, Purchaser
shall be unable to retain deposit liabilities in respect of an IRA or Keogh
Account, such deposit liabilities shall be excluded from Deposits for purposes
of this Agreement and shall constitute "Excluded IRA/Keogh Account Deposits."
2.5 Sale and Transfer of Servicing and Escrows. (a) The Loans shall be
sold on a servicing-released basis. As of the Closing Date, all rights,
obligations, liabilities and responsibilities with respect to the servicing of
the Loans after the Closing Date will be assumed by Purchaser. Seller shall be
discharged and indemnified by Purchaser from all liability with respect to
servicing of the Loans after the Closing Date and Purchaser shall be discharged
and indemnified by Seller from all liability with respect to servicing of the
Loans on or prior to the Closing Date. To the extent permitted under the
applicable documents, Seller shall assign to Purchaser Seller's rights under any
participation or servicing agreement relating to the Loans.
(b) As of the Closing Date, Purchaser will assume, and agrees to
undertake and discharge, any and all obligations of the holder and servicer of
Mortgage Loans as
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such obligations may relate to the escrow, maintenance of escrow and payments
from escrow of moneys paid by or on account of the applicable Mortgagor. On or
before the fifth (5th) Business Day after the Closing Date, Seller shall remit
by wire transfer of immediately available funds to Purchaser all funds held in
escrow that were collected and received pursuant to a Mortgage Loan for the
payment of taxes, assessments, hazard insurance premiums, primary mortgage
insurance policy premiums, if applicable, or comparable items prior to the
Closing Date plus any Accrued Interest. Seller makes no warranties or
representations of any kind or nature as to the sufficiency of such sum to
discharge any obligations with respect to Mortgage Loans, or as to the accuracy
of such sum.
ARTICLE 3
CLOSING PROCEDURES; ADJUSTMENTS
3.1 Closing. (a) The Closing will be held at the offices of Seller at
3300 West Sahara Avenue, Las Vegas, Nevada or such other place as may be agreed
to by the parties.
(b) The Closing Date shall be April 16, 1999, or, if the Closing cannot
occur on such date, on a date and time as soon thereafter as practicable after
receipt of all Regulatory Approvals. Unless the parties agree pursuant to
Section 4.11(a) that the conversion of the data processing with respect to the
Branches and the Assets and Liabilities will be performed on a date other than
the Closing Date, the Closing Date shall be a Friday.
3.2 Payment at Closing. (a) At Closing, Seller shall pay to Purchaser the
amount by which the aggregate balance (including Accrued Interest) of the
Deposits and Accrued Liabilities exceed the Estimated Purchase Price (the
"Estimated Payment Amount") or, Purchaser shall pay to Seller the amount by
which the Estimated Purchase Price exceeds the aggregate balance (including
Accrued Interest) of the Deposits and Accrued Liabilities, each as set forth on
the Draft Closing Statement as agreed upon between Seller and Purchaser. In
addition, Purchaser shall pay to Seller any sales tax due.
(b) All payments to be made hereunder by one party to the other shall be
made by wire transfer of immediately available funds (in all cases to an
account specified in writing by Seller or Purchaser, as the case may be, to the
other not later than the third (3rd) Business Day prior to the Closing Date) on
or before 11:00 a.m. local time on the date of payment. If any payment to be
made hereunder on the Closing Date (or any other date) shall not be made on or
before 11:00 a.m. local time on such date, and the amount thereof shall have
been agreed to in writing by the parties at the Closing Date (or such other
payment date), the party responsible therefor may make such payment on or
before 11:00 a.m. local time on the next Business Day together with interest
thereon at the
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Federal Funds Rate applicable from the Closing Date (or such other payment date)
to the date such payment is actually made, which in no event shall be later than
the fifth (5th) Business Day after such payment was due.
(c) If any instrument of transfer contemplated herein shall be recorded
in any public record before the Closing and thereafter the Closing is not
completed, then at the request of such transferring party the other party will
deliver (or execute and deliver) such instruments and take such other action as
such transferring party shall reasonably request to revoke such purported
transfer.
3.3 Adjustment of Purchase Price. (a) On or before 12:00 noon on the
thirtieth (30th) day following the Closing Date (the "Adjustment Date"), Seller
shall deliver to the Purchaser the Final Closing Statement and shall make
available such work papers, schedules and other supporting data as may be
reasonably requested by Purchaser to enable it to verify the amounts set forth
in the Final Closing Statement. The Final Closing Statement shall also set
forth the amount (the "Adjusted Payment Amount") by which the aggregate amount
of Deposits (including Accrued Interest) and Accrued Liabilities shown on the
Final Closing Statement differs from the Estimated Purchase Price.
(b) The determination of the Adjusted Payment Amount shall be final and
binding on the parties hereto unless within thirty (30) days after receipt by
Purchaser of the Final Closing Statement, Purchaser shall notify the Seller in
writing of its disagreement with any amount included therein or omitted
therefrom, in which case, if the parties are unable to resolve the disputed
items within ten (10) Business Days of the receipt by Seller of notice of such
disagreement, such items shall be determined by an independent accounting firm
selected by mutual agreement between Seller and Purchaser; provided, however,
that in the event the fees of such firm as estimated by such firm would exceed
fifty percent (50%) of the net amount in dispute, the parties agree that such
firm will not be engaged by either party and that such net amount in dispute
will be equally apportioned between Seller and Purchaser. Such accounting firm
shall be instructed to resolve the disputed items within ten (10) Business Days
of engagement, to the extent reasonably practicable. The determination of such
accounting firm shall be final and binding on the parties hereto. The fees of
any such accounting firm shall be divided equally between Seller and Purchaser.
(c) On or before 12:00 noon on the tenth (10th) Business Day after the
Adjustment Date or, in the case of a dispute, the date of the resolution of the
dispute pursuant to subsection 3.3(b) above, Seller shall pay to Purchaser an
amount equal to the amount by which the Adjusted Payment Amount exceeds the
Estimated Payment Amount, plus interest on such excess amount from the Closing
Date to but excluding the payment date, at the Federal Funds Rate or, if the
Estimated Payment Amount exceeds the Adjusted Payment Amount, Purchaser shall
pay to Seller an amount equal to such excess, plus interest on such excess
amount from the Closing Date to but excluding the payment date, at the Federal
Funds Rate. Any payments required by Section 3.5 shall be made
contemporaneously with the foregoing payment.
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3.4 [intentionally omitted]
3.5 Proration: Other Closing Date Adjustments. (a) Except as otherwise
specifically provided in this Agreement, it is the intention of the parties that
Seller will operate the Branches for its own account until 11:59 p.m., Nevada
time, on the Closing Date, and that Purchaser shall operate the Branches, hold
the Assets and assume the Liabilities for its own account after the Closing
Date. Thus, except as otherwise specifically provided in this Agreement, items
of income and expense, as defined herein, shall be prorated as of 11:59 p.m.,
Nevada time, on the Closing Date, and settled between Seller and Purchaser on
the Closing Date, whether or not such adjustment would normally be made as of
such time. Items of proration will be handled at Closing as an adjustment to the
Purchase Price unless otherwise agreed by the parties hereto.
(b) For purposes of this Agreement, items of proration and other
adjustments shall include, without limitation: (i) rental payments and security
deposits under the Branch Leases and the Tenant Leases; (ii) personal and real
property taxes and assessments; (iii) FDIC deposit insurance assessments; (iv)
wages, salaries and employee benefits and expenses; (v) trustee or custodian
fees on IRA and Keogh Accounts; (vi) adjustments reflecting exclusions from the
Personal Property as provided for in the definition thereof; (vii) other prepaid
expenses and items and accrued but unpaid liabilities, as of the close of
business on the day prior to the Closing Date. Safe deposit rental payments
previously received by Seller shall not be prorated.
3.6 Seller Deliveries. At the Closing, Seller shall deliver to Purchaser:
(a) Deeds in substantially the form of Schedule 3.6(a)(except as
otherwise required by local state law), pursuant to which the Owned Real
Property shall be transferred to Purchaser "AS IS", "WHERE IS" and with all
faults (the "Grant Deeds");
(b) A bill of sale in substantially the form of Schedule 3.6(b)(except as
otherwise required by local state law), pursuant to which the Personal Property
shall be transferred to Purchaser "AS IS", "WHERE IS" and with all faults;
(c) An assignment and assumption agreement in substantially the form of
Schedule 3.6(c)(except as otherwise required by local state law), with respect
to the Liabilities (the "Assignment and Assumption Agreement");
(d) Lease assignment and assumption agreements in substantially the form
of Schedule 3.6(d)(except as otherwise required by local state law), with
respect to each of the Branch Leases (the "Lease Assignments");
(e) Subject to the provisions of Section 7.4, such consents of landlords
as shall be required pursuant to the terms of such Branch Leases, to the
assignment of the Branch Leases to Purchaser in substantially the form of
Schedule 3.6(e)(except as otherwise required by local state law), (the "Landlord
Consents");
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(f) Subject to the provisions of Section 7.4, such consents as shall be
required pursuant to the terms of such Tenant Leases in connection with the
assignment thereof to Purchaser;
(g) An Officer's Certificate in substantially the form of Schedule
3.6(g);
(h) [intentionally left blank]
(i) The Draft Closing Statement;
(j) Seller's resignation as trustee or custodian, as applicable, with
respect to each IRA or Keogh Account included in the Deposits and designation of
Purchaser as successor trustee or custodian with respect thereto, as
contemplated by Section 2.4;
(k) All documentation required to exempt Seller from the withholding
requirement of Section 1445 of the Code, if applicable, consisting of an
affidavit from Seller to Purchaser upon penalty of perjury that Seller is not a
foreign person and providing Seller's U.S. taxpayer identification number; and
(l) Such other documents as the parties determine are reasonably
necessary to consummate the P&A Transaction as contemplated hereby.
3.7 Purchaser Deliveries. At the Closing, Purchaser shall deliver to
Seller:
(a) The Assignment and Assumption Agreement;
(b) Purchaser's acceptance of its appointment as successor trustee or
custodian, as applicable, of the IRA and Keogh Accounts included in the Deposits
and assumption of the fiduciary obligations of the trustee or custodian with
respect thereto, as contemplated by Section 2.4;
(c) The Lease Assignments and, as contemplated by Section 7.4, such other
instruments and documents as any landlord under a Branch Lease may reasonably
require as necessary or desirable for providing for the assumption by Purchaser
of a Branch Lease, each such instrument and document in form and substance
reasonably satisfactory to the parties and dated as of the Closing Date;
(d) An Officer's Certificate in substantially the form of Schedule
3.7(d);
(e) [intentionally left blank]
(f) Such other documents as the parties determine are reasonably
necessary to consummate the P&A Transaction as contemplated hereby.
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3.8 Delivery of the Loan Documents. (a) As soon as reasonably practicable
but not later than thirty (30) days after the Closing Date, Seller shall deliver
to Purchaser or its designee the Loan Documents actually in the possession of
Seller, in whatever other form or medium then maintained by Seller. Seller makes
no representation or warranty to Purchaser regarding the condition of the Loan
Documents or any single document included therein, or Seller's interest in any
collateral securing any Loan, except as specifically set forth herein. Seller
shall have no responsibility or liability for the Loan Documents from and after
the time such files are delivered by Seller to an independent third party for
shipment to Purchaser, the cost of which shall be the sole responsibility of
Purchaser. Seller agrees that the Loan Documents shall include either an
original note or a lost note affidavit for each Loan.
(b) Promptly upon execution of this Agreement, Purchaser shall provide
Seller with the exact name to which the Loans are to be endorsed, or whether any
Loans should be endorsed in blank. Seller will complete such endorsements and
deliver the Loan Documents within ninety (90) days after Closing: provided,
however, with respect to specific Loan Documents, Seller may require additional
time to effectively transfer title thereto and Purchaser shall not hold Seller
liable for any reasonable delays in the delivery of such Loan Documents.
3.9 Collateral Assignments and Filing. Seller shall take all such
reasonable actions as requested by Purchaser to assist Purchaser in obtaining
the valid perfection of a lien or security interest in the collateral, if any,
securing each Loan sold on the Closing Date in favor of Purchaser or its
designated assignee as secured party. Any such action shall be at the sole
expense of Purchaser, and Purchaser shall reimburse Seller for all reasonable
costs incurred in connection therewith.
3.10 Owned Real Property Filings. On or prior to the Closing Date, Seller
shall file or record, or cause to be filed or recorded, any and all documents
necessary in order that the legal and equitable title to Owned Real Property
shall be duly vested in Purchaser. Any expenses or documentary transfer taxes
with respect to such filings and all escrow closing costs shall be shared
equally by the parties.
3.11 Title Policies. (a) Within ten (10) days after execution of this
Agreement, Seller, at Seller's expense, shall provide Purchaser with a
preliminary title commitment (the "Title Commitment") to Purchaser's reasonable
satisfaction for all the Owned Real Property issued by ATI Title Company (the
"Title Company").
(b) Purchaser shall, at its own expense, obtain as of the Closing Date an
ALTA (standard coverage) title insurance policy from the Title Company (a "Title
Policy") with respect to all the Owned Real Property. Seller will cooperate with
Purchaser in assisting Purchaser to obtain (at Purchaser's expense) an ALTA
extended coverage owner's policy.
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ARTICLE 4
TRANSITIONAL MATTERS
4.1 Transitional Arrangements. Seller and Purchaser agree to cooperate
and to proceed as follows to effect the transfer of account record
responsibility for the Branches:
(a) Not later than thirty (30) days after the signing of this Agreement,
Seller will meet with Purchaser to investigate, confirm and agree upon mutually
acceptable transaction settlement procedures and specifications, files,
procedures and schedules, for the transfer of account record responsibility;
provided, however, that Seller is not obligated under this Agreement to provide
Purchaser any information regarding Seller's relationship with the customers
outside of the Branch (e.g., other customer products, householding information).
(b) Not later than forty-five (45) days after the date of this Agreement,
Seller shall deliver to Purchaser the specifications and conversion sample
files.
(c) From time to time prior to the Closing, after Purchaser has tested
and confirmed the conversion sample files, Purchaser may request and Seller
shall provide reasonable additional file-related information, including without
limitation, complete name and address, account masterfile, ATM account number
information, applicable transaction and stop/hold/caution information,
account-to-account relationship information and any other related information
with respect to the Deposits and the Other Loans.
(d) Upon the reasonable request of Purchaser, Seller will cooperate with
Purchaser and will make available from time to time prior to the Closing Date,
at Purchaser's expense (at $75 per hour), a reasonable number of technical
personnel for consultation with Purchaser concerning matters other than the
matters referred to in this Article 4.
4.2 Customers. (a) Not later than thirty (30) days prior to the Closing
Date (unless earlier required by law),
(i) Seller will notify the holders of Deposits to be transferred
on the Closing Date that, subject to the terms and conditions of this
Agreement, Purchaser will be assuming liability for such Deposits;
(ii) each of Seller and Purchaser shall provide, or join in
providing where appropriate, all notices to customers of the Branches and
other persons that Seller or Purchaser, as the case may be, is required
to give under applicable law or the terms of any other agreement between
Seller and any customer in connection with the transactions contemplated
hereby; and
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(iii) following or concurrently with the notice referred to in
clause (i) above, Purchaser may communicate with and deliver information
to depositors and other customers of the Branches concerning the P&A
Transaction and the business of Purchaser.
A party proposing to send or publish any notice or communication pursuant to any
paragraph of this Section 4.2 shall furnish to the other party a copy of the
proposed form of such notice or communication at least ten (10) days in advance
of the proposed date of the first mailing, posting, or other dissemination
thereof to customers, and shall not unreasonably refuse to amend such notice to
incorporate any changes that the other such party proposes as necessary to
comply with applicable law. All costs and expenses of any notice or
communication sent or published by Purchaser or Seller shall be the
responsibility of the party sending such notice or communication and all costs
and expenses of any joint notice or communication shall be shared equally by
Seller and Purchaser. As soon as reasonably practicable and in any event within
forty-five (45) days of the date hereof, Seller shall provide to Purchaser a
report of the names and addresses of the owners of the Deposits, the borrowers
on the Loans and the lessees of the safe deposit boxes in connection with the
mailing of such materials, which report shall be current as of the date hereof.
(b) Following the giving of any notice described in paragraph (a) above,
Purchaser and Seller shall deliver to each new customer at any of the Branches
such notice or notices as may be reasonably necessary to notify such new
customers of Purchaser's pending assumption of liability for the Deposits and to
comply with applicable law. As soon as practicable after execution of this
Agreement, Seller will provide Purchaser with account information, including
complete mailing addresses for each of the depositors of the Deposits, as of a
recent date, and upon reasonable request shall provide an updated version of
such records; provided, however, that Seller shall not be obligated to provide
such updated records more than twice.
(c) Notwithstanding the provisions of Section 7.6, neither Purchaser nor
Seller shall object to the use, by depositors of the Deposits, of payment orders
issued to or ordered by such depositors on or prior to the Closing Date, which
payment orders bear the name, or any logo, trademark, service mark or the
proprietary mark of Seller, Norwest, WFC or any of their respective Affiliates.
4.3 Direct Deposits. Seller will use all reasonable efforts to transfer
to Purchaser on the Closing Date all of those automated clearing house ("ACH")
and FedWire direct deposit arrangements related (by agreement or other standing
arrangement) to Deposits. For a period of three (3) months following the
Closing, in the case of ACH direct deposits to accounts containing Deposits (the
final Business Day of such period being the "ACH Direct Deposit Cut-Off Date"),
Seller shall transfer to Purchaser all received ACH Direct Deposits at 9:00 a.m.
Central Standard Time each Business Day. Such transfers shall contain Direct
Deposits effective for that Business Day only. On each Business Day, for a
period of thirty (30) days following the Closing Date (the final Business Day of
such period being the "FedWire Direct Deposit Cut-Off
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Date"), FedWires received by Seller shall be returned (as soon as is possible
after receipt) to the originator with an indication of Purchaser's correct Wire
Room contact information and an instruction that such wire should be sent to
Purchaser. Compensation for ACH direct deposits or FedWire direct deposits not
forwarded to Purchaser on the same Business Day as that on which Seller has
received such deposits will be handled in accordance with the rules established
by the United States Council on International Banking. After the respective ACH
Direct Deposit Cut-Off Date or FedWire Direct Deposit Cut-Off Date, Seller may
discontinue accepting and forwarding ACH and FedWire entries and funds and
return such direct deposits to the originators marked "Account Closed." Seller
shall not be liable for any overdrafts that may thereby be created. Purchaser
and Seller shall agree on a reasonable period of time prior to the Closing
during which Seller will no longer be obligated to accept new direct deposit
arrangements related to the Branches. At the time of each ACH Direct Deposit
Cut-Off Date, Purchaser will provide ACH originators with account numbers
relating to the Deposits.
4.4 Direct Debits. As soon as practicable after execution of this
Agreement and after the notice provided in Section 4.2(a), Purchaser will send
appropriate notice to all customers having accounts constituting Deposits the
terms of which provide for direct debit of such accounts by third parties,
instructing such customers concerning the transfer of customer direct debit
authorizations from Seller to Purchaser. Such notice shall be in a form agreed
to by the parties. For a period of three (3) months following the Closing,
Seller shall transfer to Purchaser all received direct debits on accounts
constituting Deposits at 9:00 a.m. Central Standard Time each Business Day. Such
transfers shall contain Direct Debits effective for that Business Day only.
Thereafter, Seller may discontinue forwarding such entries and return them to
the originators marked "Account Closed." Purchaser and Seller shall agree on a
reasonable period of time prior to the Closing during which Seller will no
longer be obligated to accept new direct debit arrangements related to the
Branches. On the Closing Date, Purchaser will provide ACH originators of such
Direct Debits with account numbers relating to the Deposits.
4.5 Escheat Deposits. No currently escheated deposits are being sold.
After Closing, Purchaser shall be solely responsible for the proper reporting
and transmission to the appropriate governmental entity of Escheat Deposits.
4.6 Maintenance of Records. Through the Closing Date, Seller will
maintain the Records relating to the Assets and Liabilities in the same manner
and with the same care that the Records have been maintained prior to the
execution of this Agreement. Purchaser may, at its own expense, make such copies
of and excerpts from the Records as it may deem desirable. All Records, whether
held by Purchaser or Seller, shall be maintained for such periods as are
required by law, unless the parties shall agree in writing to a longer period.
From and after the Closing Date, each of the parties shall permit the other
reasonable access to any applicable Records in its possession relating to
matters arising on or before the Closing Date and reasonably necessary in
connection with any claim, action, litigation or other proceeding involving the
party requesting access to such Records or in connection with any legal
obligation owed by such party to
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any present or former depositor or other customer. Each party will notify the
other party thirty (30) days prior to destroying any Records.
4.7 Interest Reporting and Withholding. (a) Unless otherwise agreed to by
the parties, Seller will report to applicable taxing authorities and holders of
Deposits, with respect to the period from January 1 of the year in which the
Closing occurs through the Closing Date, all interest (including dividends and
other distributions with respect to money market accounts) credited to, withheld
from and any early withdrawal penalties imposed upon the Deposits. Purchaser
will report to the applicable taxing authorities and holders of Deposits, with
respect to all periods from the day after the Closing Date, all such interest
credited to, withheld from and any early withdrawal penalties imposed upon the
Deposits. Any amounts required by any governmental agencies to be withheld from
any of the Deposits through the Closing Date will be withheld by Seller in
accordance with applicable law or appropriate notice from any governmental
agency and will be remitted by Seller to the appropriate agency on or prior to
the applicable due date. Any such withholding required to be made subsequent to
the Closing Date will be withheld by Purchaser in accordance with applicable law
or appropriate notice from any governmental agency and will be remitted by
Purchaser to the appropriate agency on or prior to the applicable due date.
(b) Unless otherwise agreed by the parties, Seller shall be responsible
for delivering to payees all IRS notices with respect to information reporting
and tax identification numbers required to be delivered through the Closing Date
with respect to the Deposits, and Purchaser shall be responsible for delivering
to payees all such notices required to be delivered following the Closing Date
with respect to the Deposits. Purchaser and Seller shall, prior to the Closing
Date, consult and Seller shall take reasonable actions as are necessary to
permit Purchaser to deliver such IRS notices required to be delivered following
the Closing Date.
(c) Unless otherwise agreed by the parties, Seller will make all required
reports to applicable tax authorities and to obligors on Loans purchased on the
Closing Date, with respect to the period from January 1 of the year in which the
Closing occurs through the Closing Date, concerning all interest and points
received by the Seller. Purchaser will make all required reports to applicable
tax authorities and to obligors on Loans purchased on the Closing Date, with
respect to all periods from the day after the Closing Date, concerning all such
interest and points received.
4.8 Negotiable Instruments. Seller will remove any supply of Seller's
money orders, official checks, gift checks, travelers' checks or any other
negotiable instruments located at each of the Branches on the Closing Date.
4.9 ATM/Debit Cards; POS Cards. Seller will provide Purchaser with a list
of ATM access/debit cards and Point-of-Sale ("POS") cards issued by Seller to
depositors of any Deposits, and a record thereof in a format reasonably agreed
to by the parties containing all addresses therefor, as soon as practicable and
in no event later than forty-five (45) days after execution of this Agreement.
At or promptly after the Closing, Seller
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will provide Purchaser with a revised record through the Closing. In instances
where a depositor of a Deposit made an assertion of error regarding an account
pursuant to the Electronic Funds Transfer Act and Federal Reserve Board
Regulation E, and Seller, prior to the Closing, recredited the disputed amount
to the relevant account during the conduct of the error investigation, Purchaser
agrees to comply with a written request from Seller to debit such account in a
stated amount and remit such amount to Seller, to the extent of the balance of
funds available in the accounts. Seller agrees to indemnify Purchaser for any
claims or losses that Purchaser may incur as a result of complying with such
request from Seller. Seller will not be required to disclose to Purchaser
customers' PINs or algorithms or logic used to generate PINs. Purchaser shall
reissue ATM access/debit cards to depositors of any Deposits prior to the
Closing Date, which cards shall be effective as of the Closing Date. Purchaser
and Seller agree to settle any and all ATM transactions and POS transactions
effected on or before the Closing Date, but processed after the Closing Date, as
soon as practicable. In addition, Purchaser assumes responsibility for and
agrees to pay on presentation all POS transactions initiated before or after the
Closing with POS cards issued by Seller to access Transaction Accounts.
4.10 Leasing of Personal Property. Seller shall cancel or terminate any
Personal Property Lease as of the Closing Date.
4.11 Data Processing Conversion for the Branches and Handling of Certain
Items. (a) The conversion of the data processing with respect to the Branches
and the Assets and Liabilities will be completed on the Saturday and Sunday
following the Closing Date unless otherwise agreed to by the parties. Seller and
Purchaser agree to cooperate to facilitate the orderly transfer of data
processing information in connection with the P&A Transaction. Within ten (10)
days of the date of this Agreement, Purchaser and/or its representatives shall
be permitted access (subject to the provisions of section 7.2(a)) to review each
Branch for the purpose of installing automated equipment for use by Branch
personnel. Following the receipt of all Regulatory Approvals (except for the
expiration of statutory waiting periods), Purchaser shall be permitted, at its
expense, to install and test communication lines, both internal and external,
from each site and prepare for the installation of automated equipment on the
Closing Date.
(b) As soon as practicable and in no event more than five (5) business
days after the Closing Date, Purchaser shall mail to each depositor in respect
of a Transaction Account (i) a letter approved by the Seller requesting that
such depositor promptly cease writing Seller's drafts against such Transaction
Account and (ii) new drafts which such depositor may draw upon Purchaser against
such Transaction Accounts. The parties hereto shall use their best efforts to
develop procedures which cause Seller's drafts against Transaction Accounts
which are received after the Closing Date to be cleared through Purchaser's
then-current clearing procedures. During the sixty (60) day period after the
Closing Date, if it is not possible to clear Transaction Account drafts through
Purchaser's then-current clearing procedures, Seller shall forward to Purchaser
as soon as practicable but in no event more than three (3) Business Days after
receipt all Transaction Account drafts drawn against Transaction Accounts.
Seller shall have no obligation to
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pay such forwarded Transaction Account drafts. Upon the expiration of such
sixty (60) day period, Seller shall cease forwarding drafts against Transaction
Accounts.
(c) Any items that were credited for deposit to or cashed against a
Deposit prior to the Closing and are returned unpaid on or within sixty (60)
days after the Closing Date ("Returned Items") will be handled as set forth
herein. If Seller's bank account is charged for the Returned Item, Seller shall
forward such Returned Item to Purchaser. If upon Purchaser's receipt of such
Returned Item there are sufficient funds in the Deposit to which such Returned
Item was credited or any other Deposit transferred at the Closing standing in
the name of the party liable for such Returned Item, Purchaser will debit any or
all of such Deposits an amount equal in the aggregate to the Returned Item, and
shall repay that amount to Seller. If there are not sufficient funds in the
Deposit because of Purchaser's failure to honor holds placed on such Deposit,
Purchaser shall repay the amount of such Returned Item to Seller and Seller
shall assign the Returned Item to Purchaser for collection. Any items that were
credited for deposit to or cashed against an account at the Branches to be
transferred at the Closing prior to the Closing and are returned unpaid more
than sixty (60) days after the Closing will be the responsibility of Purchaser.
4.12 Information Regarding Mortgage Loans. Not later than forty-five (45)
days after execution of this Agreement, Seller will provide to Purchaser
information regarding the Mortgage Loans on a magnetic disk or other media
acceptable to the parties, which shall contain the following fields of
information:
Current Principal Balance;
Delinquency Status as of the Run Date;
Paid to Date;
Current Interest Rate;
Total Monthly Payment;
Next Interest Rate Change Date; and
Next Payment Change Date.
4.13 Employee Training. Seller and Purchaser shall cooperate in order to
permit Purchaser to train Seller's employees at the Branches who choose to
accept employment with Purchaser, and Seller shall, as scheduled by Purchaser
for reasonable periods of time and subject to Seller's reasonable approval, such
that Seller's ongoing operations at the Branches shall not be materially
disrupted, excuse such employees from their duties at the Branches for the
purpose of training and orientation by Purchaser. Purchaser shall pay the full
salary or wages of replacements of employees so excused for the periods during
which such employees are so excused, where such replacements are reasonably
determined by Seller to be needed to maintain ongoing operations at the branches
without material disruption.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
5.1 Corporate Organization and Authority. Seller is a national banking
association, duly organized and validly existing under the laws of the United
States, and has the requisite power and authority to conduct the business now
being conducted at the Branches. Seller has the requisite corporate power and
authority and has taken all corporate action necessary in order to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
This Agreement is a valid and binding agreement of Seller enforceable in
accordance with its terms subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
5.2 No Conflicts. The execution, delivery and performance of this
Agreement by Seller does not, and will not, (i) violate any provision of its
charter or by-laws or (ii) violate or constitute a breach of, or default under,
any law, rule, regulation, judgment, decree, ruling or order of any court,
government or governmental agency to which Seller is subject or any agreement or
instrument of Seller, or to which Seller is subject or by which Seller is
otherwise bound, which violation, breach, contravention or default referred to
in this clause (ii), individually or in the aggregate, would have a Material
Adverse Effect (assuming the receipt of any required consents of lessors under
the Branch Leases in respect of the transactions herein contemplated). Seller
has all material licenses, franchises, permits, certificates of public
convenience, orders and other authorizations of all federal, state and local
governments and governmental authorities necessary for the lawful conduct of its
business at each of the Branches as now conducted and all such licenses,
franchises, permits, certificates of public convenience, orders and other
authorizations, are valid and in good standing and, to Seller's knowledge, are
not subject to any suspension, modification or revocation or proceedings related
thereto.
5.3 Approvals and Consents. Other than Regulatory Approvals or as
otherwise disclosed in writing to Purchaser by Seller prior to the date hereof,
no notices, reports or other filings are required to be made by Seller with, nor
are any consents, registrations, approvals, permits or authorizations required
to be obtained by Seller from, any governmental or regulatory authorities of the
United States or the several States in connection with the execution and
delivery of this Agreement by Seller and the consummation of the transactions
contemplated hereby by Seller, the failure to make or obtain any or all of
which, individually or in the aggregate, would have a Material Adverse Effect.
5.4 Tenants. Except for the tenants listed on Schedule 5.4, there are no
tenants of the Real Property.
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5.5 Leases. Each Branch Lease and each Personal Property Lease is the
valid and binding obligation of Seller, and to Seller's knowledge, of each other
party thereto; and there does not exist with respect to Seller's obligations
thereunder, or, to Seller's knowledge, with respect to the obligations of the
lessor thereof, any material default, or event or condition which constitutes
or, after notice or passage of time or both, would constitute a material default
on the part of Seller or the lessor under any such Branch Lease or Personal
Property Lease. As used in this Section, the term "lessor" includes any
sub-lessor of the property to Seller. Each Branch Lease and each material
Personal Property Lease is current and all rents, expenses and charges payable
by Seller thereunder have been paid or accrued pursuant to the terms thereof
(except for any payments not yet delinquent or as to which the obligation to
make such payment is being contested in good faith). Accurate copies of each
Branch Lease and each material Personal Property Lease have heretofore been made
available to Purchaser.
5.6 [intentionally omitted]
5.7 Litigation and Undisclosed Liabilities. Except as set forth in
Schedule 5.7, there are no actions, suits or proceedings that have a reasonable
likelihood of an adverse determination pending or, to Seller's knowledge,
threatened against Seller or any of the Branches, or obligations or liabilities
(whether or not accrued, contingent or otherwise) or, to Seller's knowledge,
facts or circumstances that could reasonably be expected to result in any claims
against or obligations or liabilities of Seller that, individually or in the
aggregate, would have a Material Adverse Effect.
5.8 Regulatory Matters. (a) Except as previously disclosed in writing to
Purchaser, there are no pending or, to Seller's knowledge, threatened disputes
or controversies between Seller and any federal, state or local governmental
agency or authority that, individually or in the aggregate, would have a
Material Adverse Effect.
(b) Neither Seller nor any of its Affiliates has received any indication
from any federal or state governmental agency or authority that such agency
would oppose or refuse to grant a Regulatory Approval or impose a Burdensome
Condition.
(c) Seller is not a party to any written order, decree, agreement or
memorandum of understanding with, or commitment letter or similar submission to,
any federal or state regulatory agency or authority charged with the supervision
or regulation of depository institutions, nor has Seller been advised by any
such agency or authority that it is contemplating issuing or requesting any such
order, decree, agreement, memorandum of understanding, commitment letter or
submission, in each case which, individually or in the aggregate, would have a
Material Adverse Effect.
5.9 Compliance with Laws. The banking business of the Branches has been
conducted in compliance with all federal, state and local laws, regulations and
ordinances applicable thereto, except for any failures to comply that would not,
individually or in the aggregate, result in a Material Adverse Effect.
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5.10 Loans. (a) An accurate list of the Loans as of September 30, 1998 is
set forth on the magnetic media delivered to Purchaser on October 16, 1998. Such
magnetic media will be updated to include an accurate list of the Loans as of
the Closing Date (including the fields set forth on Schedule 1.1(e)) and
delivered to Purchaser together with a hard copy printout thereof as soon as is
reasonably practicable after the Closing Date. With respect to each Loan (other
than Overdraft Loans):
(i) Such Loan was solicited, originated and serviced in material
compliance with all applicable requirements of federal, state, and local
laws and regulations in effect at the time of such solicitation.
origination and servicing; and there was no fraud on the part of the
Seller or originator with respect to the origination of any Loan;
(ii) Each note evidencing a Loan and any related security
instrument (including, without limitation, any guaranty or similar
instrument) constitutes a valid and legally binding obligation of the
obligor thereunder enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfers, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(iii) The collateral for each secured Loan is (A) the collateral
described in the related Loan Documents and (B) subject to a valid,
enforceable and perfected lien;
(iv) To Seller's knowledge, no claims or defenses to the
enforcement of such Loan have been asserted and Seller is aware of no
acts or omissions that would give rise to any claim or right of
rescission, setoff, counterclaim or defense by a borrower, obligor,
guarantor or any other person obligated to perform under any related Loan
Documents;
(v) As of the Closing Date, (A) if such Loan is a commercial loan,
such loan will have a grade of "pass" or above according to Sellers'
internal loan grading system and will be not more than thirty (30) days
past due with respect to any payment of principal or interest; (B) if
such Loan is a consumer loan, such Loan will be not more than sixty (60)
days past due with respect to any payment of principal or interest; (C)
if such Loan is a 1-4 unit residential mortgage loan, such Loan will be
not more than sixty (60) days past due with respect to any payment of
principal or interest and will not be in foreclosure; and (D), to
Seller's knowledge, no obligor on such Loan is the subject of any
proceeding in bankruptcy.
(vi) Such Loan was made substantially in accordance with Seller's
standard underwriting and documentation guidelines, which are consistent
with prudent and customary industry standards, as in effect at the time
of its origination and has been administered substantially in accordance
with the Loan Documents
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and Seller's standard loan servicing procedures, which are consistent
with prudent and customary industry standards, as in effect from time to
time;
(vii) All information provided hereunder and in the magnetic tape
delivered to Purchaser pertaining to such Loan is true and correct in all
material respects;
(viii) Each Loan was made in compliance with all applicable usury
laws;
(ix) Except as set forth in Schedule 5.10(a)(ix), immediately
prior to the Closing the Seller will be the sole owner of each Loan, free
and clear of any Encumbrance; and
(x) The terms of the notes or the mortgages have not been altered,
modified or waived in any material respect, except by a written
instrument contained in the Loan Documents.
(b) With respect to the Overdraft Loans, each:
(i) has been administered in compliance in all material respects
with all applicable laws;
(ii) is a valid and legally binding obligation of the borrower
enforceable against the borrower in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; and
(iii) is not subject to any defense, counterclaim or set-off of
any kind.
(c) The security interest in the Deposit account securing each
Deposit-Related Loan is a legal, valid and binding obligation enforceable
against the obligor subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(d) From the date hereof through the Closing Date, Seller shall have
adhered to a policy regarding the extension of terms on consumer loans
consistent with past practice.
(e) [intentionally omitted]
(f) Except for home equity loans, a title insurance policy is in effect
for each Loan secured by real property, and Seller is the sole owner of each
such loan, except for such participations as are documented in the related Loan
documents or other Records.
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(g) With respect to each Mortgage Loan, the Loan Documents as of the
Closing Date will include:
(i) The original Mortgage Note, containing all intervening
endorsements, if any, evidencing a complete chain of ownership from the
originator of such Mortgage Loan to Seller (provided that up to ten
percent (10%) of the aggregate principal balance of the Mortgage Loans
may consist of lost note affidavits in substantially the form attached
hereto as Schedule 5.10(f)(i)), duly endorsed by Seller without recourse
in blank or to the order of Purchaser;
(ii) The original Mortgage (or copies certified by Seller as being
true and correct in those instances where the original is deemed lost)
with evidence of recording indicated on such Mortgage, or a copy of such
recorded Mortgage certified by the public recording office in those
instances where the public recording office retains the original;
(iii) An assignment of the Mortgage Loan signed by Seller in blank
or to the order of Purchaser in recordable form;
(iv) Any intervening assignments of the Mortgage or copies
thereof;
(v) All modifications to the Mortgage Note or Mortgage or copies
thereof;
(vi) The title insurance policy or a copy thereof on the related
mortgage property; and
(vii) Evidence of flood insurance in the event the mortgaged
property is located in a federal flood hazard area.
(h) Each Mortgage Loan is secured by a valid first lien.
(i) Each Mortgage securing a Mortgage Loan requires the Mortgagor
thereunder to maintain a fire and other hazard insurance policy covering such
Losses as are covered under a standard extended coverage endorsement with
mortgage rights and protections customary for mortgage lending practices in the
locality in which the mortgaged property is located and such policies are in
place.
(j) With respect to each Mortgage Loan and home equity loan, there was no
material violation of any law or regulation pertaining to truth-in-lending,
consumer credit protection, equal credit opportunity or any similar law
applicable to the origination of such Mortgage Loan at the time it was made, nor
has the Seller taken any other action or omitted to take an action, which
violation, act or omission would give rise to a valid defense or counterclaim,
or right of rescission, set-off, abatement or diminution, on the part of the
Mortgagor that would prevent the Purchaser from foreclosing upon the mortgaged
property.
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(k) No Mortgage Loan or home equity loan is secured by any real estate
collateral except the Encumbrance of the related Mortgage, an assignment of the
related leases, and any related security agreement.
(l) Each Mortgage Loan and home equity loan has closed, the proceeds of
each Mortgage Loan have been fully disbursed and, except as set forth in
Schedule 5.10(k), no Mortgagor has any right under any Mortgage Loan or any Loan
Documents pertaining to such Mortgage Loan to an advance of further proceeds
under such Mortgage Loan, unless such right is conditional upon the Seller's
performance of an underwriting evaluation with respect thereto. For purposes
hereof, capitalization of interest pursuant to a negative amortization provision
shall not be deemed an "advance" to the Mortgagor, and any escrow balances shall
be deemed fully disbursed.
(m) No Mortgage Note or Mortgage has been satisfied, canceled,
subordinated to another mortgage or rescinded, in whole or in part, and no
Mortgage property has been released from the Encumbrance of the related
Mortgage, in whole or in part.
(n) With respect to each Loan that is a home equity Loan:
(i) The maximum original term on such Loan is three hundred sixty
(360) months;
(ii) No part of the property which is security for such Loan has
been released;
(iii) The transfer and assignment of such Loan and Loan Documents
pertaining thereto will be in compliance with applicable law and
regulations;
(iv) A title insurance policy is in effect for any such Loan with
an original principal amount in excess of $200,000; and
(v) Such Loan is secured by a valid first, second or third lien.
5.11 Financial and Deposit Data. To Seller's knowledge, all written
financial, Deposit and Loan information regarding the Assets and Liabilities
provided to Purchaser by Seller was accurate in all material respects as of the
date when provided; provided, however, that historical information contained in
the foregoing may not reflect the allocation of Loans and certain Deposits to
the Branches pursuant to Seller's understanding with the U.S. Department of
Justice and the Nevada Department of Justice.
5.12 Records. The Records respecting the operations of the Branches and
the Assets and Liabilities accurately reflect in all material respects the net
book value of the Assets and Liabilities being transferred to Purchaser
hereunder. The Records include all information reasonably necessary to service
the Deposits and Loans on an ongoing basis,
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and to otherwise operate the business being acquired under this Agreement in
substantially the manner currently operated by Seller.
5.13 Title to Assets. Subject to the terms and conditions of this
Agreement, on the Closing Date Purchaser will acquire, subject to Section
10.1(c), good and marketable title to all of the material Assets, free and clear
of any Encumbrances; provided, however, that this representation does not cover
Owned Real Property for which Purchaser has obtained a Title Policy pursuant to
Section 3.11, Branch Leases or Tenant Leases.
5.14 Branch Leases. The Branch Leases give Seller the right to occupy the
building and land comprising the related Branch. Accurate copies of all Branch
Leases and all attachments, amendments and addenda thereto have heretofore been
made available to Purchaser. To Seller's knowledge, the Branch Leases constitute
valid and legally binding leasehold interests of Seller. Except as described on
Schedule 5.4, there are no subleases relating to any Branch created or suffered
to exist by Seller, or to Seller's knowledge, created or suffered to exist by
any other person.
5.15 [intentionally omitted]
5.16 Deposits. Except as set forth in Schedule 5.16, all of the Deposit
accounts have been administered and, to Seller's knowledge, originated, in
compliance with the documents governing the relevant type of Deposit account and
all applicable laws. The Deposit accounts are insured by the Bank Insurance Fund
or the Savings Association Insurance Fund of the FDIC up to the current
applicable maximum limits, and no action is pending or, to Seller's knowledge,
threatened by the FDIC with respect to the termination of such insurance.
5.17 Environmental Laws; Hazardous Substances. Except as disclosed on
Schedule 5.17, or as would not, individually or in the aggregate, have a
Material Adverse Effect, each parcel of Real Property:
(i) has been operated by Seller in compliance with all applicable
Environmental Laws;
(ii) is not the subject of any pending written notice from any
governmental authority alleging the violation of any applicable
Environmental Laws;
(iii) is not currently subject to any court order, administrative
order or decree arising under any Environmental Law;
(iv) has not been used for the disposal of Hazardous Substances
and is not contaminated with any Hazardous Substances requiring
remediation under any applicable Environmental Law; and
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(v) has not had any emissions or discharges of Hazardous
Substances except as permitted under applicable Environmental Laws.
5.18 Brokers' Fees. Seller has not employed any broker or finder or
incurred any liability for any brokerage fees, commission or finders' fees in
connection with the transactions contemplated by this Agreement.
5.19 Limitations on Representations and Warranties. Notwithstanding
anything to the contrary contained herein, Seller makes no representations or
warranties to Purchaser in this Agreement or in any agreement, instrument or
other document executed in connection with any of the transactions contemplated
hereby or provided or prepared pursuant hereto or in connection with any of the
transactions contemplated hereby:
(a) As to title to Owned Real Property or as to the physical condition of
the Branches or Personal Property, all of which are being sold "AS IS", "WHERE
IS" and with all faults at the Closing Date;
(b) As to whether, or the length of time during which, any accounts will
be maintained by the depositors at the Branches after the Closing Date; or
(c) Except to the extent otherwise set forth in this Agreement, as to the
creditworthiness, credit history or financial condition of any obligor.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
6.1 Corporate Organization and Authority. Purchaser is a federal savings
bank, duly organized and validly existing under the laws of the United States,
and has the requisite power and authority to conduct the business conducted at
the Branches substantially as currently conducted by Seller. Purchaser has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement is a valid and binding
agreement of Purchaser enforceable in accordance with its terms subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
6.2 No Conflicts. The execution, delivery and performance of this
Agreement by Purchaser does not, and will not, (i) violate any provision of its
charter or by-laws or (ii) violate or constitute a breach of, or default under,
any law, rule, regulation, judgment, decree, ruling or order of any court,
government or governmental authority to which Purchaser is subject or any
agreement or instrument of Purchaser, or to which Purchaser
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is subject or by which Purchaser is otherwise bound, which violation, breach,
contravention or default referred to in this clause (ii), individually or in the
aggregate, would have a Material Adverse Effect.
6.3 Approvals and Consents. Other than Regulatory Approvals, no notices,
reports or other filings are required to be made by Purchaser with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by Purchaser from, any governmental or regulatory authorities of the
United States or the several States in connection with the execution and
delivery of this Agreement by Purchaser and the consummation of the transactions
contemplated hereby by Purchaser, the failure to make or obtain any or all of
which, individually or in the aggregate, would have a Material Adverse Effect.
6.4 Regulatory Matters. (a) Except as previously disclosed in writing to
Seller, there are no pending or, to Purchaser's knowledge, threatened disputes
or controversies between Purchaser and any federal, state or local governmental
agency or authority that, individually or in the aggregate, would have a
Material Adverse Effect.
(b) Neither Purchaser nor any of its Affiliates has received any
indication from any federal or state governmental agency or authority that such
agency would oppose or refuse to grant a Regulatory Approval or impose a
Burdensome Condition.
(c) Purchaser is not a party to any written order, decree, agreement or
memorandum of understanding with, or commitment letter or similar submission to,
any federal or state regulatory agency or authority charged with the supervision
or regulation of depository institutions, nor has Purchaser been advised by any
such agency or authority that it is contemplating issuing or requesting any such
order, decree, agreement, memorandum of understanding, commitment letter or
submission, in each case which, individually or in the aggregate, would have a
Material Adverse Effect.
(d) Purchaser is, and on a pro forma basis giving effect to the P&A
Transaction, will be (i) at least "adequately capitalized", as defined for
purposes of the FDIA, and (ii) in compliance with all capital requirements,
standards and ratios required by each state or federal bank regulator with
jurisdiction over Purchaser, including without limitation, any such higher
requirement, standard or ratio as shall apply to institutions engaging in the
acquisition of insured institution deposits, assets or branches, and no such
regulator is likely to, or has indicated that it will, condition any of the
Regulatory Approvals upon an increase in Purchaser's capital or compliance with
any capital requirement, standard or ratio.
(e) Purchaser has no knowledge that it will be required to divest deposit
liabilities, branches, loans or any business or line of business as a condition
to the receipt of any of the Regulatory Approvals.
(f) Each of the subsidiaries or Affiliates of Purchaser that is an
insured depository institution was rated "Satisfactory" or "Outstanding"
following its most recent
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Community Reinvestment Act examination by the regulatory agency responsible for
its supervision. Purchaser has received no notice of and has no knowledge of any
planned or threatened objection by any community group to the transactions
contemplated hereby.
6.5 Litigation and Undisclosed Liabilities. There are no actions, suits
or proceedings that have a reasonable likelihood of an adverse determination
pending or, to Purchaser's knowledge, threatened against Purchaser, or
obligations or liabilities (whether or not accrued, contingent or otherwise) or,
to Purchaser's knowledge, facts or circumstances that could reasonably be
expected to result in any claims against or obligations or liabilities of
Purchaser that, individually or in the aggregate, would have a Material Adverse
Effect.
6.6 Operation of the Branches. Purchaser intends to continue to provide
retail and business banking services in the geographical area served by the
Branches.
6.7 Financing Available. Not later than the Closing Date, Purchaser will
have available sufficient cash or other liquid assets or financing pursuant to
binding agreements or commitments which may be used to fund the P&A Transaction.
Purchaser's ability to consummate the transactions contemplated by this
Agreement is not contingent on raising any equity capital, obtaining specific
financing therefor, consent of any lender or any other matter.
6.8 Brokers' Fees. Purchaser has not employed any broker or finder or
incurred any liability for any brokerage fees, commission or finders' fees in
connection with the transactions contemplated by this Agreement, except for fees
and commissions for which Purchaser shall be solely liable.
ARTICLE 7
COVENANTS OF THE PARTIES
7.1 Activity in the Ordinary Course. Until the Closing Date, except as
may be required in connection with the Merger, (a) Seller shall conduct the
business of the Branches (including, without limitation, filling open positions
at the Branches and job posting in the Branches for open positions at other
offices of Seller) in the ordinary and usual course of business consistent with
past practice and (b) Seller shall not, without the prior written consent of
Purchaser:
(i) Increase or agree to increase the salary, remuneration or
compensation of any Branch Employee (or make any material increase or
decrease in the number of such persons, or transfer such persons to or
from any Branch) other than in accordance with Seller's existing
customary policies generally applicable to employees having similar rank
or duties, or pay or agree to pay any uncommitted bonus to any Branch
Employee other than regular bonuses
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granted in the ordinary course of Seller's business (which bonuses, in
any event, shall be the responsibility of Seller); or, except at the
request of such Branch Employee, transfer any Branch Employee to another
branch or office of Seller or any of its Affiliates;
(ii) Offer interest rates or terms on any category of deposits at
a Branch except as determined in a manner consistent with Seller's
practice with respect to its branches which are not being sold;
(iii) Transfer to or from any Branch to or from any of Seller's
other operations or branches any material Assets or any Deposits, except
(A) in the ordinary course of business or as contemplated by this
Agreement, (B) upon the unsolicited request of a depositor or customer,
or (C) if such Deposit is pledged as security for a loan or other
obligation that is not a Loan;
(iv) Sell, transfer, assign, encumber or otherwise dispose of or
enter into any contract, agreement or understanding to sell, transfer,
assign, encumber or dispose of any of the Assets existing on the date
hereof, except in the ordinary course of business and in an immaterial
aggregate amount; provided, however, that in any event, Seller shall not
knowingly take any action that would create any Encumbrance on any of the
Owned Real Property or the Branch Leases;
(v) Sell, transfer, assign, encumber or otherwise dispose of or
enter into any contract, agreement or understanding to sell, transfer,
assign, encumber or dispose of any Loan;
(vi) Make or agree to make any material improvements to the Owned
Real Property, except with respect to commitments for such made on or
before the date of this Agreement (and heretofore disclosed in writing to
Purchaser) and normal maintenance or refurbishing purchased or made in
the ordinary course of business;
(vii) File any application or give any notice to relocate or close
any Branch or relocate or close any Branch;
(viii) Amend, terminate or extend in any material respect any
Branch Lease or Tenant Lease; provided, however, Seller may extend any
Branch Lease or Tenant Lease if, in its reasonable business judgment,
Seller determines such extension is necessary to deliver the Branch on
the Closing Date as a fully operative branch banking operation;
(ix) Except as permitted by this Section 7.1, take, or permit its
Affiliates to take, any action (A) impairing Purchaser's rights in any
Deposit or Asset, (B) impairing in any way the ability of Purchaser to
collect upon any Loan, or (C) except in the ordinary course of servicing,
waiving any material right, whether in equity or at law, that it has with
respect to any Loan; or
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(x) Agree with, or commit to, any person to do any of the things
described in clauses (i) through (ix) except as contemplated hereby.
7.2 Access and Confidentiality. (a) Until the Closing Date, Seller shall
afford to Purchaser and its officers and authorized agents and representatives
reasonable access to the properties, books, records, contracts, documents, files
(including loan files) and other information of or relating to the Assets and
Liabilities. In addition, Seller will use reasonable efforts to arrange for
Purchaser to have reasonable access to similar information held by third
parties, if any, for or on Seller's behalf. Purchaser and Seller each will
identify to the other, within ten (10) days after the date hereof, a selected
group of their respective salaried personnel that shall constitute a "transition
group" who will be available to Seller and Purchaser, respectively, at
reasonable times (limited to normal operating hours) to provide information and
assistance in connection with Purchaser's investigation of matters relating to
the Assets and Liabilities. Seller shall cause other personnel to be reasonably
available during normal business hours, to an extent not disruptive of ongoing
operations, for the same purposes. Seller shall furnish Purchaser with such
additional financial and operating data and other information about its business
operations at the Branches as may be reasonably necessary for the orderly
transfer of the business operations of the Branches. Any investigation pursuant
to this Section 7.2 shall be conducted in such manner as not to interfere
unreasonably with the conduct of the Seller's business. Notwithstanding the
foregoing, Seller shall not be required to provide access to or disclose
information where such access or disclosure would impose an unreasonable burden
on Seller, or any employee of Seller or would violate or prejudice the rights of
customers, jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto shall make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) Each party to this Agreement shall hold, and shall cause its
respective directors, officers, employees, agents, consultants and advisors to
hold, in strict confidence, unless disclosure to a bank regulatory authority is
necessary or desirable in connection with any Regulatory Approval or unless
compelled to disclose by judicial or administrative process or, in the written
opinion of its counsel, by other requirements of law or the applicable
requirements of any regulatory agency or relevant stock exchange, all non-public
records, books, contracts, instruments, computer data and other data and
information (collectively, "Information") concerning the other party (or, if
required under a contract with a third party, such third party) furnished it by
such other party or its representatives pursuant to this Agreement (except to
the extent that such information can be shown to have been (i) previously known
by such party on a non-confidential basis, (ii) in the public domain through no
fault of such party or (iii) later lawfully acquired from other sources by the
party to which it was furnished), and neither party shall release or disclose
such Information to any other person, except its auditors, attorneys, financial
advisors, bankers, other consultants and advisors and, to the extent permitted
above, to bank regulatory authorities.
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7.3 Regulatory Approvals. (a) As soon as practicable and in no event
later than thirty (30) days after the date of this Agreement, Purchaser shall
prepare and file any applications, notices and filing required in order to
obtain the Regulatory Approvals. Purchaser shall use all reasonable efforts to
obtain each such approval as promptly as reasonably practicable and, to the
extent possible, in order to permit the Closing to occur not later than April
30, 1999. Seller will cooperate in connection therewith (including the
furnishing of any information and any reasonable undertaking or commitments
which may be required to obtain the Regulatory Approvals). Each party will
provide the other with copies of any applications and all correspondence
relating thereto prior to filing, other than material filed in connection
therewith under a claim of confidentiality. Purchaser also agrees to furnish any
reasonable undertaking or commitment that may be required in order for Norwest
or WFC to obtain the Merger Approvals. If any regulatory authority shall require
the modification of any of the terms and provisions of this Agreement as a
condition to granting any Regulatory Approval or the Merger Approvals, the
parties hereto will negotiate in good faith to seek a mutually agreeable
adjustment to the terms of the transaction contemplated hereby, such agreement
not to be unreasonably withheld.
7.4 Consents. Seller agrees to use reasonable efforts (such efforts not
to include making payments to third parties) to obtain from lessors and any
other parties to any Branch Leases any required consents to the assignment of
the Branch Leases to Purchaser on the Closing Date; provided, however, the
Seller shall not be obligated to incur any monetary obligations or expenditures
to the parties whose consent is requested in connection with the utilization of
its reasonable efforts to obtain any such required consents. If any such
required consent cannot be obtained, notwithstanding any other provision hereof,
the Assets and Liabilities associated with the subject Branch, other than any
such Branch Lease as to which consent cannot be obtained, shall nevertheless be
transferred to Purchaser at the Closing and the parties shall negotiate in good
faith and Seller shall use reasonable efforts (such efforts not to include
making payments to third parties) to make alternative arrangements reasonably
satisfactory to Purchaser. In such event, Seller shall not be obligated to
deliver physical possession of the subject Branch or Personal Property to
Purchaser at the Closing.
7.5 Efforts to Consummate; Further Assurances. (a) Purchaser and Seller
agree to use all reasonable efforts to satisfy or cause to be satisfied as soon
as practicable their respective obligations hereunder and the conditions
precedent to the Closing.
(b) Seller will duly execute and deliver such assignments, bills of sale,
deeds, acknowledgments and other instruments of conveyance and transfer as shall
at any time be necessary or appropriate to vest in Purchaser the full legal and
equitable title to the Assets.
(c) Subject to Section 4.3, on and after the Closing Date, each party
will promptly deliver to the other all mail and other communications properly
addressable or deliverable to the other as a consequence of the P&A Transaction;
and without limitation
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of the foregoing, on and after the Closing Date, Seller shall promptly forward
any mail, communications or other material relating to the Deposits or the
Assets transferred on the Closing Date, including, but not limited to, that
portion of any IRS "B" tapes that relates to such Deposits, to such employees of
Purchaser at such addresses as may from time to time be specified by Purchaser
in writing.
(d) The costs incurred by a party in performing its obligations to the
other (x) under Section 7.5(a) and (c) shall be borne by the initial recipient
and (y) otherwise under this Section 7.5 shall be borne by Purchaser. Seller
will cooperate with Purchaser to minimize the costs referred to in clause (y).
7.6 Solicitation of Accounts. (a) Until the Closing Date and for an
additional twelve (12) months following the Closing Date, Seller agrees that it
will not solicit deposits, loans, mutual fund purchases, or other investment
products or other business from or to persons or entities who were depositors or
borrowers at the Branches on the date hereof with respect to Deposits by
personal contact, by telephone, by facsimile, by mail or other similar
solicitation, or in any other way except for general solicitations and
solicitations that are not directed primarily to persons or entities who were
depositors of the Branches on the date hereof; provided, however, Seller may
solicit depositors who as of the date of this Agreement have existing accounts
or loans originating at branches or other offices of Seller or its Affiliates
other than the Branches pursuant to solicitations which arise from their status
as a customer at such other branches or offices; and provided, further, that
Seller may solicit major or statewide depositors (such as, for example, a
company with more than one location or the state government or any agency or
instrumentality thereof) without restrictions hereunder.
(b) Prior to the Closing Date, Purchaser agrees that it will not attempt
to directly solicit Branch customers through advertising nor transact its
business in a way which would induce such Branch customers to close any account
and open accounts directly with Purchaser or would otherwise result in a
transfer of all or a portion of an existing account from Seller to Purchaser or
its Affiliates. Notwithstanding the foregoing sentence, Purchaser and its
Affiliates shall be permitted to (i) engage in advertising, solicitations or
marketing campaigns not primarily directed to or targeted at such Branch
customers, (ii) engage in lending, deposit, safe deposit, trust or other
financial services relationships existing as of the date hereof with such Branch
customers through other branch offices of Purchaser, (iii) respond to
unsolicited inquiries by such Branch customers with respect to banking or other
financial services, and (iv) provide notices or communications relating to the
transactions contemplated hereby in accordance with the provisions hereof.
7.7 Insurance. Seller will maintain in effect until the Closing Date all
casualty and public liability policies relating to the Branches and maintained
by Seller on the date hereof or procure comparable replacement coverage and
maintain such policies or replacement coverage in effect until the Closing Date.
Purchaser shall provide all casualty and public liability insurance for the
Branches subsequent to the Closing Date.
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7.8 [intentionally omitted]
7.9 Servicing Prior to Closing Date. With respect to each of the Loans
from the date hereof until the Closing Date, Seller shall provide servicing of
such Loans generally consistent with customary prudent industry servicing
standards of service of similar loans. Further, without the prior written
consent of Purchaser (which consent shall not be unreasonably withheld or
delayed), Seller shall not (a) except as required by law or the terms of the
Loan Documents, release any collateral or any party from any liability on or
with respect to any of the Loans; (b) compromise or settle any claims of any
kind or character with respect to the Loans; or (c) amend or waive any of the
material terms of any Loan as set forth in the Loan Documents.
ARTICLE 8
TAXES AND EMPLOYEE BENEFITS
8.1 Tax Representations. Seller represents and warrants to Purchaser as
follows:
(a) Except as set forth in Schedule 8.1, all Tax Returns with respect to
the Assets or income therefrom, the Liabilities or payments in respect thereof
or the operation of the Branches, that are required to be filed (taking into
account any extension of time within which to file) on or before the Closing
Date, have been or will be duly filed, and all Taxes shown to be due on such Tax
Returns have been or will be paid in full.
(b) With respect to the Deposits, Seller is in compliance with the Code
and regulations thereunder relative to obtaining from depositors of the Deposits
executed IRS Forms W-8 and W-9. With respect to the Deposits opened after
December 31, 1983, Seller has either obtained a properly completed Form W-8 or
W-9 (or a substitute form meeting applicable requirements) or is back-up
withholding on such account, if so required.
8.2 Proration of Taxes. Except as otherwise agreed to by the parties,
whenever it is necessary to determine the liability for Taxes for a portion of a
taxable year or period that begins before and ends after the Closing Date, the
determination of the Taxes for the portion of the year or period ending on, and
the portion of the year or period beginning after the Closing Date shall be
determined by assuming that the taxable year or period ended at 11:59 p.m.
Nevada time on the day prior to the Closing Date.
8.3 Sales and Transfer Taxes. Unless otherwise provided, all excise,
sales, use and transfer taxes that are payable or that arise as a result of the
consummation of the P&A Transaction shall be paid by Purchaser and Purchaser
shall indemnify and hold Seller harmless from and against any such taxes.
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8.4 Information Returns. At the Closing or as soon thereafter as is
practicable, Seller shall provide Purchaser with a list of all Deposits for
which Seller has not received a properly completed Form W-8 or W-9 (or a
substitute form meeting applicable requirements) or on which Seller is back-up
withholding as of the Closing Date.
8.5 Payment of Amount Due under Article 8. Any payment by Seller to
Purchaser, or to Seller from Purchaser, under this Article 8 (other than
payments required by Section 8.3) to the extent due at the Closing may be offset
against any payment due the other party at the Closing. All subsequent payments
under this Article 8 shall be made as soon as determinable and shall be made and
bear interest from the date due to the date of payment as provided in Section
3.2(b).
8.55 Like Kind Exchange. Purchaser acknowledges that the Seller may
desire to complete one or more like kind exchanges (including transactions which
are intended to qualify under Section 1031 of the Code). If requested by Seller,
Purchaser shall cooperate to the extent reasonably necessary in order to
accomplish such like kind exchanges and shall execute all documents and provide
all consents reasonably necessary to complete such like kind exchanges
including, without limitation, an amendment to or an assignment of this
Agreement: provided, however, that (a) Purchaser's obligations under this
Agreement shall not be increased, (b) Seller's representations, warranties,
covenants and obligations under this Agreement shall continue in full force and
effect and (c) the total Purchase Price will not change as a result of this
assignment.
8.6 Assistance and Cooperation. After the Closing Date, each of Seller
and Purchaser shall:
(a) Make available to the other and to any taxing authority as reasonably
requested all relevant information, records, and documents relating to taxes
with respect to the Assets or income therefrom, the Liabilities or payments in
respect thereof, or the operation of the Branches;
(b) Provide timely notice to the other in writing of any pending or
proposed tax audits (with copies of all relevant correspondence received from
any taxing authority in connection with any tax audit or information request) or
tax assessments with respect to the Assets or income therefrom, the Liabilities
or payments in respect thereof, or the operation of the Branches for taxable
periods for which the other may have a liability under this Article 8; and
(c) The party requesting assistance or cooperation shall bear the other
party's out-of-pocket expenses in complying with such request to the extent that
those expenses are attributable to fees and other costs of unaffiliated third
party service providers.
8.7 Transferred Employees. (a) As soon as reasonably practicable and in
any event within thirty (30) days of the date hereof, Seller shall deliver to
Purchaser a true and complete list of all Branch Employees by name, date of hire
and position, as of the date hereof Seller shall not release any other personnel
information without having first
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obtained the written consent of the respective Branch Employee. Purchaser may,
at its discretion, interview any and all Branch Employees. Purchaser shall make
employment available to all Branch Employees on the Closing Date upon the terms
and conditions described below. On and after the Closing Date, Branch Employees
employed by Purchaser shall be defined as "Transferred Employees" for purposes
of this Agreement. Subject to the provisions of this Section 8.7, Transferred
Employees shall be subject to the employment terms, conditions and rules
applicable to other employees of Purchaser. Nothing contained in this Agreement
shall be construed as an employment contract between Purchaser and any Branch
Employee or Transferred Employee.
(b) Purchaser may interview Branch Employees during normal working hours.
Purchaser shall be solely responsible for any activity in connection with
interviewing Branch Employees. Purchaser shall indemnify and hold Seller
harmless from and against any claim, liability, loss, costs or expenses,
including reasonable attorneys' fees, resulting or arising from Purchaser's acts
or omissions in connection with such interviews.
(c) Subject to the conditions set forth in Section 4.13 of this Agreement
relating to employee training and orientation, Seller agrees that Purchaser
shall have the right to conduct orientation sessions with Branch Employees as
soon as reasonably practicable and in any event within 30 days after execution
of this Agreement. The orientation sessions may include personal appearances by
Purchase's senior management and will cover subject such as Purchaser's
Compensation and Benefits Programs, including a Business Retention and Sales
Incentive Program specifically designed for Branch Employees who become
Transferred Employees on the date after the Closing Date.
(d) Each Transferred Employee shall be provided employment subject to the
following terms and conditions:
(i) Base salary shall be at least equivalent to the rate of base
salary paid by Seller to such Transferred Employee as of the close of
business on the day prior to the Closing Date.
(ii) Except as otherwise specifically provided herein, Transferred
Employees shall be provided employee benefits that are no less favorable
in the aggregate than those provided to similarly situated employees of
Purchaser. Purchaser shall provide each Transferred Employees with credit
for such Transferred Employee's period of service with Seller (including
any service credited from predecessors by merger or acquisition to
Seller) towards the calculation of eligibility and vesting for such
purposes as vacation, severance and other benefits and participation and
vesting in Purchaser's qualified pension and/or profit sharing 401(k)
plans, as such plans may exist (but, except as set forth in (v) below and
for vacation, not for purposes of benefit accruals, including, without
limitation, funding of accrued pension or profit sharing plans for such
Transferred Employee with respect to any period prior to the Closing
Date).
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(iii) Each Transferred Employee shall be eligible to participate
in the medical, dental, or other welfare plans of Purchaser, as such
plans may exist, on and after the Closing Date, and, subject to insurance
company approval, any pre-existing conditions provisions of such plans
shall be waived with respect to any such Transferred Employees; provided,
however, that if Purchaser's relevant health or disability insurance
policy or plan has a pre-existing condition limitation and a Transferred
Employee's condition is being excluded (as a pre-existing condition)
under Seller's plan as of the Closing Date, Purchaser may treat such
condition as a pre-existing condition for the period such condition would
have been treated as a pre-existing condition under Seller's plan.
(iv) With respect to any Transferred Employee on short-term
disability or temporary leave of absence, upon conclusion of his or her
short-term disability or temporary leave of absence, subject to the terms
and conditions of the Purchaser's plans and policies and applicable law,
each Transferred Employee on such leave shall receive the salary and
vacation benefits in effect when he or she went on leave, shall otherwise
be treated as a Transferred Employee, and, to the extent practicable,
shall be offered by the Purchaser the same or a substantially equivalent
position to his or her position with Seller prior to having gone on
leave.
(v) Purchaser shall be responsible for all severance obligations
arising out of the termination of any Transferred Employee's employment
after the Closing Date in accordance with Purchaser's severance plan,
policies and procedures with credit for the period of years of credited
service with Seller towards the calculation of benefits; provided,
however, if, before the one year anniversary of the Closing Date, any
Transferred Employee experiences a reduction in base salary, a worksite
relocation of more than 30 miles or a termination of employment by
Purchaser for any reason other than cause (as defined by Purchaser's
personnel policies and procedures), such Transferred Employee shall be
entitled to severance pay in an amount at least equivalent to the
severance pay the Transferred Employee would have received under Seller's
severance plan had such employee been eligible for payments under such
plan.
(e) Except as provided herein, Seller shall pay, discharge, and be
responsible for (i) all salary and wages arising out of employment of the
Transferred Employees through the Closing Date, and (ii) any employee benefits
(including, but not limited to, accrued vacation) arising under Seller's
employee benefit plans and employee programs prior to the Closing Date (but not
including medical benefits, if any, to Transferred Employees who retire after
the Closing Date), including benefits with respect to claims incurred prior to
the Closing Date but reported after the Closing Date. From and after the Closing
Date, Purchaser shall pay, discharge, and be responsible for all salary, wages,
and benefits arising out of or relating to the employment of the Transferred
Employees by Purchaser from and after the Closing Date, including, without
limitation, all claims for welfare benefits plans incurred after the Closing
Date. Claims are incurred as of the date
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services are provided or disability payments are accrued, notwithstanding when
the injury or illness may have occurred.
(f) To the extent permitted under Purchaser's 401(k) plan, Seller and
Purchaser shall cooperate in arranging for the transfer to Purchaser's 401(k)
plan, as soon as practicable after the Closing Date and in a manner that
satisfies sections 414(l) and 411(d)(6) of the Code, of those accounts held
under Seller's 401(k) plan on behalf of Transferred Employees, subject to
receipt of any necessary consents and approvals of the Transferred Employees.
(g) For a period of twelve (12) months following the Closing Date, Seller
will not directly solicit any Transferred Employee hired by Purchaser as of the
Closing Date to again become an employee of Seller; provided, however, that
Seller shall not be prohibited from hiring a Transferred Employee if such
Transferred Employee contacts Seller or an Affiliate of Seller to seek hiring or
retention, whether in response to general advertising or otherwise, or if a
Transferred Employee is terminated by Purchaser.
8.8 Branch Employee Representations. (a) Seller represents and warrants
to Purchaser, to Seller's knowledge, as follows:
(i) none of the Branch Employees are represented by any labor
union;
(ii) Seller is not a party to any individual contract, written or
oral, express or implied, for the employment of any Branch Employee, and
Seller is not subject to any collective bargaining arrangement with
respect to any Branch Employee;
(iii) Seller's 401(k) Plan is in compliance in all material
respects with applicable law;
(iv) no liabilities exist or are reasonably expected to exist
under any employee benefit plan of Seller that, individually or in the
aggregate, would have a Material Adverse Effect; and
(v) Seller has not entered into any individual agreement or
otherwise made any individual commitment to any Branch Employee with
respect to continued employment with Purchaser.
(b) Seller shall indemnify and hold Purchaser harmless from and against
any claims, losses, damages or expenses (including attorney's fees) suffered as
a result of any failure to give any notice to the Branch Employees required by
the Worker Adjustment and Retraining Notification Act (the "WARN Act"), provided
such notice is required as a result of action by Seller prior to the Closing
Date.
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ARTICLE 9
CONDITIONS TO CLOSING
9.1 Conditions to Obligations of Purchaser. Unless waived in writing by
Purchaser, the obligation of Purchaser to consummate the P&A Transaction is
conditioned upon satisfaction of each of the following conditions:
(a) Regulatory Approvals. All consents, approvals and authorizations
required to be obtained prior to the Closing from governmental and regulatory
authorities in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby to be consummated at
the Closing, including the Regulatory Approvals, shall have been made or
obtained, and shall remain in full force and effect, and all waiting periods
applicable to the consummation of the P&A Transaction shall have expired or been
terminated; provided, however, that no Regulatory Approval shall have imposed
any condition or requirement (a "Burdensome Condition") that would (i) result in
any Material Adverse Effect or (ii) require Purchaser to effect any divestiture
that would constitute a substantial portion of the business or properties of the
Branches, taken as a whole.
(b) Orders. No court or governmental authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent)(any of the foregoing, an "Order") which is in effect
and which prohibits or makes illegal the consummation of the P&A Transaction or
would otherwise result in a Material Adverse Effect.
(c) Representations and Warranties; Covenants. Each of the
representations and warranties of Seller contained in this Agreement shall be
true in all material respects when made and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties relating to
Assets and Liabilities transferred at the Closing Date shall only be made, and
need only be true in all material respects, on and as of the Closing Date).
Purchaser shall have received at Closing a certificate to that effect dated as
of such Closing Date and executed by the President or any Executive Vice
President of Seller. Each of the covenants and agreements of Seller to be
performed on or prior to the Closing Date shall have been duly performed in all
material respects. Purchaser shall have received at Closing a certificate to
that effect dated as of such Closing Date and executed by the President or any
Executive Vice President of Seller.
Notwithstanding any other provision of this Agreement, if there shall be
a failure of any condition specified in this Section 9.1 to the obligations of
Purchaser in respect of the acquisition of any specific Branch or Branches the
aggregate Deposits of which as of the date hereof shall constitute less than 25%
of the Deposits in all of the Branches as of the date hereof. Purchaser
nevertheless shall be obligated to consummate the P&A Transaction but may, upon
written notice to Seller, exclude from the transaction the
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Branch or Branches in respect of which the failure of condition shall exist, in
which case, appropriate adjustment shall be made in the schedules hereto and the
other documents to be delivered pursuant hereto so as to duly reflect the
deletion of such Branch or Branches from the transactions contemplated hereby
(and, consequently, to the calculation of the Estimated Purchase Price,
Estimated Payment Amount, Purchase Price and Adjusted Payment Amount). If any
Branch is excluded from this Agreement or if Purchaser nevertheless elects to
purchase any Branch which would otherwise be so excluded and such Branch is
transferred to Purchaser at the Closing (subject to Purchaser's rights under
Section 12.1(a)), any event that would otherwise constitute a breach of warranty
or failure of condition in respect of such Branch arising solely from or
relating to the operation of this paragraph shall not constitute a breach of
warranty or failure of consideration.
9.2 Conditions to Obligations of Seller. Unless waived in writing by
Seller, the obligation of Seller to consummate the P&A Transaction is
conditioned upon satisfaction of each of the following conditions:
(a) Regulatory Approvals. All consents, approvals and authorizations
required to be obtained prior to the Closing from governmental and regulatory
authorities in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby to be consummated at
the Closing, including the Regulatory Approvals, shall have been made or
obtained, and shall remain in full force and effect, and all waiting periods
applicable to the consummation of the P&A Transaction shall have expired or been
terminated.
(b) Orders. No Order shall be in effect that prohibits or makes illegal
the consummation of the P&A Transaction.
(c) Representations and Warranties; Covenants. Each of the
representations and warranties of Purchaser contained in this Agreement shall be
true in all material respects when made and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties as of a
specific date need be true in all material respects only as of such date).
Seller shall have received at Closing a certificate to that effect dated as of
such Closing Date and executed by the President or any Executive Vice President
of Purchaser. Each of the covenants and agreements of Purchaser to be performed
on or prior to the Closing Date shall have been duly performed in all material
respects. Seller shall have received at Closing a certificate to that effect
dated as of such Closing Date and executed by the President or any Executive
Vice President of Purchaser.
(d) Consummation of the Merger. The Merger shall have been consummated in
accordance with the terms of the Merger Agreement.
44
<PAGE>
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Environmental Matters. (a) Seller has provided to Purchaser and
Purchaser hereby acknowledges receipt of copies of Phase I environmental site
assessments for all Owned Real Property and asbestos reports with respect to all
the Real Property, except for Real Property where the improvements have been
completed after December 31, 1978. Such Phase I environmental site assessments
for all Owned Real Property have been dated (or supplemented) on or after
September 1, 1998.
(b) If such Phase I site assessments and asbestos reports reasonably
indicate the necessity or desirability of further investigation to determine
whether or not an Environmental Hazard or an Asbestos Hazard exists at such Real
Property, Purchaser may elect, not later than ten (10) days after the signing of
this Agreement, to have an environmental consultant reasonably acceptable to
Seller (the "Environmental Consultant"), to the extent reasonable and
appropriate, conduct Phase II environmental site assessments and additional
asbestos investigations, the cost of which shall be paid by Purchaser. Any such
further investigation or testing shall be conducted in such a manner so as not
to interfere with the normal operation of the Branch(es) involved. All such
Phase II environmental site assessments and additional asbestos reports shall be
treated as information subject to Section 7.2(b) and shall be completed not more
than ninety (90) days after the signing of this Agreement.
(c) In the event that the Environmental Consultant has discovered an
Environmental Hazard, and/or Asbestos Hazard, during any such Phase II
environmental site assessments and additional asbestos investigation at any
single parcel of Owned Real Property, the remediation of which, in the
reasonable judgment of the Environmental Consultant, is or would be the
responsibility of Seller, or Purchaser should it acquire such Owned Real
Property, and will cost $100,000 or more for such single parcel of Owned Real
Property, Purchaser shall lease from Seller such single parcel of Owned Real
Property pursuant to a Lease Agreement that shall provide as follows:
(i) Such Lease Agreement shall be for a term of two (2) years,
with no obligation or right to renew (it being the intention of Seller
that Purchaser locate an alternative branch site during such two years),
at a rental equal to a fair market rental value;
(ii) Seller may sell such Owned Real Property to any person,
subject to such Lease Agreement, for any price;
(iii) During the term of such Lease Agreement, in the event Seller
shall deliver to Purchaser a report of qualified environmental engineer
or consultant stating that in the opinion of the Environmental Engineer
the Environmental Hazard, and/or Asbestos Hazard, at or on any such
leased parcel of Owned Real Property has been remediated to the extent
required under applicable
45
<PAGE>
Environmental Laws, Purchaser shall be required to purchase such parcel
of Owned Real Property at the net book value as of the close of business
of the month-end day most recently preceding the Closing Date;
(iv) Other terms and conditions of the Lease Agreement shall be
typical of such branch leases in the market as negotiated between Seller
and Purchaser; and
(v) Seller shall be responsible for all remediation costs related
to such Owned Real Property except for remediation costs caused solely by
Purchaser's use or disposal of Hazardous Substances at the site and
Seller shall otherwise indemnify and hold Purchaser harmless from third
party claims.
If the remediation cost is less than $100,000 for any single parcel of Owned
Real Property, Purchaser shall acquire such parcel and such cost shall be borne
by Purchaser without indemnity or price adjustment under this Agreement.
(d) Purchaser agrees that it and its Environmental Consultant shall
conduct any Phase II environmental site assessments or other investigations
pursuant to this Section with reasonable care and subject to customary practices
among environmental consultants and engineers, including, without limitation,
following completion thereof, the restoration of any site to the extent
practicable to its condition prior to such site assessment or investigation and
the removal of all monitoring wells.
(e) Any lease of a parcel of Owned Real Property under Section 10.1(c)
shall in no way affect the transfer of any Assets or Liabilities, other than
such parcel of Owned Real Property, to the Purchaser at the Closing.
ARTICLE 11
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) By the mutual written agreement of Purchaser and Seller;
(b) By Seller or Purchaser, in the event of a material breach by the
other of any representation, warranty or agreement contained herein which is not
cured or cannot be cured within thirty (30) days after written notice of such
termination has been delivered to the breaching party; provided, however, that
termination pursuant to this Section 11.1(b) shall not relieve the breaching
party of liability arising out of or related to such breach;
46
<PAGE>
(c) By Seller or Purchaser, in the event the Closing has not occurred by
April 30, 1999 unless the failure to so consummate is due to a breach of this
Agreement by the party seeking to terminate;
(d) By Seller or Purchaser if the Merger shall have been abandoned;
(e) By Seller, if the Merger has been consummated but the Closing has not
occurred within six months thereafter;
(f) By Seller or Purchaser at any time after the denial or revocation of
any Regulatory Approval or by Purchaser if any such approval has been obtained
which contains a Burdensome Condition; or
(g) By Seller if, at any time prior to the Closing Date, an appropriate
official of any governmental agency or authority whose consent, approval or
authorization is required in order for Purchaser to consummate the transactions
contemplated hereby shall have advised that such authority will not grant such
consent, approval or authorization or will grant the same only subject to a
Burdensome Condition (unless Purchaser shall have waived the condition provided
for in the proviso to Section 9.1(a)), or where there shall be in effect any
Order, or if there shall exist any proceeding which, in Seller's reasonable
judgment, would result in an Order; provided, however, that Purchaser shall have
fifteen (15) days following receipt of notice from Seller to remedy any such
situation or to provide assurances reasonably acceptable to Seller that such
situation will be remedied by the Closing Date.
11.2 Effect of Termination. In the event of termination of this Agreement
and abandonment of the transactions contemplated hereby pursuant to Section
11.1, no party hereto (or any of its directors, officers, employees, agents or
Affiliates) shall have any liability or further obligation to any other party,
except as provided in Section 7.2(b) and except that nothing herein will relieve
any party from liability for any breach of this Agreement.
ARTICLE 12
INDEMNIFICATION
12.1 Indemnification. (a) Subject to Sections 12.2 and 13.1, Seller shall
indemnify and hold harmless Purchaser and any person directly or indirectly
controlling Purchaser from and against any and all Losses which Purchaser may
suffer, incur or sustain arising out of or attributable to:
(i) any breach of any representation or warranty (excluding the
representations and warranties contained in Section 5.10 and Section 5.11
as it relates to information regarding Loans, the sole and exclusive
remedy for breach of which is set forth in Section 12.2) made by Seller
in this Agreement;
47
<PAGE>
(ii) any material breach of any covenant or agreement to be
performed by Seller pursuant to this Agreement;
(iii) any claim, penalty asserted, legal action or administrative
proceeding based upon any action taken or omitted to be taken by Seller
or conditions existing prior to the Closing Date, relating in any such
case to the operation of the Branches, the Assets or the Liabilities; or
(iv) any liability, obligation or duty of Seller that is not a
Liability.
(b) Subject to Section 13.1, Purchaser shall indemnify and hold harmless
Seller and any person directly or indirectly controlling Seller from and against
any and all Losses which Seller may suffer, incur or sustain arising out of:
(i) any breach of any representation or warranty made by Purchaser
in this Agreement;
(ii) any material breach of any covenant or agreement to be
performed by Purchaser pursuant to this Agreement;
(iii) any claim, penalty asserted, legal action or administrative
proceeding based upon any action taken or omitted to be taken by
Purchaser on or after the Closing Date, relating in any such case to the
operation of the Branches or the Assets;
(iv) physical damage caused solely by Purchaser or the
Environmental Consultant in connection with any environmental site
assessment or investigation pursuant to Article 10; or
(v) the Liabilities.
(c) To exercise its indemnification rights under this Section 12.1 as a
result of the assertion against it of any claim or potential liability for which
indemnification is provided, the indemnified party shall promptly notify the
indemnifying party of the assertion of such claim, discovery of any such
potential liability or the commencement of any action or proceeding in respect
of which indemnity may be sought hereunder (including, with respect to claims
arising from a breach of representation or warranty made in Article 8, the
commencement of an audit, administrative investigation or judicial proceeding by
any governmental authority); provided, however, that in no event shall notice of
original claim for indemnification under this Agreement shall be given later
than the expiration of one (1) year from the Closing Date (excluding only claims
for indemnification under Section 12.1(a)(iii), which shall be within three (3)
years of the Closing Date, and Section 12.1(a)(iv), which may be given at any
time). The indemnified party shall advise the indemnifying party of all facts
relating to such assertion within the knowledge of the indemnified party, and
shall afford the indemnifying party the
48
<PAGE>
opportunity, at the indemnifying party's sole cost and expense, to defend
against such claims for liability. In any such action or proceeding, the
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at its own expense unless (i) the
indemnifying party and the indemnified party mutually agree to the retention of
such counsel or (ii) the named parties to any such suit, action, or proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party, and in the reasonable judgment of the indemnified party,
representation of the indemnifying party and the indemnified party by the same
counsel would be inadvisable due to actual or potential differing defenses or
conflicts of interests between them.
(d) The indemnified party shall have the right to settle or compromise
any claim or liability subject to indemnification under this Section, and to be
indemnified from and against all Losses resulting therefrom, unless the
indemnifying party, within sixty (60) calendar days after receiving written
notice of the claim or liability in accordance with Section 12.1(c) above,
notifies the indemnified party that it intends to defend against such claim or
liability and undertakes such defense, or, if required in a shorter time than
sixty (60) calendar days, the indemnifying party makes the requisite response to
such claim or liability asserted.
(e) Notwithstanding anything to the contrary contained in this Agreement,
an indemnifying party shall not be liable under this Section 12.1 for any Losses
sustained by the indemnified party unless and until the aggregate amount of all
indemnifiable Losses sustained by the indemnified party shall exceed $50,000, in
which event the indemnifying party shall provide indemnification hereunder in
respect of all such indemnifiable Losses in excess of $50,000; provided,
however, that the aggregate amount of indemnification payments payable pursuant
to this Section 12.1, shall not exceed the amount of the Purchase Price. An
indemnifying party shall not be liable under this Section 12.1 for any
settlement effected, without its consent, of any claim or liability or
proceeding for which indemnity may be sought hereunder except in the case of a
settlement in an amount which does not exceed $50,000. In no event shall either
party hereto be entitled to consequential or punitive damages or damages for
lost profits in any action relating to the subject matter of this Agreement.
12.2 Loans. (a) Notwithstanding anything to the contrary contained in
this Agreement, subject to Section 12.3 and 12.4, in order for Purchaser to
claim a breach of a representation or warranty of Seller under Section 5.10 or
under Section 5.11 insofar as such claimed breach may relate to one or more
Loans, Purchaser shall deliver to Seller, within thirty (30) days following
Purchaser's discovery of such breach but in no event later than the one hundred
eightieth (180th) day following the Closing Date, a certificate (a "Certificate
of Defective Loan"), setting forth the identity of the affected Loan, the exact
nature of such claimed breach, the subsection or subsections of Section 5.10,
as applicable, under which such breach is claimed and reasonable evidence of
the existence of such breach.
49
<PAGE>
(b) If Purchaser delivers a Certificate of Defective Loan to Seller,
Seller shall have the option, in its sole and absolute discretion, to correct or
cure such breach with respect to such affected Loan within sixty (60) days
following the receipt of the Certificate (the "Cure Period") or to repurchase
any such affected Loan on a whole loan servicing-released basis within sixty
(60) days following receipt of the Certificate for an amount equal to the Loan
Value thereof as of the date of repurchase (the "Repurchase Price"). If Seller
elects to attempt to cure or correct any material breach with respect to any
Loan but fails to cure or correct such material breach on or before the
expiration of the Cure Period, then Seller shall repurchase such Loan on a whole
loan servicing-released basis within thirty (30) days following the expiration
of the Cure Period for the Repurchase Price, subject to Sections 12.2(d).
(c) In connection with any repurchase of a Loan by Seller pursuant to
this Section 12.2, and as a condition to the payment by Seller to Purchaser of
the Repurchase Price thereof, Purchaser shall deliver to Seller all Loan
Documents (and, if applicable, any collateral deposit account associated with
such Loan) with respect to such Loan previously delivered to Purchaser pursuant
to this Agreement, and each document that constitutes a part of the Loan
Documents which was endorsed or assigned to Purchaser shall be endorsed or
assigned to Seller in the same manner as provided in Sections 3.6 and 5.10.
(d) Notwithstanding anything to the contrary contained herein, Seller
shall have no obligation hereunder to correct or cure any material breach or to
repurchase any Loan pursuant to this Section 12.2, if after the Closing Date,
(i) Purchaser or its permitted assignee is not the owner of such Loan or does
not have the full right to sell and assign such Loan hereunder (it being
understood that the rights under this Section 12.2 shall not survive any sale,
conveyance, assignment or transfer of the subject Loan by Purchaser to an
unaffiliated third party); (ii) any lien, pledge, charge or security interest of
any nature exists with respect to such Loan as of the time of repurchase; (iii)
the related security interests or mortgages, if any, have been waived, modified,
altered, satisfied, canceled, rescinded or subordinated in any respect, or the
related collateral has been released from its obligations under such security
interests or mortgages, in whole or in part, in a manner which materially
interferes with the benefits of the security intended to be provided by such
mortgages or the use, enjoyment, value or marketability of such collateral for
the purposes specified in such mortgages; or (iv) Purchaser has otherwise
altered, amended or modified the terms of such Loan.
12.3 [intentionally omitted]
12.4 Exclusivity. After the Closing, Article 12 will provide the
exclusive remedy for any misrepresentation, breach of warranty, covenant or
other agreement or other claim arising out of this Agreement or the transactions
contemplated hereby; provided, however, that Section 12.2 shall be Purchaser's
sole and exclusive remedy or any breach of Seller's representations or
warranties under Section 5.10. In no event shall Purchaser have any such claim
with respect to any Loan which is paid in full on or before the one hundred
twentieth (120th) day after the Closing Date.
50
<PAGE>
12.5 AS-IS Sale; Waiver of Warranties. Except as set forth in Article 5
and Sections 8.1 and 8.8, Purchaser acknowledges that the Assets and Liabilities
are being sold and accepted on an "AS-IS-WHERE-IS" basis, and are being accepted
without any representation or warranty. As part of Purchaser's agreement to
purchase and accept the Assets and Liabilities AS-IS-WHERE-IS, and not as a
limitation on such agreement, TO THE FULLEST EXTENT PERMITTED BY LAW, SELLER
HEREBY DISCLAIMS AND PURCHASER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES AND
RELEASES ANY AND ALL ACTUAL OR POTENTIAL RIGHTS PURCHASER MIGHT HAVE AGAINST
SELLER OR ANY PERSON DIRECTLY OR INDIRECTLY CONTROLLING SELLER REGARDING ANY
FORM OF WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND OR TYPE, RELATING TO THE
ASSETS AND LIABILITIES INCLUDING, BUT NOT LIMITED TO, THE LOANS AND/OR THE
COLLATERAL THEREFOR EXCEPT THOSE SET FORTH IN ARTICLE 5 AND SECTIONS 8.1 AND
8.8. SUCH WAIVER AND RELEASE IS, TO THE FULLEST EXTENT PERMITTED BY LAW,
ABSOLUTE, COMPLETE, TOTAL AND UNLIMITED IN EVERY WAY. SUCH WAIVER AND RELEASE
INCLUDES TO THE FULLEST EXTENT PERMITTED BY LAW, BUT IS NOT LIMITED TO, A WAIVER
AND RELEASE OF EXPRESS WARRANTIES (EXCEPT THOSE SET FORTH IN ARTICLE 5 AND
SECTIONS 8.1 AND 8.8), IMPLIED WARRANTIES, WARRANTIES OF FITNESS FOR A
PARTICULAR USE, WARRANTIES OF MERCHANTABILITY, WARRANTIES OF HABITABILITY,
STRICT LIABILITY RIGHTS AND CLAIMS OF EVERY KIND AND TYPE, INCLUDING BUT NOT
LIMITED TO CLAIMS REGARDING DEFECTS WHICH WERE NOT OR ARE NOT DISCOVERABLE, ALL
OTHER EXTANT OR LATER CREATED OR CONCEIVED OF STRICT LIABILITY OR STRICT
LIABILITY TYPE CLAIMS AND RIGHTS.
ARTICLE 13
MISCELLANEOUS
13.1 Survival. (a) The parties' respective representations and warranties
contained in this Agreement shall survive until the first anniversary of the
Closing Date, and thereafter neither party may claim any Loss in relation to a
breach thereof; provided, however, that each of the representations and
warranties of Seller set forth in Section 5.10 and in Section 5.11 insofar as
such Section may relate to one or more Loans, shall survive the Closing Date for
a period of one hundred eighty (180) days, and thereafter neither party may
claim any damage for breach thereof. The agreements and covenants contained in
this Agreement shall not survive the Closing except to the extent expressly set
forth herein.
(b) No claim based on any breach of any representation or warranty shall
be valid or made unless notice with respect thereto is given to Seller in
accordance with this Agreement on or before the date specified in Section
12.1(c).
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<PAGE>
13.2 Assignment. Except as otherwise provided in Section 8.55, neither
this Agreement nor any of the rights, interests or obligations of either party
may be assigned by either party hereto without the prior written consent of the
other party, and any purported assignment in contravention of this Section 13.2
shall be void. Purchaser further agrees not to sell, transfer or assign any of
the Loans prior to the Closing Date.
13.3 Binding Effect. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
13.4 Public Notice. Prior to the Closing Date, neither Purchaser nor
Seller shall directly or indirectly make or cause to be made any press release
for general circulation, public announcement or disclosure or issue any notice
or general communication to employees with respect to any of the transactions
contemplated hereby without the prior written consent of the other party (which
consent shall not be unreasonably withheld or delayed). Purchaser agrees that,
without Seller's prior written consent, it shall not release or disclose any of
the terms or conditions of the transactions contemplated herein to any other
person. Notwithstanding the foregoing, each party may make such public
disclosure as, in the opinion of its counsel, may be required by law or as
necessary to obtain the Regulatory Approvals.
13.5 Notices. All notices, requests, demands, consents and other
communications given or required to be given under this Agreement and under the
related documents shall be in writing and delivered to the applicable party at
the address indicated below:
If to Seller: Norwest Bank Nevada, National Association
3300 West Sahara Avenue
Las Vegas, Nevada 89102
Attention: Laura Schulte, President
Fax: 702-765-3903
With a copy to: Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Attention: Secretary
Fax: 612-667-4399
If to Purchaser: California Federal Bank, A Federal Savings Bank
135 Main Street, 20th Floor
San Francisco, California 94105-1817
Attention: Scott A. Kisting, EVP
Fax: 415-904-0416
52
<PAGE>
With a copy to: California Federal Bank
135 Main Street, 4th Floor
San Francisco, California 94105-1817
Attention: Bill Primozic, Esq.
Fax: 415-904-0203
or, as to each party at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. Any notices shall be in writing, including telegraphic or
facsimile communication, and may be sent by registered or certified mail, return
receipt requested, postage prepaid, or by fax, or by overnight delivery service.
Notice shall be effective upon actual receipt thereof.
13.6 Expenses. Except as expressly provided otherwise in this Agreement,
each party shall bear any and all costs and expenses which it incurs, or which
may be incurred on its behalf, in connection with the preparation of this
Agreement and consummation of the transactions described herein, and the
expenses, fees, and costs necessary for any approvals of the appropriate
regulatory authorities.
13.7 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Nevada.
13.8 Entire Agreement; Amendment. (a) This Agreement contains the entire
understanding of and all agreements between the parties hereto with respect to
the subject matter hereof and supersedes any prior or contemporaneous agreement
or understanding, oral or written, pertaining to any such matters which
agreements or understandings shall be of no force or effect for any purpose;
provided, however, that the terms of any confidentiality agreement between the
parties hereto previously entered into, to the extent not inconsistent with any
provisions of this Agreement, shall continue to apply.
(b) This Agreement may not be amended or supplemented in any manner
except by mutual agreement of the parties and as set forth in a writing signed
by the parties hereto or their respective successors in interest. The waiver of
any beach of any provision under this Agreement by any party shall not be deemed
to be waiver of any preceding or subsequent breach under this Agreement. No such
waiver shall be effective unless in writing.
13.9 Third Party Beneficiaries. Except as expressly provided in Section
12.1 or 12.2, this Agreement shall not benefit or create any right or cause of
action in or on behalf of any person other than Seller and Purchaser.
13.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
13.11 Headings. The headings used in this Agreement are inserted for
purposes of convenience of reference only and shall not limit or define the
meaning of any provisions of this Agreement.
13.12 [intentionally omitted]
13.13 Severability. If any provision of this Agreement, as applied to any
party or circumstance, shall be judged by a court of competent jurisdiction to
be void, invalid or unenforceable, the same shall in no way effect any other
provision of this Agreement, the application of any such provision and any other
circumstances or the validity or enforceability of the other provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date and year first above
written.
NORWEST BANK NEVADA,
NATIONAL ASSOCIATION
By: /s/ Laura Schulte
----------------------------
Name: Laura Schulte
Title: President & CEO
CALIFORNIA FEDERAL BANK,
A FEDERAL SAVINGS BANK
By: /s/ Peter K. Thomson
----------------------------
Name: Peter K. Thomson
Title: EVP
54
<PAGE>
SCHEDULE 1.1(b)
BRANCHES/REAL PROPERTIES
NORWEST BANK NEVADA, NATIONAL ASSOCIATION
Branch Name Branch Address Lease/Own
----------- -------------- ---------
1 Carson City 201 West Telegraph Street Owned
Carson City, NV 89703
2 Elko 852 Idaho Street Owned
Elko, NV
3 Desert Inn/Topaz 2625 East Desert Inn Road Leased
Las Vegas, NV 89121
4 Lakes 9325 West Sahara Avenue Leased
Las Vegas, NV 89117
5 Tropicana/Pecos 3333 East Tropicana Avenue Leased
Las Vegas, NV 89121
6 Rainbow/Westcliff 103 South Rainbow Owned
Las Vegas, NV 89128
7 Henderson 546 South Boulder Highway Leased
Henderson, NV 89105
8 Virginia Cadillac 2375 South Virginia Street Owned
Reno, NV 89502
9 Booth/Reno Village 595 Booth Street Owned
Reno, NV 89509
10 Winnemucca 311 South Bridge Street Owned
Winnemucca, NV 89445
<PAGE>
SCHEDULE 1.1(d)
EXCLUDED DEPOSITS
NONE
<PAGE>
SCHEDULE 1.1(e)
OTHER LOANS
See Magnetic Media delivered to Purchaser October 16, 1998
<PAGE>
SCHEDULE 2.1(a)(vii)
OTHER ASSETS
See Attached
<PAGE>
NORWEST CORPORATION
NEVADA SCHEDULES 2.1(A) (VII) OTHER ASSETS
AS OF SEPTEMBER 30,1998
<TABLE>
<CAPTION>
OTHER ASSET
COST CENTER COMMON NAME TOTAL SCHEDULE DETAIL OF OTHER ASSETS TOTAL
- --------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
CC: 1013 Reno Village $ 870 Safe Deposit Wash Acct. (75)
Annual Fees Rec-LCA 850
Insurance Prem Rec - LCA 13
Late Charges Rec - ILA 82
-----------------------------------------------------------------
$ 870 = $ 870
============= ============
- ---------------------------------------------------------------------------------------------------
CC: 1021 Virginia/Cadillac $ 2,464 Safe Deposit Wash Acct. (165)
Late Charges Rec - LCA 35
Annual Fees Rec-LCA 1,725
Insurance Prem Rec - LCA 379
Late Charges Rec - ILA 490
-----------------------------------------------------------------
$ 2,464 = $ 2,464
============= ==============
- ---------------------------------------------------------------------------------------------------
CC: 2011 Carson City $ 1,424 Safe Deposit Wash Acct. (210)
Late Charges Rec - LCA 14
Annual Fees Rec-LCA 1,212
Insurance Prem Rec - LCA 96
Late Charges Rec - ILA 312
-----------------------------------------------------------------
$ 1,424 = $ 1,424
============= ==============
- ---------------------------------------------------------------------------------------------------
CC: 2041 Elko $ 1,312 Safe Deposit Wash Acct. (45)
Late Charges Rec - LCA 5
Annual Fees Rec-LCA 550
Insurance Prem Rec - LCA 116
Late Charges Rec - ILA 686
-----------------------------------------------------------------
$ 1,312 = $ 1,312
============= ==============
- ---------------------------------------------------------------------------------------------------
CC: 2042 Winnemucca $ 601 Safe Deposit Wash Acct. (20)
Late Charges Rec - LCA 15
Annual Fees Rec-LCA 375
Insurance Prem Rec - LCA 102
Late Charges Rec - ILA 249
Br Suspense A/C (FIWI) (120)
-----------------------------------------------------------------
$ 601 = $ 601
============= ==============
- ---------------------------------------------------------------------------------------------------
<PAGE>
NORWEST CORPORATION
NEVADA SCHEDULES 2.1(A) (VII) OTHER ASSETS
AS OF SEPTEMBER 30,1998
OTHER ASSET
COST CENTER COMMON NAME TOTAL SCHEDULE DETAIL OF OTHER ASSETS TOTAL
- --------------------------------------------------------------------------------- -------------
CC: 3011 Desert Inn/Topaz $ 1,014 Insurance Prem Rec - LCA 25
Br Suspense A/C (FIWI) 698
Late Charges Rec - ILA 259
Svc Chg Rec Daily Neg Coll B 32
-----------------------------------------------------------------
$ 1,014 = $ 1,014
============== ================
- ---------------------------------------------------------------------------------------------------
CC: 3013 Trop/Pecos $ 1,648 Safe Deposit Wash Acct. (120)
Annual Fees Rec-LCA 1,300
Insurance Prem Rec - LCA 62
Late Charges Rec - ILA 406
-----------------------------------------------------------------
$ 1,648 = $ 1,648
============= ==============
- ---------------------------------------------------------------------------------------------------
CC: 3021 Henderson $ 1,984 Safe Deposit Wash Acct. (30)
Annual Fees Rec-LCA 1,475
Insurance Prem Rec - LCA 23
Unamort Prem - Consmr Lns 29
Late Charges Rec - ILA 483
Service Charge Rec Daily Neg 4
-----------------------------------------------------------------
$ 1,984 = $ 1,984
============= ==============
- ---------------------------------------------------------------------------------------------------
CC: 3054 Lakes/West $ 10,853 Safe Deposit Wash Acct. (105)
Insurance Prem Rec - LCA 275
Late Charges Rec - ILA 292
Br Suspense A/C (FIWI) 10,391
-----------------------------------------------------------------
$ 10,853 = $ 10,853
============= ==============
- ---------------------------------------------------------------------------------------------------
CC: 3059 Rainbow/Westcliff $ 3,849 Safe Deposit Wash Acct. (195)
Annual Fees Rec-LCA 1,450
Insurance Prem Rec - LCA 199
Late Charges Rec - ILA 395
Br Suspense A/C (FIWI) 2,000
-----------------------------------------------------------------
$ 3,849 = $ 3,849
============= ==============
- ---------------------------------------------------------------------------------------------------
<PAGE>
SCHEDULE 2.2(a)(v)
ACCRUED LIABILITIES
See Attached
<PAGE>
NORWEST CORPORATION
NEVADA SCHEDULES 2.2 (A) (V) ACCRUAL LIABILITIES
AS OF SEPTEMBER 30,1998
OTHER LIABILITIES
COST CENTER COMMON NAME TOTAL SCHEDULE DETAIL OF OTHER ASSETS TOTAL
- ---------------------------------------------------------------------------------------- -------------
CC: 1013 Reno Village $ (6,805) LCA Insurance Payable 46
Difference Account (6,851)
------------------------------------------------------------------------
$ (6,805) = $ (6,805)
=================== ============
- ----------------------------------------------------------------------------------------------------------
CC: 1021 Virginia/Cadillac $ (6,726) Credit Life/A&H Pay - ILA (6,841)
LCA Insurance Payable 326
Difference Account (211)
------------------------------------------------------------------------
$ (6,726) = $ (6,726)
=================== ============
- ----------------------------------------------------------------------------------------------------------
CC: 2011 Carson City $ (11,992) Credit Life/A&H Pay - ILA (13,917)
LCA Insurance Payable 100
Difference Account 1,825
------------------------------------------------------------------------
$ (11,992) = $ (11,992)
=================== ============
- ----------------------------------------------------------------------------------------------------------
CC: 2041 Elko $ 9,136 Real Estate Taxes Payable (2,016)
Credit Life/A&H Pay - ILA 10,955
LCA Insurance Payable 187
Difference Account 10
------------------------------------------------------------------------
$ 9,136 = $ 9,136
=================== ============
- ----------------------------------------------------------------------------------------------------------
CC: 2042 Winnemucca $ 7,053 Credit Life/A&H Pay - ILA 6,657
LCA Insurance Payable 195
Difference Account 201
------------------------------------------------------------------------
$ 7,053 = $ 7,053
=================== ============
- ----------------------------------------------------------------------------------------------------------
CC: 3011 Desert Inn/Topaz $ 5,463 Credit Life/A&H Pay - ILA 4,867
LCA Insurance Payable 5
Difference Account 591
------------------------------------------------------------------------
$ 5,463 = $ 5,463
=================== ============
- ----------------------------------------------------------------------------------------------------------
CC: 3013 Trop/Pecos $ (585) Credit Life/A&H Pay - ILA (1,811)
LCA Insurance Payable 1,717
Difference Account (491)
------------------------------------------------------------------------
$ (585) = $ (585)
=================== ============
- ----------------------------------------------------------------------------------------------------------
CC: 3021 Henderson $ (3,928) Credit Life/A&H Pay - ILA (3,917)
LCA Insurance Payable 32
Difference Account (43)
------------------------------------------------------------------------
$ (3,928) = $ (3,928)
=================== ============
- ----------------------------------------------------------------------------------------------------------
<PAGE>
NORWEST CORPORATION
NEVADA SCHEDULES 2.2 (A) (V) ACCRUAL LIABILITIES
AS OF SEPTEMBER 30,1998
OTHER LIABILITIES
COST CENTER COMMON NAME TOTAL SCHEDULE DETAIL OF OTHER ASSETS TOTAL
- ---------------------------------------------------------------------------------------- -------------
CC: 3054 Lakes/West $ 1,943 Credit Life/A&H Pay - ILA 961
LCA Insurance Payable (22)
Difference Account 1,004
------------------------------------------------------------------------
$ 1,943 = $ 1,943
=================== ============
- ----------------------------------------------------------------------------------------------------------
CC: 3059 Rainbow/Westcliff $ 7,435 Credit Life/A&H Pay - ILA 6,153
LCA Insurance Payable 205
Difference Account 1,077
------------------------------------------------------------------------
$ 7,435 = $ 7,435
=================== ============
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 2.4(c)
EXCLUDED IRA/KEOGH ACCOUNT DEPOSITS
[TO COME]
<PAGE>
SCHEDULE 3.6(a)
FORM OF DEED
Recording Requested by:
When Recorded Mail to:
DOCUMENT TRANSFER TAX $______
( ) COMPUTED ON FULL VALUE OF PROPERTY CONVEYED, OR
( ) COMPUTED ON FULL VALUE LESS LIENS AND ENCUMBRANCES
REMAINING THEREON AT TIME OF SALE.
Signature of declarant or agent determining tax -- Firm Name
( ) Unincorporated Area ( ) City of _______________
Assessor's parcel No. ______________
__________________________________________ with its principal office
located in ______________________, _______________, the undersigned grantor, for
a valuable consideration, receipt of which is hereby acknowledged, does hereby
remise, release and forever grant, bargain, sell and convey to [NAME OF
GRANTEE(S)] a __________________ _______________, with its principal office
located in ______________________, all of the real property in the City of
__________________, County of ________________, State of ______ _______________,
described in Attachment A hereto.
Date: _______________________ ______________________________
____________________
By: ___________________________
Name:
Title:
MAIL TAX STATEMENTS TO GRANTEE
AT ADDRESS ABOVE
<PAGE>
Attachment A
Property
2
<PAGE>
SCHEDULE 3.6(b)
FORM OF BILL OF SALE
BILL OF SALE, dated as of ______________, _____ by
______________________________ ________________________, with its principal
office located in _________________________, _________________ ("Seller"), to
_____________________________________________, with its principal office located
in _______________________________________________, ("Purchaser"). Capitalized
terms not otherwise defined herein shall have the same meanings as set forth in
the Purchase and Assumption Agreement, dated as of ___________________________,
_____ (the "P&A Agreement"), between Seller and Purchaser, unless the context
herein otherwise requires.
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions set forth in the P&A
Agreement, Seller has agreed to transfer to Purchaser the Assets;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller does hereby convey, grant,
bargain, sell, transfer, set over, assign, alienate, remise, release, deliver
and confirm unto Purchaser, its successors and assigns, forever, all of Seller's
right, title, interest and claim in and to the Personal Property (including
without limitation, the items described in Attachment A hereto), as of
11:59 p.m., ___________ time, the day prior to the date hereof
TO HAVE AND TO HOLD all and singular of the foregoing (the "Transferred
Properties") unto Purchaser, its successors and assigns, to its and their own
use and enjoyment forever.
SELLER FURTHER COVENANTS AND AGREES AS FOLLOWS:
1. This instrument shall not constitute an assignment of any covenant,
obligation, liability, contract, agreement, license, lease or commitment
pertaining to the Transferred Properties if an attempted assignment thereof
without the consent of any other party thereto or with an interest therein would
constitute a breach thereof or would materially and adversely affect the rights
of Seller thereunder. If any such consent is not obtained with respect to any
such covenant, obligation, liability, contract, agreement, license, lease or
commitment, or if an attempted assignment with respect thereto would be
ineffective or would impair the rights of Seller thereunder so that Purchaser
would not in fact receive the benefit of all such rights, then Seller, its
successors and assigns, shall act as Purchaser's agent in order to obtain for
Purchaser, its successors and assigns, the benefits thereunder, and Seller will
cooperate with Purchaser in any other reasonable arrangement designed to provide
such benefits for Purchaser.
<PAGE>
2. The Transferred Properties are being delivered "AS IS," "WHERE IS" and with
all faults.
3. From time to time, Seller, its successor and assigns, shall execute and
deliver all such further bills of sale, assignments or other instruments of
conveyance and transfer as Purchaser, its successors or assigns, may reasonably
request more effectively to transfer to and vest in Purchaser all of Seller's
interest in the Transferred Properties.
4. This Bill of Sale is made pursuant to the provisions of the P&A Agreement,
and, except as herein otherwise provided, the transfer of property hereunder is
made subject to the terms and provisions of the P&A Agreement.
5. This Agreement shall be governed by and interpreted in accordance with the
laws of the State of ______________ applicable to contracts made and to be
performed entirely within such State.
IN WITNESS WHEREOF, Seller has duly executed and delivered this Bill of
Sale as of the day and year first above written.
_______________________________________
By: ___________________________________
Name:
Title:
PURCHASER:
By: ___________________________________
Name:
Title:
2
<PAGE>
Attachment A
Personal Property
[To be provided]
3
<PAGE>
SCHEDULE 3.6(c)
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of _____________________,
______ (the "Agreement"), between __________________________________________,
organized under the laws of _________________________, with its principal office
located in ___________________________, _______________ ("Seller"), and
__________________________________________, with its principal office located in
________________________, ______________________ ("Purchaser"). Capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Purchase and Assumption Agreement, dated as of __________________________, (the
"P&A Agreement"), between Seller and Purchaser, unless the context herein
otherwise requires.
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions set forth in the P&A
Agreement, Seller has agreed to assign, and Purchaser has agreed to assume, the
Liabilities;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Seller hereby sells, assigns, conveys transfers and delivers, and
Purchaser assumes, without warranty or representation, express or implied, or
recourse to, Seller, except as expressly provided in the P&A Agreement, the
Liabilities, other than the Branch Leases, as set forth in the P&A Agreement.
2. Seller hereby (a) resigns as the trustee or custodian of each Deposit
in an IRA or Keogh Account of which it is the trustee or custodian, and (b) to
the extent permitted by the documentation governing such IRA or Keogh Account,
appoints Purchaser as successor trustee or custodian of each such IRA or Keogh
Account, and Purchaser hereby accepts each such trusteeship or custodianship and
assumes all fiduciary obligations with respect thereto.
3. This Agreement shall not constitute an assignment or assumption of
any covenant, fiduciary or other obligation, liability, contract, agreement,
license, lease or commitment pertaining to any Liability if an attempted
assignment or assumption thereof without the consent of any other party thereto
or with an interest therein would constitute a breach thereof or would
materially and adversely affect the rights of Seller thereunder. If any such
consent is not obtained with respect to any such covenant, fiduciary or other
obligation, liability, contract, agreement, license, lease or commitment, or if
an attempted assignment or assumption of any covenant, fiduciary or other
obligation, liability, contract, agreement, license, lease or commitment
pertaining to any Liability would be ineffective or would impair the rights of
Seller thereunder so that Purchaser would not in fact receive the benefit of all
such rights, then Seller, its successors an assigns shall act as Purchaser's
agent in order to obtain for Purchaser, its successors and assigns, the benefits
<PAGE>
thereunder, and Seller will cooperate with Purchaser in any other reasonable
arrangement designed to provide such benefits for Purchaser.
4. This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective permitted
successors and permitted assigns; provided, that neither this Agreement nor any
of the rights, interests or obligations of either party may be assigned by
either party hereto without the prior written consent of the other party, and
any purported assignment in contradiction of this Section 4 shall be void.
5. This Agreement is made pursuant to the provisions of the P&A
Agreement and, except as herein otherwise provided, the assignment and
assumption of any other Liabilities hereunder are made subject to the terms and
provisions of the P&A Agreement.
6. Except as otherwise provided herein, all of the transactions provided
for herein shall be effective as of 11:59 p.m., __________________ time, the day
prior to the date hereof.
7. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of ______________________ applicable to contracts
made and to be performed entirely within such State.
IN WITNESS WHEREOF, the parties herein have duly executed and delivered
this Agreement as of the day and year first above written.
__________________________________________
By: ______________________________________
Name:
Title:
[PURCHASER]
By: ______________________________________
Name:
Title:
2
<PAGE>
SCHEDULE 3.6(d)
FORM OF ASSIGNMENT OF LEASE AND ASSUMPTION
KNOW THAT ___________________________________________, a
______________________, organized under the laws of the ___________________,
having its principal office in __________________, ____________ ("Assignor"), in
consideration of One Dollar ($1.00) and other good and valuable consideration
paid by ____________________ _____________________, with its principal office
located in _______________________, ("Assignee"), hereby sells, transfers and
assigns unto the Assignee all of Assignor's right, title and interest as tenant
under a certain lease more particularly described on Attachment A hereto,
covering premises described on such attachment and in such Lease (the "Lease")
including any security deposits, prepaid rentals and other deposits, if any.
TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns
from and after 8:00 a.m. on the date hereof (the "Effective Time"), subject to
the terms, covenants, conditions and provisions set forth in the Lease.
ASSIGNEE hereby assumes, effective as of the Effective Time, the
performance of all terms, covenants and obligations of the Lease on the part of
Assignor to be performed under the Lease accruing from and after the Effective
Time.
This Assignment may be executed in any number of counterparts. Each such
counterpart hereof shall be deemed an original, but all counterparts shall
constitute but one agreement.
This Assignment shall inure to the benefit of and shall be binding upon
the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Agreement as of the ________ day of ____________________________, ______.
__________________________________________
By: _______________________________________
Name:
Title:
CALIFORNIA FEDERAL BANK,
A FEDERAL SAVINGS BANK
<PAGE>
By: _______________________________________
Name:
Title:
2
<PAGE>
Attachment A
Lease
3
<PAGE>
SCHEDULE 3.6(e)
FORM OF LANDLORD CONSENT
CONSENT, dated as of __________________, ______, of ____________________
________, with its principal office located in ________________________________
("Landlord"), in favor of _____________________________________________
organized under the laws of the _____ _______________, with its principal office
located in ________________, _______________ ("Seller").
W I T N E S S E T H:
WHEREAS, Landlord is the owner of certain premises and a party to a
certain lease, each described on Attachment A hereto (the "Lease"); and
WHEREAS, Seller desires to assign its entire interest (including without
limitation, renewal rights, if any) in the Lease to
___________________________________, with its principal office located in
_________________________, ("Purchaser"); and
WHEREAS, Seller has requested Landlord's consent to said assignment and
to Purchaser's use of said premises as a banking office and for all other
purposes authorized under the Lease for the balance of the term of the Lease and
Landlord desires to consent to the same for all purposes required under the
Lease.
NOW, THEREFORE,
1. Subject to the limitations set forth below, Landlord hereby consents
to the assignment of the Lease by Seller to Purchaser and to Purchaser's use of
said premises as a banking office and for all other purposes authorized under
the Lease for the balance of the term of the Lease; provided that Purchaser
shall agree to assume all of the obligations of Seller arising under the Lease
from and after the effective date of the assignment.
2. Except for the aforementioned assignment by Seller to Purchaser,
nothing contained herein shall constitute a waiver of the obligation, if any, of
the holder of the leasehold interest created under the Lease to obtain
Landlord's consent to future assignments of the Lease or a sublease of the
premises demised thereunder.
3. Nothing contained herein shall be construed to obligate Seller to
assign the Lease to Purchaser, it being understood and acknowledged by Landlord
that the execution and delivery of this Consent is in anticipation of said
assignment, which may or may not be effected. If said assignment shall be
effected, Seller or Purchaser shall promptly provide to Landlord a fully
executed counterpart of said assignment and notify Landlord of the effective
date thereof.
4. Landlord acknowledges and certified that, except for the conditions
contained herein, all conditions set forth in the Lease, if any, to the
effectiveness of the
<PAGE>
aforementioned assignment or to the consent of Landlord contained herein have
been either waived by Landlord or satisfied.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
instrument as of the day and year first above written.
[LANDLORD]
By: ___________________________
Name:
Title:
2
<PAGE>
Attachment A
Lease
3
<PAGE>
SCHEDULE 3.6(g)
FORM OF CERTIFICATE OF OFFICER
The undersigned, the __[title of officer]__ of
_________________________________, a ______________________, organized under the
laws of the ____________________, with its principal office located in
_______________, ______________________ ("Seller"), hereby certifies, to the
best of [his] [her] knowledge after reasonable inquiry, as follows:
1. Each of the representations and warranties made by Seller in the
Purchase and Assumption Agreement, dated as of __________________, ______, (the
"P&A Agreement"), between Seller and ___________________________________, with
its principal office located in ____________________, California, are true and
all material respects, as of the date hereof.
2. Each of the covenants and agreements of Seller to be performed on or
prior to the date hereof have been duly performed in all material respects.
3. Attached hereto are true and correct copies of the resolutions of the
Seller's Board of Directors, dated as of ____________________, ______,
authorizing the execution, delivery and performance of the transactions
contemplated by the P&A Agreement, which resolutions were duly adopted and, as
of the date hereof, remain in full force and effect without amendment or
modification.
IN WITNESS WHEREOF, I have hereunto subscribed my name this _____ day of
_________________, _____.
__________________________________________
By: ______________________________________
Name:
Title:
<PAGE>
SCHEDULE 3.7(d)
FORM OF CERTIFICATE OF OFFICER
The undersigned, the __[title of officer]__ of
_________________________________, with its principal office located in
______________________________, ("Purchaser"), hereby certifies, to the best of
[his] [her] knowledge after reasonable inquiry, as follows:
1. Each of the representations and warranties made by Purchaser in the
Purchase and Assumption Agreement, dated as of __________________, ______ (the
"P&A Agreement"), between Purchaser and ___________________________________,
organized under the laws of ________________, with its principal office located
in ______________________, _____________, are true in all material respects, as
of the date hereof (except for representations and warranties that are made as
of a specific date).
2. Each of the covenants and agreements of Purchaser to be performed on
or prior to the date hereof have been duly performed in all material respects.
3. Attached hereto are true and correct copies of the resolutions of the
Purchaser's Board of Directors, dated as of _________________________, ______,
authorizing the execution, delivery and performance of the transactions
contemplated by the P&A Agreement, which resolutions were duly adopted and, as
of the date hereof, remain in full force and effect without amendment or
modification.
IN WITNESS WHEREOF, I have hereunto subscribed my name this _____ day of
______________________, _____.
[PURCHASER]:
By: ______________________________________
Name:
Title:
<PAGE>
SCHEDULE 4.11
SCHEDULE OF PROCESSING FEES
See Attached
<PAGE>
SCHEDULE 4.11
SCHEDULE OF COST FROM OPERATIONS FOR DIVESTITURE
<TABLE>
<CAPTION>
<S> <C>
|------------------------------------------------|-----------------------------------------------------|
| Daily Cash Letter | $25.00 per letter |
|------------------------------------------------|-----------------------------------------------------|
| Return Deposited Items | $2.50 per item |
|------------------------------------------------|-----------------------------------------------------|
| ACH File | $35.00 per transmitted file |
|------------------------------------------------|-----------------------------------------------------|
| Photocopies (per item) | $3.00 per item |
|------------------------------------------------|-----------------------------------------------------|
| Research Request (per item) | $20.00 per hour, $20.00 minimum |
|------------------------------------------------|-----------------------------------------------------|
| Courier | Dedicated in-city run (time sensitive) $35 per run |
| | Non-Dedicated in-city run $25 per run |
|------------------------------------------------|-----------------------------------------------------|
</TABLE>
This is the best we could do given the short time frame to get the numbers. I
did check with the Texas folks and we are not charging Crane for any of these
items. I assume it because Crane is small compared to this one.
<PAGE>
SCHEDULE 5.4
TENANT LEASES
See Attached
<PAGE>
NORWEST BANK NEVADA
LISTING OF BRANCH TENANTS
<TABLE>
<CAPTION>
BRANCH SUBTENANT NAME ADDRESS SUITE# RSF GROSS RENT START EXPIRATION
------ -------------- ------- ------ --- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Carson City Carson Valley Chiropractic 308 North Curry St. Carson City NV B101 1050 $727 10/1/97 9/30/99
Carson City Citizens for Affordable Homes 308 North Curry St. Carson City NV 210 930 $0 11/1/98 10/31/99
Carson City Classic Travel, Inc. 308 North Curry St. Carson City NV 101 1240 $1,208 3/1/98 2/28/03
Carson City Michael Bertrand CPA 308 North Curry St. Carson City NV 201 612 $623 10/1/97 9/30/99
Carson City Norwest Mortgage, Inc. 308 North Curry St. Carson City NV 105 450 $428 1/1/98 12/31/98
Carson City NV Assoc. of Counties 308 North Curry St. Carson City NV 205 3276 $3,285 10/1/97 9/30/00
Carson City Operating Eng. Local 308 North Curry St. Carson City NV 103 465 $445 11/1/97 10/31/98 *
Carson City Sylvan Learning Center 308 North Curry St. Carson City NV 100 1095 $0 10/1/97 9/30/98 *
Winnemucca Herrera-Forgeron Law Offices 311 South Bridge St. Winnemucca NV E 673 $446 9/1/97 8/31/00
Winnemucca Lily Pad Floral & Boutique 311 South Bridge St. Winnemucca NV D 1300 $793 10/1/97 9/30/99
Winnemucca Morris Travel Services, LLC 311 South Bridge St. Winnemucca NV A 717 $467 11/15/97 11/14/98 *
Winnemucca Nature's Corner 311 South Bridge St. Winnemucca NV F 285 $300 10/1/97 9/30/99
Winnemucca Rice Jewelers 311 South Bridge St. Winnemucca NV B 1506 $905 10/1/95 9/30/00
</TABLE>
* Lease extension in process
<PAGE>
SCHEDULE 5.7
LITIGATION/UNDISCLOSED LIABILITIES
NONE
<PAGE>
SCHEDULE 5.10(a)(ix)
EXCEPTIONS TO SELLER'S SOLE OWNERSHIP OF LOANS
NONE
<PAGE>
SCHEDULE 5.10(f)(i)
FORM OF AFFIDAVIT OF LOST NOTE
I, __________________________________, being duly sworn, do hereby state under
oath that:
1. I, as __________________________ (title) of ____________________________, am
authorized to make this Affidavit on behalf of _______________________________
(the "Lender").
2. The Lender is the Payee under the following described mortgage note (the
"Note"):
Date: ______________________________
Loan No.: ______________________________
Borrower(s): ______________________________
Original Payee (if not the Lender): ______________________________
Original Amount: ______________________________
Rate of Interest: ______________________________
Address of Mortgaged Property: ______________________________
3. The Lender is the lawful owner of the Note, and the Lender has not canceled,
altered, assigned or hypothecated the Note.
4. The Note was not located after a thorough and diligent search which consisted
of the following actions:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
5. The Note was sold to ____________________ by ____________________ pursuant to
the terms and provisions of a ________________ Agreement dated and effective as
of ____________________, ______.
6. Attached hereto is a true and correct copy of (i) the Note, endorsed in blank
by Lender, and (ii) the Mortgage or Deed of Trust [strike one] which secures the
Note, which Mortgage or Deed of Trust is recorded at:
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
7. _____________________________________________, hereby agrees to defend,
indemnify and hold harmless ___________________________________________, its
successors, and assigns, against any loss, liability or damage, including
reasonable attorney's fees, resulting from the unavailability of any notes,
including but not limited to any loss, liability or damage arising from (i) any
false statement contained in this Affidavit, (ii) any claim of any party that it
has already purchased a mortgage loan evidenced by a Lost Note or any interest
in such loan, (iii) any claim of any borrower with respect to the existence or
terms of a Mortgage Loan evidenced by a Lost Note, or (iv) any inability to
enforce the Note according to its terms or inability to receive any related
insurance proceeds due to the lack of an original Note.
8. This Affidavit is intended to be relied on by ______________________________,
its successors, and assigns and ______________________________ represents and
warrants that it has the authority to perform its obligations under this
Affidavit of Lost Note.
Date: _____________________________
By: ___________________________
Name:
Title:
2
<PAGE>
SCHEDULE 5.10(k)
EXCEPTIONS TO RIGHTS OF MORTGAGORS
NONE
<PAGE>
SCHEDULE 5.16
DEPOSITS - COMPLIANCE WITH LAWS AND CONTRACTS
NONE
<PAGE>
SCHEDULE 5.17
ENVIRONMENTAL MATTERS
NONE
<PAGE>
SCHEDULE 8.1
OUTSTANDING TAX LIABILITIES
NONE
<PAGE>
PURCHASE AND ASSUMPTION AGREEMENT
dated as of
October 30, 1998
between
WELLS FARGO BANK, NATIONAL ASSOCIATION
and
CALIFORNIA FEDERAL BANK, A FEDERAL SAVINGS BANK
<PAGE>
TABLE OF CONTENTS
ARTICLE I
CERTAIN DEFINITIONS
1.1 Certain Definitions
1.2 Accounting Terms
1.3 Interpretation
ARTICLE 2
THE P&A TRANSACTION
2.1 Purchase and Sale of Assets
2.2 Assumption of Liabilities
2.3 Purchase Price
2.4 Assumption of IRA and Keogh Account Deposits
2.5 Sale and Transfer of Servicing and Escrows
ARTICLE 3
CLOSING PROCEDURE; ADJUSTMENTS
3.1 Closing
3.2 Payment at Closing
3.3 Adjustment of Purchase Price
3.4 [intentionally omitted]
3.5 Proration; Other Closing Date Adjustments
3.6 Seller Deliveries
3.7 Purchaser Deliveries
3.8 Delivery of the Loan Documents
3.9 Collateral Assignments and Filing
3.10 Owned Real Property Filings
3.11 Title Policies
ii
<PAGE>
ARTICLE 4
TRANSITIONAL MATTERS
4.1 Transitional Arrangements
4.2 Customers
4.3 Direct Deposits
4.4 Direct Debits
4.5 Escheat Deposits
4.6 Maintenance of Records
4.7 Interest Reporting and Withholding
4.8 Negotiable Instruments
4.9 ATM/Debit Cards; POS Cards
4.10 Leasing of Personal Property
4.11 Data Processing Conversion for the Branches and Handling of Certain
Items
4.12 Information Regarding Mortgage Loans
4.13 Employee Training
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
5.1 Corporate Organization and Authority
5.2 No Conflicts
5.3 Approvals and Consents
5.4 Tenants
5.5 Leases
5.6 [intentionally omitted]
5.7 Litigation and Undisclosed Liabilities
5.8 Regulatory Matters
5.9 Compliance with Laws
5.10 Loans
5.11 Financial and Deposit Data
5.12 Records
5.13 Title to Assets
5.14 Branch Leases
5.15 [intentionally omitted]
5.16 Deposits
5.17 Environmental Laws; Hazardous Substances
5.18 Brokers' Fees
5.19 Limitations on Representations and Warranties
iii
<PAGE>
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
6.1 Corporate Organization and Authority
6.2 No Conflicts
6.3 Approvals and Consents
6.4 Regulatory Matters
6.5 Litigation and Undisclosed Liabilities
6.6 Operation of the Branches
6.7 Financing Available
6.8 Brokers' Fees
ARTICLE 7
COVENANTS OF THE PARTIES
7.1 Activity in the Ordinary Course
7.2 Access and Confidentiality
7.3 Regulatory Approvals
7.4 Consents
7.5 Efforts to Consummate; Further Assurances
7.6 Solicitation of Accounts
7.7 Insurance
7.8 [intentionally omitted]
7.9 Servicing Prior to Closing Date
ARTICLE 8
TAXES AND EMPLOYEE BENEFITS
8.1 Tax Representations
8.2 Proration of Taxes
8.3 Sales and Transfer Taxes
8.4 Information Returns
8.5 Payment of Amount Due under Article 8
8.55 Like Kind Exchange
8.6 Assistance and Cooperation
8.7 Transferred Employees
8.8 Branch Employee Representations
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ARTICLE 9
CONDITIONS TO CLOSING
9.1 Conditions to Obligations of Purchaser
9.2 Conditions to Obligations of Seller
ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Environmental Matters
ARTICLE 11
TERMINATION
11.1 Termination
11.2 Effect of Termination
ARTICLE 12
INDEMNIFICATION AND OTHER REMEDIES
12.1 Indemnification
12.2 Loans
12.3 [intentionally omitted]
12.4 Exclusivity
12.5 AS-IS Sale; Waiver of Warranties
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ARTICLE 13
MISCELLANEOUS
13.1 Survival
13.2 Assignment
13.3 Binding Effect
13.4 Public Notice
13.5 Notices
13.6 Expenses
13.7 Governing Law
13.8 Entire Agreement; Amendments
13.9 Third Party Beneficiaries
13.10 Counterparts
13.11 Headings
13.12 [intentionally omitted]
13.13 Severability
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List of Schedules
Schedule 1.1(b) Branches/Real Properties
Schedule 1.1(d) Excluded Deposits
Schedule 1.1(e) Other Loans
Schedule 2.1(a)(vii) Other Assets
Schedule 2.2(a)(v) Accrued Liabilities
Schedule 2.4(c) Excluded IRA/Keogh Account Deposits
Schedule 3.6(a) Form of Deed
Schedule 3.6(b) Form of Bill of Sale
Schedule 3.6(c) Form of Assignment and Assumption Agreement
Schedule 3.6(d) Form of Lease Assignment
Schedule 3.6(e) Form of Landlord Consent
Schedule 3.6(g) Form of Certificate of Officer [Seller]
Schedule 3.7(d) Form of Certificate of Officer [Purchaser]
Schedule 4.11 Schedule of Processing Fees
Schedule 5.4 Tenant Leases
Schedule 5.7 Litigation and Undisclosed Liabilities
Schedule 5.10(a)(ix) Exceptions to Seller's Sole Ownership of Loans
Schedule 5.10(f)(i) Form of Affidavit of Lost Note
Schedule 5.10(k) Exceptions to Rights of Mortgagors
Schedule 5.16 Deposits - Compliance with Laws and Contracts
Schedule 5.17 Environmental Matters
Schedule 8.1 Outstanding Tax Liabilities
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This PURCHASE AND ASSUMPTION AGREEMENT, dated as of October
30, 1998 ("Agreement"), between Wells Fargo Bank, National Association
("Seller") and California Federal Bank, A Federal Savings Bank ("Purchaser").
RECITALS
A. Seller. Seller is a national banking association, organized under
the laws of the United States, with its principal office located in San
Francisco, California.
B. Purchaser. Purchaser is a federal savings bank, organized under the
laws of the United States, with its principal office located in San Francisco,
California.
C. The Merger. Wells Fargo & Company, a Delaware corporation ("WFC"),
has proposed to merge (the "Merger") with a wholly-owned subsidiary of Norwest
Corporation, a Delaware corporation ("Norwest") pursuant to the terms of an
Agreement and Plan of Merger, dated as of June 7, 1998 and amended and restated
as of September 10, 1998, by and among WFC, Norwest and WFC Holding Corporation
(the "Merger Agreement"). Following the Merger, Norwest will change its name to
"Wells Fargo & Company".
In connection with the consummation of the Merger, Purchaser desires to
acquire from Seller, and Seller desires to transfer to Purchaser, certain
banking operations in the State of Nevada, in accordance with and subject to
the terms and conditions of this Agreement.
Purchaser understands and acknowledges that if the P&A Transaction (as
defined below) shall not be consummated on or before the one hundred eightieth
(180th) day following the Merger, such banking operations will be
transferred to an independent trustee for disposition.
D. Continuation of Service. Purchaser and Seller each intend to continue
providing retail and business banking services in the geographic regions served
by the Branches (as defined below) to be acquired by Purchaser under this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and obligations set forth herein, the parties agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Certain Definitions. The terms set forth below are used in this
Agreement with the following meanings:
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"Accrued Interest" means, as of any date, (a) with respect to a
Deposit, interest which is accured on such Deposit to but excluding
such date and not yet posted to the relevant deposit account and (b)
with respect to a Loan, interest which is accrued on such Loan to but
excluding such date and not yet paid.
"Accrued Liabilities" has the meaning set forth in
Section 2.2(a).
"ACH Direct Deposit Cut-Off Date" has the meaning set forth in
Section 4.3.
"Adjusted Payment Amount" has the meaning set forth in Section
3.3.
"Adjustment Date" has the meaning set forth in Section 3.3.
"Affiliate" means, with respect to any person, any other person
directly or indirectly controlling, controlled by or under common
control with such person. As used in this definition, the term "person"
shall be broadly interpreted to include, without limitation, any
corporation, company, partnership and individual or group.
"Agreement" means this Purchase and Assumption Agreement,
including all schedules, exhibits and addenda, each as amended from
time to time in accordance with Section 13.8(b).
"Asbestos Hazard" means the presence of asbestos in a parcel of
Owned Real Property or the improvements thereon as of the date hereof
which, under applicable laws, must be immediately remediated in order
to allow continuation of the current operation of the Branch within
such Owned Real Property using the current improvements thereon.
Assets" has the meaning set forth in Section 2.1(a).
"Assignment and Assumption Agreement" has the meaning set forth
in Section 3.6(c).
"Branch Employees" means the employees of the Seller working at
the Branches at the Closing Date (including, without limitation, those
employees who on the Closing Date are on family and medical leave,
military leave or personal, short-term disability or pregnancy leave
and who are eligible to return to work under Seller's policies),
subject to any transfers permitted pursuant to Section 7.1 and
replacement in the ordinary course of business of employees who may
leave Seller's employ between the date hereof and the Closing Date.
"Branch Leases" means the leases under which Seller leases land
and/or buildings used as Branches, including without limitation ground
leases.
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"Branches" means each of the banking offices of Seller at the
locations identified on Schedule 1.1(b) hereto.
"Burdensome Condition" has the meaning set forth in
Section 9.1(a).
"Business Day" means a day on which banks are generally open for
business in Nevada and which is not a Saturday or Sunday.
"Cash on Hand" means, as of any date, all petty cash, vault
cash, teller cash, ATM cash, prepaid postage and cash equivalents held
at a Branch.
"Closing" and "Closing Date" refer to the closing of the P&A
Transaction, which to be held at such time and date as provided in
Article 3 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Deposit-Related Loans" means all loans secured by a Deposit as
of the close of business on the Closing Date that are linked to an open
account and are not sixty (60) or more days delinquent as of the
Closing Date.
"Deposit(s)" means deposit liabilities with respect to deposit
accounts booked by Seller at the Branches, as of the close of business
of the day prior to the Closing Date, which constitute "deposits" for
purposes of the Federal Deposit Insurance Act, 12 U.S.C. 1813,
including collected and uncollected deposits and Accrued Interest, but
excluding (a) deposit liabilities with respect to accounts booked by
Seller at any Branch and under or pursuant to any judgment, decree or
order of any court; (b) deposit liabilities with respect to accounts
registered in the name of a trust for which Seller serves as trustee
(other than IRA and Keogh Account deposit liabilities), (c) deposit
liabilities with respect to accounts booked by Seller at any Branch for
which Seller serves as guardian or custodian (other than IRA and Keogh
Account deposit liabilities); (d) Excluded IRA/Keogh Account Deposits,
and (e) other deposit liabilities, if any, designated as "Excluded
Deposits" on Schedule 1.1(d) as updated thirty (30) days after the date
hereof by agreement between Seller and Purchaser.
"Draft Closing Statement" means a draft closing statement,
prepared by Seller, as of the close of business of the third (3rd)
business day preceding the Closing Date setting forth an estimated
calculation of both the Purchase Price and the Estimated Payment Amount.
"Encumbrances" means all mortgages, claims, charges, liens,
encumbrances, easements, limitations, restrictions, commitments and
security interests, except for statutory liens securing tax and/or other
payments not yet due, liens incurred in the ordinary course of business,
including without limitation liens in favor of mechanics or materialmen,
and such other liens, charges, security
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interests or encumbrances as do not materially detract from the value or
materially and adversely affect the use of the properties or assets
subject thereto or affected thereby or which otherwise do not materially
impair the value of or business operations at such properties and except
for obligations pursuant to applicable escheat and unclaimed property
laws relating to the Escheat Deposits.
"Environmental Consultant" has the meaning specified in Section
10.1(b).
"Environmental Hazard" means the presence of any Hazardous
Substance in violation of, and reasonably likely to require material
remediation costs under, applicable Environmental Laws; provided,
however, that the definition of Environmental Hazard shall not include
asbestos and asbestos-containing materials.
"Environmental Law" means any Federal or state law, statute,
rule, regulation, code, order, judgment, decree, injunction or agreement
with any Federal or state governmental authority, (a) relating to the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal
life or any other natural resource) or to human health or safety or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of hazardous substances, in each case as amended and now in
effect. Environmental Laws include, without limitation, the Clean Air
Act (42 USC 7401 et seq.); the Comprehensive Environmental Response
Compensation and Liability Act (42 USC 9601 et seq.); the Resource
Conservation and Recovery Act (42 USC 96901 et seq.); the Federal Water
Pollution Control Act (33 USC 1251 et seq.); and the Occupational
Safety and Health Act (29 USC 651 et seq.); provided, however, that the
definition of "Environmental Law" shall not include any Federal or state
law, statute, rule, regulation, code, order, judgment, decree,
injunction or agreement with any governmental authority relating to
asbestos or asbestos-containing materials.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escheat Deposits" means, as of any date, Deposits and safe
deposit box contents, in each case held on such date at the Branches
which become subject to escheat, after the Closing Date and in the
calendar year in which the Closing occurs, to any governmental authority
pursuant to applicable escheat and unclaimed property laws.
"Estimated Payment Amount" has the meaning set forth in Section
3.2(a).
"Estimated Purchase Price" means the Purchase Price as set forth
on the Draft Closing Statement.
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"Excluded IRA/Keogh Account Deposits" has the meaning set forth
in Schedule 2.4(c).
"Excluded Deposits" means, if any, the deposit liabilities set
forth in Schedule 1.1(d).
"FDIA" means the Federal Deposit Insurance Act, as amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Funds Rate" on any day means the per annum rate of
interest (rounded upward to the nearest 1/100 of 1%) which is the
weighted average of the rates on overnight federal funds transactions
arranged on such day or, if such day is not a Business Day, the previous
Business Day, by federal funds brokers computed and released by the
Federal Reserve Bank of New York (or any successor) in substantially the
same manner as such Federal Reserve Bank currently computes and releases
the weighted average it refers to as the "Federal Funds Effective Rate"
at the date of this Agreement.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"FedWire Direct Deposit Cut-off Date" has the meaning set forth
in Section 4.3.
"Final Closing Statement" means a final closing statement,
prepared by Seller, as of the thirtieth (30th) day following the
Closing Date setting forth both the Purchase Price and the Adjusted
Payment Amount.
"Grant Deeds" has the meaning set forth in Section 3.6(a).
"Hazardous Substance" means any substance, whether liquid, solid
or gas (a) listed, identified or designated as hazardous or toxic to a
level which requires remediation under any Environmental Law: (b) which,
applying criteria specified in any Environmental Law, is hazardous or
toxic; or (c) the use or disposal of which is regulated under
Environmental Law; provided, however, that the definition of Hazardous
Substance shall not include asbestos and asbestos-containing material.
"IRA" means an "individual retirement account" or similar account
created by a trust for the exclusive benefit of any individual or his
beneficiaries in accordance with the provisions of Section 408 of the
Code.
"IRS" means the Internal Revenue Service.
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"Keogh Account" means an account created by a trust for the
benefit of employees (some or all of whom are owner-employees) and that
complies with the provisions of Section 401 of the Code.
"Landlord Consents" has the meaning set forth in Section 3.6(e).
"Lease Agreement" means a lease entered into pursuant to Section
10.1(c) upon such specific terms and conditions as contemplated by such
Section and such other commercially reasonable terms and conditions as
are customary in a "triple net" lease of a bank branch facility.
"Lease Assignment" has the meaning set forth in Section 3.6(d).
"Liabilities" has the meaning set forth in Section 2.2.
"Loans" means, collectively, the Deposit-Related Loans, Mortgage
Loans, Overdraft Loans and Other Loans, excluding the interest of any
participants in such Loans, as set forth in the list delivered to
Purchaser on October 22, 1998 as further described as set forth in
Schedule 1.1(e), as updated as of the Closing Date.
"Loan Documents" means all documents included in Seller's file
or imaging system with respect to a Loan including, without limitation,
notes, security agreements, deeds of trust, mortgages, loan agreements,
including building and loan agreements, guarantees, sureties and
insurance policies (including title insurance policies) and all
modifications, waivers and consents relating to any of the foregoing.
"Loan Value" means, with respect to a Loan and as of a date, the
unpaid principal balance of any such loan plus Accrued Interest thereon,
net of the interest in such loan of any participant, as of such date.
"Loss" means the amount of losses, liabilities, damages
(including forgiveness or cancellation of obligations) and expenses
(including reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any action, suit or
proceeding) incurred or suffered by the indemnified party or its
Affiliates in connection with the matters described in Section 12.1,
less the amount of the economic benefit (if any) to the indemnified
party or its Affiliates occurring or reasonably anticipated to occur in
connection with any such damage, loss, liability or expense (including
Tax benefits obtainable under applicable law, amounts recovered under
insurance policies net of deductibles, recovery by setoffs or
counterclaims, and other economic benefits).
"Material Adverse Effect" means (a) with respect to Seller, a
material adverse effect on the business or direct economic results of
operations of the
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Branches, taken as a whole, or on the ability of Seller to timely
consummate the P&A Transaction as contemplated by this Agreement, and
(b) with respect to Purchaser, a material adverse effect on the business
or operations of Purchaser or on the ability of Purchaser to perform any
of its financial or other obligations under this Agreement, including
the ability of Purchaser to timely consummate the P&A Transaction
contemplated by this Agreement. In determining whether a Material
Adverse Effect has occurred, the effect of any change in Federal or
state banking laws or regulations, any change in GAAP or regulatory
accounting principles, any adverse change in general economic
conditions, including, without limitation, the interest rate
environment, or in the depository institution industry generally shall
be excluded.
"Merger Approvals" means, collectively, all regulatory and
stockholder approvals, authorizations, consents and waivers required to
permit consummation of the Merger.
"Mortgage" means a mortgage securing a Mortgage Loan.
"Mortgagor" means a borrower under a Mortgage Loan.
"Mortgage Loan" means a loan that is 100% owned by Seller and
secured by a first mortgage on 1-4 family residential real property.
"Mortgage Note" means the note evidencing the Mortgage Loan.
"OCC" means the Office of the Comptroller of the Currency.
"Order" has the meaning set forth in Section 9.1(b).
"Original Purchaser Plans" has the meaning set forth in Section
12.1(a).
"Other Assets" has the meaning set forth in Section 2.1(a).
"Other Loans" means the loans to the borrowers described on
Schedule 1.1(e) to be attached hereto (including loan commitments
referred to thereon).
"Overdraft Loans" means unsecured overdraft loans, including
negotiable order of withdrawal line of credit accounts, relating to the
Deposits, as of the close of business on the Closing Date, plus accrued
interest, which do not exceed the applicable credit limit and are linked
to any open account and are not sixty (60) or more days delinquent as of
the Closing Date.
"Owned Real Property" means Real Property where Seller owns both
the real property and improvements thereon that are used for Branches.
7
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"P&A Transaction" means the purchase and sale of Assets and the
assumption of Liabilities described in Sections 2.1 and 2.2
"Personal Property" means all of the personal property of Seller
located in the Branches consisting of the trade fixtures, shelving,
furniture, on-premises ATMs, equipment (other than (a) automated teller
and platform equipment, (b) telephone equipment, and (c) Seller's
training equipment), security systems, safe deposit boxes (exclusive of
contents), vaults, sign structures (exclusive of signage containing any
trade name, trademark or service mark, if any, of Seller, Norwest, WFC,
or any of their respective Affiliates) and supplies excluding any items
consumed or disposed of, but including new items acquired or obtained,
in the ordinary course of the operation of the Branches through the
Closing Date. If, prior to the Closing Date, an item of Personal
Property is stolen, destroyed or otherwise lost, such item shall be
excluded from the P&A Transaction, and the term "Personal Property" as
used herein shall exclude such item. If, prior to the Closing Date, an
item of Personal Property is damaged by fire or other casualty, such
item, if reasonably repairable, shall be sold to Purchaser (in
accordance with the provisions hereof) and the insurance proceeds
relating to such item shall be assigned to Purchaser, it being
understood that if such item is not reasonably repairable or is
underinsured or uninsured, it shall be excluded from the P&A
Transaction. Personal Property does not include any personal property or
equipment subject to a Personal Property Lease.
"Personal Property Leases" means the leases under which Seller
leases certain Personal Property in the Branches. Seller shall cancel
all such Personal Property Leases as of the Closing.
"Purchase Price" has the meaning set forth in Section 2.3.
"Real Property" means the parcels of real property on which the
Branches listed on Schedule 1.1(b) are located, including any
improvements thereon, which Schedule indicates whether or not such real
property is Owned Real Property.
"Records" means all records and original documents, or where
reasonable and appropriate copies thereof, in Seller's possession that
pertain to and are utilized by Seller to administer, reflect, monitor,
evidence or record information respecting the business or conduct of the
Branches (including transaction tickets through the Closing Date and all
records for closed accounts located in Branches and excluding any other
transaction tickets and records for closed accounts) and all such
records and original documents, or where reasonable and appropriate
copies thereof, regarding the Assets, or the Deposits, including all
such records maintained on electronic or magnetic media in the
electronic data base system of Seller reasonably accessible by Branch,
or to comply with the applicable laws and governmental regulations to
which the Deposits are subject, including but not limited to applicable
unclaimed property and escheat laws. The parties understand and agree
that it shall be reasonable and appropriate to provide copies
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of all Records except notes and deeds of trust, which shall be provided
in original or in whatever other form or medium then maintained by
Seller, subject to the provisions relating to lost note affidavits in
Sections 5.10.
"Regulatory Approvals" means all approvals, authorizations,
waivers or consents of or notices to any governmental agencies or
authorities required for or in connection with consummation of the P&A
Transaction, including the following: (i) approvals under Section 18(c)
and 18(d) of the FDIA and, if applicable, under Section 10(e) of the
Home Owners' Loan Act; (ii) any approval required under Nevada law; and
(iii) expiration of the waiting period provided for in Section 18(c) of
the FDIA.
"Safe Deposit Agreements" means the agreements relating to safe
deposit boxes located in the Branches.
"Seller's knowledge" or other similar phrases means information
that is actually known to any officer of Seller who holds the title of
Senior Vice President or above and has responsibility with respect to
management of operations conducted at the Branches.
"Tax Returns" means any return or other report required to be
filed with respect to any Tax, including declaration of estimated tax
and information returns.
"Taxes" means any federal, state, local, or foreign taxes,
including but not limited to taxes on or measured by income, estimated
income, franchise, capital stock, employee's withholding, non-resident
alien withholding, backup withholding, social security, occupation,
unemployment, disability, value added taxes, taxes on services, real
property, personal property, sales, use, excise, transfer, gross
receipts, inventory and merchandise, business privilege, and other taxes
or governmental fees or charges or amounts required to be withheld and
paid over to any government in respect of any tax or governmental fee or
charge, including any interest, penalties, or additions to tax on the
foregoing whether or not disputed.
"Tenant Leases" means leases or subleases between Seller and
tenants, if any, listed on Schedule 5.4.
"Title Commitment" has the meaning set forth in Section 3.11.
"Title Company" has the meaning set forth in Section 3.11.
"Title Policy" has the meaning set forth in Section 3.11.
"Transaction Account" means any account at a Branch in respect
of which deposits therein are withdrawable in practice upon demand or
upon which third
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party drafts may be drawn by the depositor, including checking accounts,
negotiable order of withdrawal accounts and money market deposit
accounts.
"Transferred Employees" means Employees who accept offers of
employment from Purchaser or an Affiliate of Purchaser as contemplated
in Section 8.7.
1.2 Accounting Terms. All accounting terms not otherwise defined herein
shall have the respective meanings assigned to them in accordance with
consistently applied generally accepted accounting principles as in effect from
time to time in the United States of America ("GAAP").
1.3 Interpretation. All references in this Agreement to Articles or
Sections are references to Articles or Sections of this Agreement, unless some
other reference is clearly indicated. The rule of construction against the
draftsman shall not be applied in interpreting and construing this Agreement.
ARTICLE 2
THE P&A TRANSACTION
2.1 Purchase and Sale of Assets. (a) Subject to the terms and conditions
set forth in this Agreement, at the Closing, Seller shall grant, sell, convey,
assign, transfer and deliver to Purchaser, and Purchaser shall purchase and
accept from Seller, all of Seller's right, title and interest, as of the Closing
Date, in and to the following (collectively, the "Assets"):
(i) Cash on Hand;
(ii) the Owned Real Property;
(iii) the Personal Property;
(iv) the Loans including Accrued Interest, and servicing
rights related thereto pursuant to Section 2.5;
(v) the Branch Leases and Tenant Leases;
(vi) the Safe Deposit Agreements;
(vii) Other Assets as described in Schedule 2.1(a)(vii); and
(viii) the Records.
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(b) Purchaser understands and agrees that it is purchasing only the
Assets (and assuming only the Liabilities) specified in this Agreement and,
except as may be expressly provided for in this Agreement, Purchaser has no
interest in or right to any other business relationship which Seller may have
with any customer of the Branches, including, without limitation: (i) any
deposit account or other service of Seller at any other office of Seller which
may be linked to the Deposits; (ii) any deposit account which sweeps from the
Branch to a third party; (iii) any merchant card banking business or any deposit
account associated with any merchant card relationship; (iv) any cash management
service (e.g., sweep accounts, cash concentrator accounts, controlled
disbursement accounts) which Seller may provide to any customer of the Branches,
and (v) any business payroll processing service or any deposit account
associated with any business payroll relationship. No credit card relationships
are being sold. No right to the use of any sign, trade name, trademark or
service mark, if any, of Seller, Norwest, WFC, or any of their respective
Affiliates, is being sold.
2.2 Assumption of Liabilities. (a) Subject to the terms and conditions
set forth in this Agreement, at the Closing, Purchaser shall assume, pay,
perform and discharge all duties, responsibilities, obligations or liabilities
of Seller (whether accrued, contingent or otherwise) to be discharged,
performed, satisfied or paid on or after the Closing Date, with respect to the
following (collectively, the "Liabilities"):
(i) the Deposits together with Accrued Interest thereon,
including IRA and Keogh Accounts to the extent contemplated by Section
2.4;
(ii) the Branch Leases and Tenant Leases;
(iii) the Safe Deposit Agreements;
(iv) the Loans, and the servicing of the Loans pursuant to
Section 2.5; and
(v) the Accrued Liabilities, if any, described in Schedule
2.2(a)(v).
(b) Notwithstanding anything to the contrary in this Agreement,
Purchaser shall not assume or be bound by any duties, responsibilities,
obligations or liabilities of Seller, or of any of Seller's Affiliates, of any
kind or nature, known, unknown, contingent or otherwise, other than the
Liabilities.
2.3 Purchase Price. The purchase price ("Purchase Price") for the Assets
shall be the sum of:
(a) An amount equal to 9.0% of the balance (including Accrued Interest)
of the Deposits on the day prior to the Closing Date;
(b) The aggregate amount of Cash on Hand as of the Closing Date;
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(c) The aggregate net book value of all the Assets, other than Cash on
Hand and the Loans, as reflected on the books of Seller as of the close of
business of the month-end day most recently preceding the Closing Date,
excluding the net book value of any Owned Real Property leased pursuant to
Section 10.1(c); and
(d) The aggregate Loan Value of the Loans as of the close of business of
the day prior to the Closing Date.
2.4 Assumption of IRA and Keogh Account Deposits. (a) With respect to
Deposits in IRAs, Seller will use reasonable efforts and will cooperate with
Purchaser in taking any action reasonably necessary to accomplish either the
appointment of Purchaser as successor custodian or the delegation to Purchaser
(or to an Affiliate of Purchaser) of Seller's authority and responsibility as
custodian of all such IRA deposits except self-directed IRA deposits, including,
but not limited to, sending to the depositors thereof appropriate notices,
cooperating with Purchaser (or such Affiliate) in soliciting consents from such
depositors, and filing any appropriate applications with applicable regulatory
authorities. If any such delegation is made to Purchaser (or such Affiliate),
Purchaser (or such Affiliate) will perform all of the duties so delegated and
comply with the terms of Seller's agreement with the depositor of the IRA
deposits affected thereby.
(b) With respect to Deposits in Keogh Accounts, Seller shall cooperate
with Purchaser to invite depositors thereof to direct a transfer of each such
depositor's Keogh Account and the related Deposits to Purchaser (or an Affiliate
of Purchaser), as trustee thereof, and to adopt Purchaser's (or such
Affiliate's) form of Keogh Master Plan as a successor to that of Seller.
Purchaser (or such Affiliate) will assume no Keogh Accounts unless Purchaser (or
such Affiliate) has received the documents necessary for such assumption at or
before the Closing. With respect to any owner of a Keogh Account who does not
adopt Purchaser's (or such Affiliate's) form of Keogh Master Plan, Seller will
use reasonable efforts in order to enable Purchaser (or such Affiliate) to
retain such Keogh Accounts at the Branches.
(c) If, notwithstanding the foregoing, as of the Closing Date, Purchaser
shall be unable to retain deposit liabilities in respect of an IRA or Keogh
Account, such deposit liabilities shall be excluded from Deposits for purposes
of this Agreement and shall constitute "Excluded IRA/Keogh Account Deposits."
2.5 Sale and Transfer of Servicing and Escrows. (a) The Loans shall be
sold on a servicing-released basis. As of the Closing Date, all rights,
obligations, liabilities and responsibilities with respect to the servicing of
the Loans after the Closing Date will be assumed by Purchaser. Seller shall be
discharged and indemnified by Purchaser from all liability with respect to
servicing of the Loans after the Closing Date and Purchaser shall be discharged
and indemnified by Seller from all liability with respect to servicing of the
Loans on or prior to the Closing Date. To the extent permitted under the
applicable documents, Seller shall assign to Purchaser Seller's rights under any
participation or servicing agreement relating to the Loans.
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(b) As of the Closing Date, Purchaser will assume, and agrees to
undertake and discharge, any and all obligations of the holder and servicer of
Mortgage Loans as such obligations may relate to the escrow, maintenance of
escrow and payments from escrow of moneys paid by or on account of the
applicable Mortgagor. On or before the fifth (5th) Business Day after the
Closing Date, Seller shall remit by wire transfer of immediately available funds
to Purchaser all funds held in escrow that were collected and received pursuant
to a Mortgage Loan for the payment of taxes, assessments, hazard insurance
premiums, primary mortgage insurance policy premiums, if applicable, or
comparable items prior to the Closing Date plus any Accrued Interest. Seller
makes no warranties or representations of any kind or nature as to the
sufficiency of such sum to discharge any obligations with respect to Mortgage
Loans, or as to the accuracy of such sum.
ARTICLE 3
CLOSING PROCEDURES; ADJUSTMENTS
3.1 Closing. (a) The Closing will be held at the offices of Seller at
3300 West Sahara Avenue, Las Vegas, Nevada or such other place as may be agreed
to by the parties.
(b) The Closing Date shall be April 16, 1999, or, if the Closing cannot
occur on such date, on a date and time as soon thereafter as practicable after
receipt of all Regulatory Approvals. Unless the parties agree pursuant to
Section 4.11(a) that the conversion of the data processing with respect to the
Branches and the Assets and Liabilities will be performed on a date other than
the Closing Date, the Closing Date shall be a Friday.
3.2 Payment at Closing. (a) At Closing, Seller shall pay to Purchaser
the amount by which the aggregate balance (including Accrued Interest) of the
Deposits and Accrued Liabilities exceed the Estimated Purchase Price (the
"Estimated Payment Amount") or, Purchaser shall pay to Seller the amount by
which the Estimated Purchase Price exceeds the aggregate balance (including
Accrued Interest) of the Deposits and Accrued Liabilities, each as set forth on
the Draft Closing Statement as agreed upon between Seller and Purchaser. In
addition, Purchaser shall pay to Seller any sales tax due.
(b) All payments to be made hereunder by one party to the other shall be
made by wire transfer of immediately available funds (in all cases to an account
specified in writing by Seller or Purchaser, as the case may be, to the other
not later than the third (3rd) Business Day prior to the Closing Date) on or
before 11:00 a.m. local time on the date of payment. If any payment to be made
hereunder on the Closing Date (or any other date) shall not be made on or before
11:00 a.m. local time on such date, and the amount thereof shall have been
agreed to in writing by the parties at the Closing Date (or such
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other payment date), the party responsible therefor may make such payment on or
before 11:00 a.m. local time on the next Business Day together with interest
thereon at the Federal Funds Rate applicable from the Closing Date (or such
other payment date) to the date such payment is actually made, which in no event
shall be later than the fifth (5th) Business Day after such payment was due.
(c) If any instrument of transfer contemplated herein shall be recorded
in any public record before the Closing and thereafter the Closing is not
completed, then at the request of such transferring party the other party will
deliver (or execute and deliver) such instruments and take such other action as
such transferring party shall reasonably request to revoke such purported
transfer.
3.3 Adjustment of Purchase Price. (a) On or before 12:00 noon on the
thirtieth (30th) day following the Closing Date (the "Adjustment Date"),
Seller shall deliver to the Purchaser the Final Closing Statement and shall make
available such work papers, schedules and other supporting data as may be
reasonably requested by Purchaser to enable it to verify the amounts set forth
in the Final Closing Statement. The Final Closing Statement shall also set forth
the amount (the "Adjusted Payment Amount") by which the aggregate amount of
Deposits (including Accrued Interest) and Accrued Liabilities shown on the Final
Closing Statement differs from the Estimated Purchase Price.
(b) The determination of the Adjusted Payment Amount shall be final and
binding on the parties hereto unless within thirty (30) days after receipt by
Purchaser of the Final Closing Statement, Purchaser shall notify the Seller in
writing of its disagreement with any amount included therein or omitted
therefrom, in which case, if the parties are unable to resolve the disputed
items within ten (10) Business Days of the receipt by Seller of notice of such
disagreement, such items shall be determined by an independent accounting firm
selected by mutual agreement between Seller and Purchaser; provided, however,
that in the event the fees of such firm as estimated by such firm would exceed
fifty percent (50%) of the net amount in dispute, the parties agree that such
firm will not be engaged by either party and that such net amount in dispute
will be equally apportioned between Seller and Purchaser. Such accounting firm
shall be instructed to resolve the disputed items within ten (10) Business Days
of engagement, to the extent reasonably practicable. The determination of such
accounting firm shall be final and binding on the parties hereto. The fees of
any such accounting firm shall be divided equally between Seller and Purchaser.
(c) On or before 12:00 noon on the tenth (10th) Business Day after the
Adjustment Date or, in the case of a dispute, the date of the resolution of the
dispute pursuant to subsection 3.3(b) above, Seller shall pay to Purchaser an
amount equal to the amount by which the Adjusted Payment Amount exceeds the
Estimated Payment Amount, plus interest on such excess amount from the Closing
Date to but excluding the payment date, at the Federal Funds Rate or, if the
Estimated Payment Amount exceeds the Adjusted Payment Amount, Purchaser shall
pay to Seller an amount equal to such excess, plus interest on such excess
amount from the Closing Date to but excluding the
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payment date, at the Federal Funds Rate. Any payments required by Section 3.5
shall be made contemporaneously with the foregoing payment.
3.4 [intentionally omitted]
3.5 Proration; Other Closing Date Adjustments. (a) Except as otherwise
specifically provided in this Agreement, it is the intention of the parties that
Seller will operate the Branches for its own account until 11:59 p.m., Nevada
time, on the Closing Date, and that Purchaser shall operate the Branches, hold
the Assets and assume the Liabilities for its own account after the Closing
Date. Thus, except as otherwise specifically provided in this Agreement, items
of income and expense, as defined herein, shall be prorated as of 11:59 p.m.,
Nevada time, on the Closing Date, and settled between Seller and Purchaser on
the Closing Date, whether or not such adjustment would normally be made as of
such time. Items of proration will be handled at Closing as an adjustment to the
Purchase Price unless otherwise agreed by the parties hereto.
(b) For purposes of this Agreement, items of proration and other
adjustments shall include, without limitation: (i) rental payments and security
deposits under the Branch Leases and the Tenant Leases; (ii) personal and real
property taxes and assessments; (iii) FDIC deposit insurance assessments; (iv)
wages, salaries and employee benefits and expenses; (v) trustee or custodian
fees on IRA and Keogh Accounts; (vi) adjustments reflecting exclusions from the
Personal Property as provided for in the definition thereof; (vii) other prepaid
expenses and items and accrued but unpaid liabilities, as of the close of
business on the day prior to the Closing Date. Safe deposit rental payments
previously received by Seller shall not be prorated.
3.6 Seller Deliveries. At the Closing, Seller shall deliver to
Purchaser:
(a) Deeds in substantially the form of Schedule 3.6(a)(except as
otherwise required by local state law), pursuant to which the Owned Real
Property shall be transferred to Purchaser "AS IS", "WHERE IS" and with all
faults (the "Grant Deeds");
(b) A bill of sale in substantially the form of Schedule 3.6(b)(except
as otherwise required by local state law), pursuant to which the Personal
Property shall be transferred to Purchaser "AS IS", "WHERE IS" and with all
faults;
(c) An assignment and assumption agreement in substantially the form of
Schedule 3.6(c)(except as otherwise required by local state law), with respect
to the Liabilities (the "Assignment and Assumption Agreement");
(d) Lease assignment and assumption agreements in substantially the form
of Schedule 3.6(d)(except as otherwise required by local state law), with
respect to each of the Branch Leases (the "Lease Assignments");
(e) Subject to the provisions of Section 7.4, such consents of landlords
as shall be required pursuant to the terms of such Branch Leases, to the
assignment of the
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Branch Leases to Purchaser in substantially the form of Schedule 3.6(e)(except
as otherwise required by local state law), (the "Landlord Consents");
(f) Subject to the provisions of Section 7.4, such consents as shall be
required pursuant to the terms of such Tenant Leases in connection with the
assignment thereof to Purchaser;
(g) An Officer's Certificate in substantially the form of Schedule
3.6(g);
(h) [intentionally left blank]
(i) The Draft Closing Statement;
(j) Seller's resignation as trustee or custodian, as applicable, with
respect to each IRA or Keogh Account included in the Deposits and designation of
Purchaser as successor trustee or custodian with respect thereto, as
contemplated by Section 2.4;
(k) All documentation required to exempt Seller from the withholding
requirement of Section 1445 of the Code, if applicable, consisting of an
affidavit from Seller to Purchaser upon penalty of perjury that Seller is not a
foreign person and providing Seller's U.S. taxpayer identification number; and
(l) Such other documents as the parties determine are reasonably
necessary to consummate the P&A Transaction as contemplated hereby.
3.7 Purchaser Deliveries. At the Closing, Purchaser shall deliver to
Seller:
(a) The Assignment and Assumption Agreement;
(b) Purchaser's acceptance of its appointment as successor trustee or
custodian, as applicable, of the IRA and Keogh Accounts included in the Deposits
and assumption of the fiduciary obligations of the trustee or custodian with
respect thereto, as contemplated by Section 2.4;
(c) The Lease Assignments and, as contemplated by Section 7.4, such
other instruments and documents as any landlord under a Branch Lease may
reasonably require as necessary or desirable for providing for the assumption by
Purchaser of a Branch Lease, each such instrument and document in form and
substance reasonably satisfactory to the parties and dated as of the Closing
Date;
(d) An Officer's Certificate in substantially the form of Schedule
3.7(d);
(e) [intentionally left blank]
(f) Such other documents as the parties determine are reasonably
necessary to consummate the P&A Transaction as contemplated hereby.
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3.8 Delivery of the Loan Documents. (a) As soon as reasonably
practicable but not later than thirty (30) days after the Closing Date, Seller
shall deliver to Purchaser or its designee the Loan Documents actually in the
possession of Seller, in whatever other form or medium then maintained by
Seller. Seller makes no representation or warranty to Purchaser regarding the
condition of the Loan Documents or any single document included therein, or
Seller's interest in any collateral securing any Loan, except as specifically
set forth herein. Seller shall have no responsibility or liability for the Loan
Documents from and after the time such files are delivered by Seller to an
independent third party for shipment to Purchaser, the cost of which shall be
the sole responsibility of Purchaser. Seller agrees that the Loan Documents
shall include either an original note or a lost note affidavit for each Loan.
(b) Promptly upon execution of this Agreement, Purchaser shall provide
Seller with the exact name to which the Loans are to be endorsed, or whether any
Loans should be endorsed in blank. Seller will complete such endorsements and
deliver the Loan Documents within ninety (90) days after Closing: provided,
however, with respect to specific Loan Documents, Seller may require additional
time to effectively transfer title thereto and Purchaser shall not hold Seller
liable for any reasonable delays in the delivery of such Loan Documents.
3.9 Collateral Assignments and Filing. Seller shall take all such
reasonable actions as requested by Purchaser to assist Purchaser in obtaining
the valid perfection of a lien or security interest in the collateral, if any,
securing each Loan sold on the Closing Date in favor of Purchaser or its
designated assignee as secured party. Any such action shall be at the sole
expense of Purchaser, and Purchaser shall reimburse Seller for all reasonable
costs incurred in connection therewith.
3.10 Owned Real Property Filings. On or prior to the Closing Date,
Seller shall file or record, or cause to be filed or recorded, any and all
documents necessary in order that the legal and equitable title to Owned Real
Property shall be duly vested in Purchaser. Any expenses or documentary transfer
taxes with respect to such filings and all escrow closing costs shall be shared
equally by the parties.
3.11 Title Policies. (a) Within ten (10) days after execution of this
Agreement, Seller, at Seller's expense, shall provide Purchaser with a
preliminary title commitment (the "Title Commitment") to Purchaser's reasonable
satisfaction for all the Owned Real Property issued by ATI Title Company (the
"Title Company").
(b) Purchaser shall, at its own expense, obtain as of the Closing Date
an ALTA (standard coverage) title insurance policy from the Title Company (a
"Title Policy") with respect to all the Owned Real Property. Seller will
cooperate with Purchaser in assisting Purchaser to obtain (at Purchaser's
expense) an ALTA extended coverage owner's policy.
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ARTICLE 4
TRANSITIONAL MATTERS
4.1 Transitional Arrangements. Seller and Purchaser agree to cooperate
and to proceed as follows to effect the transfer of account record
responsibility for the Branches:
(a) Not later than thirty (30) days after the signing of this Agreement,
Seller will meet with Purchaser to investigate, confirm and agree upon mutually
acceptable transaction settlement procedures and specifications, files,
procedures and schedules, for the transfer of account record responsibility;
provided, however, that Seller is not obligated under this Agreement to provide
Purchaser any information regarding Seller's relationship with the customers
outside of the Branch (e.g., other customer products, householding information).
(b) Not later than forty-five (45) days after the date of this
Agreement, Seller shall deliver to Purchaser the specifications and conversion
sample files.
(c) From time to time prior to the Closing, after Purchaser has tested
and confirmed the conversion sample files, Purchaser may request and Seller
shall provide reasonable additional file-related information, including without
limitation, complete name and address, account masterfile, ATM account number
information, applicable transaction and stop/hold/caution information,
account-to-account relationship information and any other related information
with respect to the Deposits and the Other Loans.
(d) Upon the reasonable request of Purchaser, Seller will cooperate with
Purchaser and will make available from time to time prior to the Closing Date,
at Purchaser's expense (at $75 per hour), a reasonable number of technical
personnel for consultation with Purchaser concerning matters other than the
matters referred to in this Article 4.
4.2 Customers. (a) Not later than thirty (30) days prior to the Closing
Date (unless earlier required by law),
(i) Seller will notify the holders of Deposits to be transferred
on the Closing Date that, subject to the terms and conditions of this
Agreement, Purchaser will be assuming liability for such Deposits;
(ii) each of Seller and Purchaser shall provide, or join in
providing where appropriate, all notices to customers of the Branches
and other persons that Seller or Purchaser, as the case may be, is
required to give under applicable law or the terms of any other
agreement between Seller and any customer in connection with the
transactions contemplated hereby; and
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(iii) following or concurrently with the notice referred to in
clause (i) above, Purchaser may communicate with and deliver information
to depositors and other customers of the Branches concerning the P&A
Transaction and the business of Purchaser.
A party proposing to send or publish any notice or communication pursuant to any
paragraph of this Section 4.2 shall furnish to the other party a copy of the
proposed form of such notice or communication at least ten (10) days in advance
of the proposed date of the first mailing, posting, or other dissemination
thereof to customers, and shall not unreasonably refuse to amend such notice to
incorporate any changes that the other such party proposes as necessary to
comply with applicable law. All costs and expenses of any notice or
communication sent or published by Purchaser or Seller shall be the
responsibility of the party sending such notice or communication and all costs
and expenses of any joint notice or communication shall be shared equally by
Seller and Purchaser. As soon as reasonably practicable and in any event within
forty-five (45) days of the date hereof, Seller shall provide to Purchaser a
report of the names and addresses of the owners of the Deposits, the borrowers
on the Loans and the lessees of the safe deposit boxes in connection with the
mailing of such materials, which report shall be current as of the date hereof.
(b) Following the giving of any notice described in paragraph (a) above,
Purchaser and Seller shall deliver to each new customer at any of the Branches
such notice or notices as may be reasonably necessary to notify such new
customers of Purchaser's pending assumption of liability for the Deposits and to
comply with applicable law. As soon as practicable after execution of this
Agreement, Seller will provide Purchaser with account information, including
complete mailing addresses for each of the depositors of the Deposits, as of a
recent date, and upon reasonable request shall provide an updated version of
such records; provided, however, that Seller shall not be obligated to provide
such updated records more than twice.
(c) Notwithstanding the provisions of Section 7.6, neither Purchaser nor
Seller shall object to the use, by depositors of the Deposits, of payment orders
issued to or ordered by such depositors on or prior to the Closing Date, which
payment orders bear the name, or any logo, trademark, service mark or the
proprietary mark of Seller, Norwest, WFC or any of their respective Affiliates.
4.3 Direct Deposits. Seller will use all reasonable efforts to transfer
to Purchaser on the Closing Date all of those automated clearing house ("ACH")
and FedWire direct deposit arrangements related (by agreement or other standing
arrangement) to Deposits. For a period of three (3) months following the
Closing, in the case of ACH direct deposits to accounts containing Deposits (the
final Business Day of such period being the "ACH Direct Deposit Cut-Off Date"),
Seller shall transfer to Purchaser all received ACH Direct Deposits at 9:00 a.m.
Central Standard Time each Business Day. Such transfers shall contain Direct
Deposits effective for that Business Day only. On each Business Day, for a
period of thirty (30) days following the Closing Date (the final Business Day of
such period being the "FedWire Direct Deposit Cut-Off
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Date"), FedWires received by Seller shall be returned (as soon as is possible
after receipt) to the originator with an indication of Purchaser's correct Wire
Room contact information and an instruction that such wire should be sent to
Purchaser. Compensation for ACH direct deposits or FedWire direct deposits not
forwarded to Purchaser on the same Business Day as that on which Seller has
received such deposits will be handled in accordance with the rules established
by the United States Council on International Banking. After the respective ACH
Direct Deposit Cut-Off Date or FedWire Direct Deposit Cut-Off Date, Seller may
discontinue accepting and forwarding ACH and FedWire entries and funds and
return such direct deposits to the originators marked "Account Closed." Seller
shall not be liable for any overdrafts that may thereby be created. Purchaser
and Seller shall agree on a reasonable period of time prior to the Closing
during which Seller will no longer be obligated to accept new direct deposit
arrangements related to the Branches. At the time of each ACH Direct Deposit
Cut-Off Date, Purchaser will provide ACH originators with account numbers
relating to the Deposits.
4.4 Direct Debits. As soon as practicable after execution of this
Agreement and after the notice provided in Section 4.2(a), Purchaser will send
appropriate notice to all customers having accounts constituting Deposits the
terms of which provide for direct debit of such accounts by third parties,
instructing such customers concerning the transfer of customer direct debit
authorizations from Seller to Purchaser. Such notice shall be in a form agreed
to by the parties. For a period of three (3) months following the Closing,
Seller shall transfer to Purchaser all received direct debits on accounts
constituting Deposits at 9:00 a.m. Central Standard Time each Business Day. Such
transfers shall contain Direct Debits effective for that Business Day only.
Thereafter, Seller may discontinue forwarding such entries and return them to
the originators marked "Account Closed." Purchaser and Seller shall agree on a
reasonable period of time prior to the Closing during which Seller will no
longer be obligated to accept new direct debit arrangements related to the
Branches. On the Closing Date, Purchaser will provide ACH originators of such
Direct Debits with account numbers relating to the Deposits.
4.5 Escheat Deposits. No currently escheated deposits are being sold.
After Closing, Purchaser shall be solely responsible for the proper reporting
and transmission to the appropriate governmental entity of Escheat Deposits.
4.6 Maintenance of Records. Through the Closing Date, Seller will
maintain the Records relating to the Assets and Liabilities in the same manner
and with the same care that the Records have been maintained prior to the
execution of this Agreement. Purchaser may, at its own expense, make such copies
of and excerpts from the Records as it may deem desirable. All Records, whether
held by Purchaser or Seller, shall be maintained for such periods as are
required by law, unless the parties shall agree in writing to a longer period.
From and after the Closing Date, each of the parties shall permit the other
reasonable access to any applicable Records in its possession relating to
matters arising on or before the Closing Date and reasonably necessary in
connection with any claim, action, litigation or other proceeding involving the
party requesting access to such Records or in connection with any legal
obligation owed by such party to
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any present or former depositor or other customer. Each party will notify the
other party thirty (30) days prior to destroying any Records.
4.7 Interest Reporting and Withholding. (a) Unless otherwise agreed to
by the parties, Seller will report to applicable taxing authorities and holders
of Deposits, with respect to the period from January 1 of the year in which the
Closing occurs through the Closing Date, all interest (including dividends and
other distributions with respect to money market accounts) credited to, withheld
from and any early withdrawal penalties imposed upon the Deposits. Purchaser
will report to the applicable taxing authorities and holders of Deposits, with
respect to all periods from the day after the Closing Date, all such interest
credited to, withheld from and any early withdrawal penalties imposed upon the
Deposits. Any amounts required by any governmental agencies to be withheld from
any of the Deposits through the Closing Date will be withheld by Seller in
accordance with applicable law or appropriate notice from any governmental
agency and will be remitted by Seller to the appropriate agency on or prior to
the applicable due date. Any such withholding required to be made subsequent to
the Closing Date will be withheld by Purchaser in accordance with applicable law
or appropriate notice from any governmental agency and will be remitted by
Purchaser to the appropriate agency on or prior to the applicable due date.
(b) Unless otherwise agreed by the parties, Seller shall be responsible
for delivering to payees all IRS notices with respect to information reporting
and tax identification numbers required to be delivered through the Closing Date
with respect to the Deposits, and Purchaser shall be responsible for delivering
to payees all such notices required to be delivered following the Closing Date
with respect to the Deposits. Purchaser and Seller shall, prior to the Closing
Date, consult and Seller shall take reasonable actions as are necessary to
permit Purchaser to deliver such IRS notices required to be delivered following
the Closing Date.
(c) Unless otherwise agreed by the parties, Seller will make all
required reports to applicable tax authorities and to obligors on Loans
purchased on the Closing Date, with respect to the period from January 1 of the
year in which the Closing occurs through the Closing Date, concerning all
interest and points received by the Seller. Purchaser will make all required
reports to applicable tax authorities and to obligors on Loans purchased on the
Closing Date, with respect to all periods from the day after the Closing Date,
concerning all such interest and points received.
4.8 Negotiable Instruments. Seller will remove any supply of Seller's
money orders, official checks, gift checks, travelers' checks or any other
negotiable instruments located at each of the Branches on the Closing Date.
4.9 ATM/Debit Cards; POS Cards. Seller will provide Purchaser with a
list of ATM access/debit cards and Point-of-Sale ("POS") cards issued by Seller
to depositors of any Deposits, and a record thereof in a format reasonably
agreed to by the parties containing all addresses therefor, as soon as
practicable and in no event later than forty-five (45) days after execution of
this Agreement. At or promptly after the Closing, Seller
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will provide Purchaser with a revised record through the Closing. In instances
where a depositor of a Deposit made an assertion of error regarding an account
pursuant to the Electronic Funds Transfer Act and Federal Reserve Board
Regulation E, and Seller, prior to the Closing, recredited the disputed amount
to the relevant account during the conduct of the error investigation, Purchaser
agrees to comply with a written request from Seller to debit such account in a
stated amount and remit such amount to Seller, to the extent of the balance of
funds available in the accounts . Seller agrees to indemnify Purchaser for any
claims or losses that Purchaser may incur as a result of complying with such
request from Seller. Seller will not be required to disclose to Purchaser
customers' PINs or algorithms or logic used to generate PINs. Purchaser shall
reissue ATM access/debit cards to depositors of any Deposits prior to the
Closing Date, which cards shall be effective as of the Closing Date. Purchaser
and Seller agree to settle any and all ATM transactions and POS transactions
effected on or before the Closing Date, but processed after the Closing Date, as
soon as practicable. In addition, Purchaser assumes responsibility for and
agrees to pay on presentation all POS transactions initiated before or after the
Closing with POS cards issued by Seller to access Transaction Accounts.
4.10 Leasing of Personal Property. Seller shall cancel or terminate any
Personal Property Lease as of the Closing Date.
4.11 Data Processing Conversion for the Branches and Handling of Certain
Items. (a) The conversion of the data processing with respect to the Branches
and the Assets and Liabilities will be completed on the Saturday and Sunday
following the Closing Date unless otherwise agreed to by the parties. Seller and
Purchaser agree to cooperate to facilitate the orderly transfer of data
processing information in connection with the P&A Transaction. Within ten (10)
days of the date of this Agreement, Purchaser and/or its representatives shall
be permitted access (subject to the provisions of section 7.2(a)) to review each
Branch for the purpose of installing automated equipment for use by Branch
personnel. Following the receipt of all Regulatory Approvals (except for the
expiration of statutory waiting periods), Purchaser shall be permitted, at its
expense, to install and test communication lines, both internal and external,
from each site and prepare for the installation of automated equipment on the
Closing Date.
(b) As soon as practicable and in no event more than five (5) business
days after the Closing Date, Purchaser shall mail to each depositor in respect
of a Transaction Account (i) a letter approved by the Seller requesting that
such depositor promptly cease writing Seller's drafts against such Transaction
Account and (ii) new drafts which such depositor may draw upon Purchaser against
such Transaction Accounts. The parties hereto shall use their best efforts to
develop procedures which cause Seller's drafts against Transaction Accounts
which are received after the Closing Date to be cleared through Purchaser's
then-current clearing procedures. During the sixty (60) day period after the
Closing Date, if it is not possible to clear Transaction Account drafts through
Purchaser's then-current clearing procedures, Seller shall forward to Purchaser
as soon as practicable but in no event more than three (3) Business Days after
receipt all Transaction Account drafts drawn against Transaction Accounts.
Seller shall have no obligation to
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pay such forwarded Transaction Account drafts. Upon the expiration of such sixty
(60) day period, Seller shall cease forwarding drafts against Transaction
Accounts.
(c) Any items that were credited for deposit to or cashed against a
Deposit prior to the Closing and are returned unpaid on or within sixty (60)
days after the Closing Date ("Returned Items") will be handled as set forth
herein. If Seller's bank account is charged for the Returned Item, Seller shall
forward such Returned Item to Purchaser. If upon Purchaser's receipt of such
Returned Item there are sufficient funds in the Deposit to which such Returned
Item was credited or any other Deposit transferred at the Closing standing in
the name of the party liable for such Returned Item, Purchaser will debit any or
all of such Deposits an amount equal in the aggregate to the Returned Item, and
shall repay that amount to Seller. If there are not sufficient funds in the
Deposit because of Purchaser's failure to honor holds placed on such Deposit,
Purchaser shall repay the amount of such Returned Item to Seller and Seller
shall assign the Returned Item to Purchaser for collection. Any items that were
credited for deposit to or cashed against an account at the Branches to be
transferred at the Closing prior to the Closing and are returned unpaid more
than sixty (60) days after the Closing will be the responsibility of Purchaser.
4.12 Information Regarding Mortgage Loans. Not later than forty-five
(45) days after execution of this Agreement, Seller will provide to Purchaser
information regarding the Mortgage Loans on a magnetic disk or other media
acceptable to the parties, which shall contain the following fields of
information:
Current Principal Balance;
Delinquency Status as of the Run Date;
Paid to Date;
Current Interest Rate;
Total Monthly Payment;
Next Interest Rate Change Date; and
Next Payment Change Date.
4.13 Employee Training. Seller and Purchaser shall cooperate in order to
permit Purchaser to train Seller's employees at the Branches who choose to
accept employment with Purchaser, and Seller shall, as scheduled by Purchaser
for reasonable periods of time and subject to Seller's reasonable approval, such
that Seller's ongoing operations at the Branches shall not be materially
disrupted, excuse such employees from their duties at the Branches for the
purpose of training and orientation by Purchaser. Purchaser shall pay the full
salary or wages of replacements of employees so excused for the periods during
which such employees are so excused, where such replacements are reasonably
determined by Seller to be needed to maintain ongoing operations at the branches
without material disruption.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
5.1 Corporate Organization and Authority. Seller is a national banking
association, duly organized and validly existing under the laws of the United
States, and has the requisite power and authority to conduct the business now
being conducted at the Branches. Seller has the requisite corporate power and
authority and has taken all corporate action necessary in order to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
This Agreement is a valid and binding agreement of Seller enforceable in
accordance with its terms subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
5.2 No Conflicts. The execution, delivery and performance of this
Agreement by Seller does not, and will not, (i) violate any provision of its
charter or by-laws or (ii) violate or constitute a breach of, or default under,
any law, rule, regulation, judgment, decree, ruling or order of any court,
government or governmental agency to which Seller is subject or any agreement or
instrument of Seller, or to which Seller is subject or by which Seller is
otherwise bound, which violation, breach, contravention or default referred to
in this clause (ii), individually or in the aggregate, would have a Material
Adverse Effect (assuming the receipt of any required consents of lessors under
the Branch Leases in respect of the transactions herein contemplated). Seller
has all material licenses, franchises, permits, certificates of public
convenience, orders and other authorizations of all federal, state and local
governments and governmental authorities necessary for the lawful conduct of its
business at each of the Branches as now conducted and all such licenses,
franchises, permits, certificates of public convenience, orders and other
authorizations, are valid and in good standing and, to Seller's knowledge, are
not subject to any suspension, modification or revocation or proceedings related
thereto.
5.3 Approvals and Consents. Other than Regulatory Approvals or as
otherwise disclosed in writing to Purchaser by Seller prior to the date hereof,
no notices, reports or other filings are required to be made by Seller with, nor
are any consents, registrations, approvals, permits or authorizations required
to be obtained by Seller from, any governmental or regulatory authorities of the
United States or the several States in connection with the execution and
delivery of this Agreement by Seller and the consummation of the transactions
contemplated hereby by Seller, the failure to make or obtain any or all of
which, individually or in the aggregate, would have a Material Adverse Effect.
5.4 Tenants. Except for the tenants listed on Schedule 5.4, there are no
tenants of the Real Property.
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5.5 Leases. Each Branch Lease and each Personal Property Lease is the
valid and binding obligation of Seller, and to Seller's knowledge, of each other
party thereto; and there does not exist with respect to Seller's obligations
thereunder, or, to Seller's knowledge, with respect to the obligations of the
lessor thereof, any material default, or event or condition which constitutes
or, after notice or passage of time or both, would constitute a material default
on the part of Seller or the lessor under any such Branch Lease or Personal
Property Lease. As used in this Section, the term "lessor" includes any
sub-lessor of the property to Seller. Each Branch Lease and each material
Personal Property Lease is current and all rents, expenses and charges payable
by Seller thereunder have been paid or accrued pursuant to the terms thereof
(except for any payments not yet delinquent or as to which the obligation to
make such payment is being contested in good faith). Accurate copies of each
Branch Lease and each material Personal Property Lease have heretofore been made
available to Purchaser.
5.6 [intentionally omitted]
5.7 Litigation and Undisclosed Liabilities. Except as set forth in
Schedule 5.7, there are no actions, suits or proceedings that have a reasonable
likelihood of an adverse determination pending or, to Seller's knowledge,
threatened against Seller or any of the Branches, or obligations or liabilities
(whether or not accrued, contingent or otherwise) or, to Seller's knowledge,
facts or circumstances that could reasonably be expected to result in any claims
against or obligations or liabilities of Seller that, individually or in the
aggregate, would have a Material Adverse Effect.
5.8 Regulatory Matters. (a) Except as previously disclosed in writing to
Purchaser, there are no pending or, to Seller's knowledge, threatened disputes
or controversies between Seller and any federal, state or local governmental
agency or authority that, individually or in the aggregate, would have a
Material Adverse Effect.
(b) Neither Seller nor any of its Affiliates has received any indication
from any federal or state governmental agency or authority that such agency
would oppose or refuse to grant a Regulatory Approval or impose a Burdensome
Condition.
(c) Seller is not a party to any written order, decree, agreement or
memorandum of understanding with, or commitment letter or similar submission to,
any federal or state regulatory agency or authority charged with the supervision
or regulation of depository institutions, nor has Seller been advised by any
such agency or authority that it is contemplating issuing or requesting any such
order, decree, agreement, memorandum of understanding, commitment letter or
submission, in each case which, individually or in the aggregate, would have a
Material Adverse Effect.
5.9 Compliance with Laws. The banking business of the Branches has been
conducted in compliance with all federal, state and local laws, regulations and
ordinances applicable thereto, except for any failures to comply that would not,
individually or in the aggregate, result in a Material Adverse Effect.
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5.10 Loans. (a) An accurate list of the Loans as of September 30, 1998
is set forth on the list delivered to Purchaser on October 22, 1998. Such list
will be updated to include an accurate list of the Loans as of the Closing Date
(including the fields set forth on Schedule 1.1(e)) and delivered to Purchaser
as soon as is reasonably practicable after the Closing Date. With respect to
each Loan (other than Overdraft Loans):
(i) Such Loan was solicited, originated and serviced in material
compliance with all applicable requirements of federal, state, and local
laws and regulations in effect at the time of such solicitation,
origination and servicing; and there was no fraud on the part of the
Seller or originator with respect to the origination of any Loan;
(ii) Each note evidencing a Loan and any related security
instrument (including, without limitation, any guaranty or similar
instrument) constitutes a valid and legally binding obligation of the
obligor thereunder enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfers, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(iii) The collateral for each secured Loan is (A) the collateral
described in the related Loan Documents and (B) subject to a valid,
enforceable and perfected lien;
(iv) To Seller's knowledge, no claims or defenses to the
enforcement of such Loan have been asserted and Seller is aware of no
acts or omissions that would give rise to any claim or right of
rescission, setoff, counterclaim or defense by a borrower, obligor,
guarantor or any other person obligated to perform under any related
Loan Documents;
(v) As of the Closing Date, (A) if such Loan is a commercial
loan, such loan will have a grade of "pass" or above according to
Sellers' internal loan grading system and will be not more than thirty
(30) days past due with respect to any payment of principal or interest;
(B) if such Loan is a consumer loan, such Loan will be not more than
sixty (60) days past due with respect to any payment of principal or
interest; (C) if such Loan is a 1-4 unit residential mortgage loan, such
Loan will be not more than sixty (60) days past due with respect to any
payment of principal or interest and will not be in foreclosure; and
(D), to Seller's knowledge, no obligor on such Loan is the subject of
any proceeding in bankruptcy.
(vi) Such Loan was made substantially in accordance with
Seller's standard underwriting and documentation guidelines, which are
consistent with prudent and customary industry standards, as in effect
at the time of its origination and has been administered substantially
in accordance with the Loan Documents and Seller's standard loan
servicing procedures, which are consistent with prudent and customary
industry standards, as in effect from time to time;
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(vii) All information provided hereunder and in the magnetic
tape delivered to Purchaser pertaining to such Loan is true and correct
in all material respects;
(viii) Each Loan was made in compliance with all applicable
usury laws;
(ix) Except as set forth in Schedule 5.10(a)(ix), immediately
prior to the Closing the Seller will be the sole owner of each Loan,
free and clear of any Encumbrance; and
(x) The terms of the notes or the mortgages have not been
altered, modified or waived in any material respect, except by a written
instrument contained in the Loan Documents.
(b) With respect to the Overdraft Loans, each:
(i) has been administered in compliance in all material respects
with all applicable laws;
(ii) is a valid and legally binding obligation of the borrower
enforceable against the borrower in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles; and
(iii) is not subject to any defense, counterclaim or set-off of
any kind.
(c) The security interest in the Deposit account securing each
Deposit-Related Loan is a legal, valid and binding obligation enforceable
against the obligor subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(d) From the date hereof through the Closing Date, Seller shall have
adhered to a policy regarding the extension of terms on consumer loans
consistent with past practice.
(e) [intentionally omitted]
(f) Except for home equity loans, a title insurance policy is in effect
for each Loan secured by real property, and Seller is the sole owner of each
such loan, except for such participations as are documented in the related Loan
documents or other Records.
(g) With respect to each Mortgage Loan, the Loan Documents as of the
Closing Date will include:
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(i) The original Mortgage Note, containing all intervening
endorsements, if any, evidencing a complete chain of ownership from the
originator of such Mortgage Loan to Seller (provided that up to ten
percent (10%) of the aggregate principal balance of the Mortgage Loans
may consist of lost note affidavits in substantially the form attached
hereto as Schedule 5.10(f)(i)), duly endorsed by Seller without recourse
in blank or to the order of Purchaser;
(ii) The original Mortgage (or copies certified by Seller as
being true and correct in those instances where the original is deemed
lost) with evidence of recording indicated on such Mortgage, or a copy
of such recorded Mortgage certified by the public recording office in
those instances where the public recording office retains the original;
(iii) An assignment of the Mortgage Loan signed by Seller in
blank or to the order of Purchaser in recordable form;
(iv) Any intervening assignments of the Mortgage or copies
thereof;
(v) All modifications to the Mortgage Note or Mortgage or copies
thereof;
(vi) The title insurance policy or a copy thereof on the related
mortgage property; and
(vii) Evidence of flood insurance in the event the mortgaged
property is located in a federal flood hazard area.
(h) Each Mortgage Loan is secured by a valid first lien.
(i) Each Mortgage securing a Mortgage Loan requires the Mortgagor
thereunder to maintain a fire and other hazard insurance policy covering such
Losses as are covered under a standard extended coverage endorsement with
mortgage rights and protections customary for mortgage lending practices in the
locality in which the mortgaged property is located and such policies are in
place.
(j) With respect to each Mortgage Loan and home equity loan, there was
no material violation of any law or regulation pertaining to truth-in-lending,
consumer credit protection, equal credit opportunity or any similar law
applicable to the origination of such Mortgage Loan at the time it was made, nor
has the Seller taken any other action or omitted to take an action, which
violation, act or omission would give rise to a valid defense or counterclaim,
or right of rescission, set-off, abatement or diminution, on the part of the
Mortgagor that would prevent the Purchaser from foreclosing upon the mortgaged
property.
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(k) No Mortgage Loan or home equity loan is secured by any real estate
collateral except the Encumbrance of the related Mortgage, an assignment of the
related leases, and any related security agreement.
(l) Each Mortgage Loan and home equity loan has closed, the proceeds of
each Mortgage Loan have been fully disbursed and, except as set forth in
Schedule 5.10(k), no Mortgagor has any right under any Mortgage Loan or any Loan
Documents pertaining to such Mortgage Loan to an advance of further proceeds
under such Mortgage Loan, unless such right is conditional upon the Seller's
performance of an underwriting evaluation with respect thereto. For purposes
hereof, capitalization of interest pursuant to a negative amortization provision
shall not be deemed an "advance" to the Mortgagor, and any escrow balances shall
be deemed fully disbursed.
(m) No Mortgage Note or Mortgage has been satisfied, canceled,
subordinated to another mortgage or rescinded, in whole or in part, and no
Mortgage property has been released from the Encumbrance of the related
Mortgage, in whole or in part.
(n) With respect to each Loan that is a home equity Loan:
(i) The maximum original term on such Loan is three hundred
sixty (360) months;
(ii) No part of the property which is security for such Loan has
been released;
(iii) The transfer and assignment of such Loan and Loan
Documents pertaining thereto will be in compliance with applicable law
and regulations;
(iv) A title insurance policy is in effect for any such Loan
with an original principal amount in excess of $200,000; and
(v) Such Loan is secured by a valid first, second or third lien.
5.11 Financial and Deposit Data. To Seller's knowledge, all written
financial, Deposit and Loan information regarding the Assets and Liabilities
provided to Purchaser by Seller was accurate in all material respects as of the
date when provided; provided, however, that historical information contained in
the foregoing may not reflect the allocation of Loans and certain Deposits to
the Branches pursuant to Seller's understanding with the U.S. Department of
Justice and the Nevada Department of Justice.
5.12 Records. The Records respecting the operations of the Branches and
the Assets and Liabilities accurately reflect in all material respects the net
book value of the Assets and Liabilities being transferred to Purchaser
hereunder. The Records include all information reasonably necessary to service
the Deposits and Loans on an ongoing basis, and to otherwise operate the
business being acquired under this Agreement in substantially the manner
currently operated by Seller.
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5.13 Title to Assets. Subject to the terms and conditions of this
Agreement, on the Closing Date Purchaser will acquire, subject to Section
10.1(c), good and marketable title to all of the material Assets, free and clear
of any Encumbrances; provided, however, that this representation does not cover
Owned Real Property for which Purchaser has obtained a Title Policy pursuant to
Section 3.11, Branch Leases or Tenant Leases.
5.14 Branch Leases. The Branch Leases give Seller the right to occupy
the building and land comprising the related Branch. Accurate copies of all
Branch Leases and all attachments, amendments and addenda thereto have
heretofore been made available to Purchaser. To Seller's knowledge, the Branch
Leases constitute valid and legally binding leasehold interests of Seller.
Except as described on Schedule 5.4, there are no subleases relating to any
Branch created or suffered to exist by Seller, or to Seller's knowledge, created
or suffered to exist by any other person.
5.15 [intentionally omitted]
5.16 Deposits. Except as set forth in Schedule 5.16, all of the Deposit
accounts have been administered and, to Seller's knowledge, originated, in
compliance with the documents governing the relevant type of Deposit account and
all applicable laws. The Deposit accounts are insured by the Bank Insurance Fund
or the Savings Association Insurance Fund of the FDIC up to the current
applicable maximum limits, and no action is pending or, to Seller's knowledge,
threatened by the FDIC with respect to the termination of such insurance.
5.17 Environmental Laws; Hazardous Substances. Except as disclosed on
Schedule 5.17, or as would not, individually or in the aggregate, have a
Material Adverse Effect, each parcel of Real Property:
(i) has been operated by Seller in compliance with all
applicable Environmental Laws;
(ii) is not the subject of any pending written notice from any
governmental authority alleging the violation of any applicable
Environmental Laws;
(iii) is not currently subject to any court order,
administrative order or decree arising under any Environmental Law;
(iv) has not been used for the disposal of Hazardous Substances
and is not contaminated with any Hazardous Substances requiring
remediation under any applicable Environmental Law; and
(v) has not had any emissions or discharges of Hazardous
Substances except as permitted under applicable Environmental Laws.
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5.18 Brokers' Fees. Seller has not employed any broker or finder or
incurred any liability for any brokerage fees, commission or finders' fees in
connection with the transactions contemplated by this Agreement.
5.19 Limitations on Representations and Warranties. Notwithstanding
anything to the contrary contained herein, Seller makes no representations or
warranties to Purchaser in this Agreement or in any agreement, instrument or
other document executed in connection with any of the transactions contemplated
hereby or provided or prepared pursuant hereto or in connection with any of the
transactions contemplated hereby:
(a) As to title to Owned Real Property or as to the physical condition
of the Branches or Personal Property, all of which are being sold "AS IS",
"WHERE IS" and with all faults at the Closing Date;
(b) As to whether, or the length of time during which, any accounts will
be maintained by the depositors at the Branches after the Closing Date; or
(c) Except to the extent otherwise set forth in this Agreement, as to
the creditworthiness, credit history or financial condition of any obligor.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
6.1 Corporate Organization and Authority. Purchaser is a federal savings
bank, duly organized and validly existing under the laws of the United States,
and has the requisite power and authority to conduct the business conducted at
the Branches substantially as currently conducted by Seller. Purchaser has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement is a valid and binding
agreement of Purchaser enforceable in accordance with its terms subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
6.2 No Conflicts. The execution, delivery and performance of this
Agreement by Purchaser does not, and will not, (i) violate any provision of its
charter or by-laws or (ii) violate or constitute a breach of, or default under,
any law, rule, regulation, judgment, decree, ruling or order of any court,
government or governmental authority to which Purchaser is subject or any
agreement or instrument of Purchaser, or to which Purchaser is subject or by
which Purchaser is otherwise bound, which violation, breach, contravention or
default referred to in this clause (ii), individually or in the aggregate, would
have a Material Adverse Effect.
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6.3 Approvals and Consents. Other than Regulatory Approvals, no notices,
reports or other filings are required to be made by Purchaser with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by Purchaser from, any governmental or regulatory authorities of the
United States or the several States in connection with the execution and
delivery of this Agreement by Purchaser and the consummation of the transactions
contemplated hereby by Purchaser, the failure to make or obtain any or all of
which, individually or in the aggregate, would have a Material Adverse Effect.
6.4 Regulatory Matters. (a) Except as previously disclosed in writing to
Seller, there are no pending or, to Purchaser's knowledge, threatened disputes
or controversies between Purchaser and any federal, state or local governmental
agency or authority that, individually or in the aggregate, would have a
Material Adverse Effect.
(b) Neither Purchaser nor any of its Affiliates has received any
indication from any federal or state governmental agency or authority that such
agency would oppose or refuse to grant a Regulatory Approval or impose a
Burdensome Condition.
(c) Purchaser is not a party to any written order, decree, agreement or
memorandum of understanding with, or commitment letter or similar submission to,
any federal or state regulatory agency or authority charged with the supervision
or regulation of depository institutions, nor has Purchaser been advised by any
such agency or authority that it is contemplating issuing or requesting any such
order, decree, agreement, memorandum of understanding, commitment letter or
submission, in each case which, individually or in the aggregate, would have a
Material Adverse Effect.
(d) Purchaser is, and on a pro forma basis giving effect to the P&A
Transaction, will be (i) at least "adequately capitalized", as defined for
purposes of the FDIA, and (ii) in compliance with all capital requirements,
standards and ratios required by each state or federal bank regulator with
jurisdiction over Purchaser, including without limitation, any such higher
requirement, standard or ratio as shall apply to institutions engaging in the
acquisition of insured institution deposits, assets or branches, and no such
regulator is likely to, or has indicated that it will, condition any of the
Regulatory Approvals upon an increase in Purchaser's capital or compliance with
any capital requirement, standard or ratio.
(e) Purchaser has no knowledge that it will be required to divest
deposit liabilities, branches, loans or any business or line of business as a
condition to the receipt of any of the Regulatory Approvals.
(f) Each of the subsidiaries or Affiliates of Purchaser that is an
insured depository institution was rated "Satisfactory" or "Outstanding"
following its most recent Community Reinvestment Act examination by the
regulatory agency responsible for its supervision. Purchaser has received no
notice of and has no knowledge of any planned or threatened objection by any
community group to the transactions contemplated hereby.
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6.5 Litigation and Undisclosed Liabilities. There are no actions, suits
or proceedings that have a reasonable likelihood of an adverse determination
pending or, to Purchaser's knowledge, threatened against Purchaser, or
obligations or liabilities (whether or not accrued, contingent or otherwise) or,
to Purchaser's knowledge, facts or circumstances that could reasonably be
expected to result in any claims against or obligations or liabilities of
Purchaser that, individually or in the aggregate, would have a Material Adverse
Effect.
6.6 Operation of the Branches. Purchaser intends to continue to provide
retail and business banking services in the geographical area served by the
Branches.
6.7 Financing Available. Not later than the Closing Date, Purchaser will
have available sufficient cash or other liquid assets or financing pursuant to
binding agreements or commitments which may be used to fund the P&A Transaction.
Purchaser's ability to consummate the transactions contemplated by this
Agreement is not contingent on raising any equity capital, obtaining specific
financing therefor, consent of any lender or any other matter.
6.8 Brokers' Fees. Purchaser has not employed any broker or finder or
incurred any liability for any brokerage fees, commission or finders' fees in
connection with the transactions contemplated by this Agreement, except for fees
and commissions for which Purchaser shall be solely liable.
ARTICLE 7
COVENANTS OF THE PARTIES
7.1 Activity in the Ordinary Course. Until the Closing Date, except as
may be required in connection with the Merger, (a) Seller shall conduct the
business of the Branches (including, without limitation, filling open positions
at the Branches and job posting in the Branches for open positions at other
offices of Seller) in the ordinary and usual course of business consistent with
past practice and (b) Seller shall not, without the prior written consent of
Purchaser:
(i) Increase or agree to increase the salary, remuneration or
compensation of any Branch Employee (or make any material increase or
decrease in the number of such persons, or transfer such persons to or
from any Branch) other than in accordance with Seller's existing
customary policies generally applicable to employees having similar rank
or duties, or pay or agree to pay any uncommitted bonus to any Branch
Employee other than regular bonuses granted in the ordinary course of
Seller's business (which bonuses, in any event, shall be the
responsibility of Seller); or, except at the request of such Branch
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Employee, transfer any Branch Employee to another branch or office of
Seller or any of its Affiliates;
(ii) Offer interest rates or terms on any category of deposits
at a Branch except as determined in a manner consistent with Seller's
practice with respect to its branches which are not being sold;
(iii) Transfer to or from any Branch to or from any of Seller's
other operations or branches any material Assets or any Deposits, except
(A) in the ordinary course of business or as contemplated by this
Agreement, (B) upon the unsolicited request of a depositor or customer,
or (C) if such Deposit is pledged as security for a loan or other
obligation that is not a Loan;
(iv) Sell, transfer, assign, encumber or otherwise dispose of or
enter into any contract, agreement or understanding to sell, transfer,
assign, encumber or dispose of any of the Assets existing on the date
hereof, except in the ordinary course of business and in an immaterial
aggregate amount; provided, however, that in any event, Seller shall not
knowingly take any action that would create any Encumbrance on any of
the Owned Real Property or the Branch Leases;
(v) Sell, transfer, assign, encumber or otherwise dispose of or
enter into any contract, agreement or understanding to sell, transfer,
assign, encumber or dispose of any Loan;
(vi) Make or agree to make any material improvements to the
Owned Real Property, except with respect to commitments for such made on
or before the date of this Agreement (and heretofore disclosed in
writing to Purchaser) and normal maintenance or refurbishing purchased
or made in the ordinary course of business;
(vii) File any application or give any notice to relocate or
close any Branch or relocate or close any Branch;
(viii) Amend, terminate or extend in any material respect any
Branch Lease or Tenant Lease; provided, however, Seller may extend any
Branch Lease or Tenant Lease if, in its reasonable business judgment,
Seller determines such extension is necessary to deliver the Branch on
the Closing Date as a fully operative branch banking operation;
(ix) Except as permitted by this Section 7.1, take, or permit
its Affiliates to take, any action (A) impairing Purchaser's rights in
any Deposit or Asset, (B) impairing in any way the ability of Purchaser
to collect upon any Loan, or (C) except in the ordinary course of
servicing, waiving any material right, whether in equity or at law, that
it has with respect to any Loan; or
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(x) Agree with, or commit to, any person to do any of the things
described in clauses (i) through (ix) except as contemplated hereby.
7.2 Access and Confidentiality. (a) Until the Closing Date, Seller shall
afford to Purchaser and its officers and authorized agents and representatives
reasonable access to the properties, books, records, contracts, documents, files
(including loan files) and other information of or relating to the Assets and
Liabilities. In addition, Seller will use reasonable efforts to arrange for
Purchaser to have reasonable access to similar information held by third
parties, if any, for or on Seller's behalf. Purchaser and Seller each will
identify to the other, within ten (10) days after the date hereof, a selected
group of their respective salaried personnel that shall constitute a "transition
group" who will be available to Seller and Purchaser, respectively, at
reasonable times (limited to normal operating hours) to provide information and
assistance in connection with Purchaser's investigation of matters relating to
the Assets and Liabilities. Seller shall cause other personnel to be reasonably
available during normal business hours, to an extent not disruptive of ongoing
operations, for the same purposes. Seller shall furnish Purchaser with such
additional financial and operating data and other information about its business
operations at the Branches as may be reasonably necessary for the orderly
transfer of the business operations of the Branches. Any investigation pursuant
to this Section 7.2 shall be conducted in such manner as not to interfere
unreasonably with the conduct of the Seller's business. Notwithstanding the
foregoing, Seller shall not be required to provide access to or disclose
information where such access or disclosure would impose an unreasonable burden
on Seller, or any employee of Seller or would violate or prejudice the rights of
customers, jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto shall make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) Each party to this Agreement shall hold, and shall cause its
respective directors, officers, employees, agents, consultants and advisors to
hold, in strict confidence, unless disclosure to a bank regulatory authority is
necessary or desirable in connection with any Regulatory Approval or unless
compelled to disclose by judicial or administrative process or, in the written
opinion of its counsel, by other requirements of law or the applicable
requirements of any regulatory agency or relevant stock exchange, all non-public
records, books, contracts, instruments, computer data and other data and
information (collectively, "Information") concerning the other party (or, if
required under a contract with a third party, such third party) furnished it by
such other party or its representatives pursuant to this Agreement (except to
the extent that such information can be shown to have been (i) previously known
by such party on a non-confidential basis, (ii) in the public domain through no
fault of such party or (iii) later lawfully acquired from other sources by the
party to which it was furnished), and neither party shall release or disclose
such Information to any other person, except its auditors, attorneys, financial
advisors, bankers, other consultants and advisors and, to the extent permitted
above, to bank regulatory authorities.
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7.3 Regulatory Approvals. (a) As soon as practicable and in no event
later than thirty (30) days after the date of this Agreement, Purchaser shall
prepare and file any applications, notices and filing required in order to
obtain the Regulatory Approvals. Purchaser shall use all reasonable efforts to
obtain each such approval as promptly as reasonably practicable and, to the
extent possible, in order to permit the Closing to occur not later than April
30, 1999. Seller will cooperate in connection therewith (including the
furnishing of any information and any reasonable undertaking or commitments
which may be required to obtain the Regulatory Approvals). Each party will
provide the other with copies of any applications and all correspondence
relating thereto prior to filing, other than material filed in connection
therewith under a claim of confidentiality. Purchaser also agrees to furnish any
reasonable undertaking or commitment that may be required in order for Norwest
or WFC to obtain the Merger Approvals. If any regulatory authority shall require
the modification of any of the terms and provisions of this Agreement as a
condition to granting any Regulatory Approval or the Merger Approvals, the
parties hereto will negotiate in good faith to seek a mutually agreeable
adjustment to the terms of the transaction contemplated hereby, such agreement
not to be unreasonably withheld.
7.4 Consents. Seller agrees to use reasonable efforts (such efforts not
to include making payments to third parties) to obtain from lessors and any
other parties to any Branch Leases any required consents to the assignment of
the Branch Leases to Purchaser on the Closing Date; provided, however, the
Seller shall not be obligated to incur any monetary obligations or expenditures
to the parties whose consent is requested in connection with the utilization of
its reasonable efforts to obtain any such required consents. If any such
required consent cannot be obtained, notwithstanding any other provision hereof,
the Assets and Liabilities associated with the subject Branch, other than any
such Branch Lease as to which consent cannot be obtained, shall nevertheless be
transferred to Purchaser at the Closing and the parties shall negotiate in good
faith and Seller shall use reasonable efforts (such efforts not to include
making payments to third parties) to make alternative arrangements reasonably
satisfactory to Purchaser. In such event, Seller shall not be obligated to
deliver physical possession of the subject Branch or Personal Property to
Purchaser at the Closing.
7.5 Efforts to Consummate; Further Assurances. (a) Purchaser and Seller
agree to use all reasonable efforts to satisfy or cause to be satisfied as soon
as practicable their respective obligations hereunder and the conditions
precedent to the Closing.
(b) Seller will duly execute and deliver such assignments, bills of
sale, deeds, acknowledgments and other instruments of conveyance and transfer as
shall at any time be necessary or appropriate to vest in Purchaser the full
legal and equitable title to the Assets.
(c) Subject to Section 4.3, on and after the Closing Date, each party
will promptly deliver to the other all mail and other communications properly
addressable or deliverable to the other as a consequence of the P&A Transaction;
and without limitation of the foregoing, on and after the Closing Date, Seller
shall promptly forward any mail,
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communications or other material relating to the Deposits or the Assets
transferred on the Closing Date, including, but not limited to, that portion of
any IRS "B" tapes that relates to such Deposits, to such employees of Purchaser
at such addresses as may from time to time be specified by Purchaser in writing.
(d) The costs incurred by a party in performing its obligations to the
other (x) under Section 7.5(a) and (c) shall be borne by the initial recipient
and (y) otherwise under this Section 7.5 shall be borne by Purchaser. Seller
will cooperate with Purchaser to minimize the costs referred to in clause (y).
7.6 Solicitation of Accounts. (a) Until the Closing Date and for an
additional twelve (12) months following the Closing Date, Seller agrees that it
will not solicit deposits, loans, mutual fund purchases, or other investment
products or other business from or to persons or entities who were depositors or
borrowers at the Branches on the date hereof with respect to Deposits by
personal contact, by telephone, by facsimile, by mail or other similar
solicitation, or in any other way except for general solicitations and
solicitations that are not directed primarily to persons or entities who were
depositors of the Branches on the date hereof; provided, however, Seller may
solicit depositors who as of the date of this Agreement have existing accounts
or loans originating at branches or other offices of Seller or its Affiliates
other than the Branches pursuant to solicitations which arise from their status
as a customer at such other branches or offices; and provided, further, that
Seller may solicit major or statewide depositors (such as, for example, a
company with more than one location or the state government or any agency or
instrumentality thereof) without restrictions hereunder.
(b) Prior to the Closing Date, Purchaser agrees that it will not attempt
to directly solicit Branch customers through advertising nor transact its
business in a way which would induce such Branch customers to close any account
and open accounts directly with Purchaser or would otherwise result in a
transfer of all or a portion of an existing account from Seller to Purchaser or
its Affiliates. Notwithstanding the foregoing sentence, Purchaser and its
Affiliates shall be permitted to (i) engage in advertising, solicitations or
marketing campaigns not primarily directed to or targeted at such Branch
customers, (ii) engage in lending, deposit, safe deposit, trust or other
financial services relationships existing as of the date hereof with such Branch
customers through other branch offices of Purchaser, (iii) respond to
unsolicited inquiries by such Branch customers with respect to banking or other
financial services, and (iv) provide notices or communications relating to the
transactions contemplated hereby in accordance with the provisions hereof.
7.7 Insurance. Seller will maintain in effect until the Closing Date all
casualty and public liability policies relating to the Branches and maintained
by Seller on the date hereof or procure comparable replacement coverage and
maintain such policies or replacement coverage in effect until the Closing Date.
Purchaser shall provide all casualty and public liability insurance for the
Branches subsequent to the Closing Date.
7.8 [intentionally omitted]
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7.9 Servicing Prior to Closing Date. With respect to each of the Loans
from the date hereof until the Closing Date. Seller shall provide servicing of
such Loans generally consistent with customary prudent industry servicing
standards of service of similar loans. Further, without the prior written
consent of Purchaser (which consent shall not be unreasonably withheld or
delayed), Seller shall not (a) except as required by law or the terms of the
Loan Documents, release any collateral or any party from any liability on or
with respect to any of the Loans; (b) compromise or settle any claims of any
kind or character with respect to the Loans; or (c) amend or waive any of the
material terms of any Loan as set forth in the Loan Documents.
ARTICLE 8
TAXES AND EMPLOYEE BENEFITS
8.1 Tax Representations. Seller represents and warrants to Purchaser as
follows:
(a) Except as set forth in Schedule 8.1, all Tax Returns with respect to
the Assets or income therefrom, the Liabilities or payments in respect thereof
or the operation of the Branches, that are required to be filed (taking into
account any extension of time within which to file) on or before the Closing
Date, have been or will be duly filed, and all Taxes shown to be due on such Tax
Returns have been or will be paid in full.
(b) With respect to the Deposits, Seller is in compliance with the Code
and regulations thereunder relative to obtaining from depositors of the Deposits
executed IRS Forms W-8 and W-9. With respect to the Deposits opened after
December 31, 1983, Seller has either obtained a properly completed Form W-8 or
W-9 (or a substitute form meeting applicable requirements) or is back-up
withholding on such account, if so required.
8.2 Proration of Taxes. Except as otherwise agreed to by the parties,
whenever it is necessary to determine the liability for Taxes for a portion of a
taxable year or period that begins before and ends after the Closing Date, the
determination of the Taxes for the portion of the year or period ending on , and
the portion of the year or period beginning after the Closing Date shall be
determined by assuming that the taxable year or period ended at 11:59 p.m.
Nevada time on the day prior to the Closing Date.
8.3 Sales and Transfer Taxes. Unless otherwise provided, all excise,
sales, use and transfer taxes that are payable or that arise as a result of the
consummation of the P&A Transaction shall be paid by Purchaser and Purchaser
shall indemnify and hold Seller harmless from and against any such taxes.
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8.4 Information Returns. At the Closing or as soon thereafter as is
practicable, Seller shall provide Purchaser with a list of all Deposits for
which Seller has not received a properly completed Form W-8 or W-9 (or a
substitute form meeting applicable requirements) or on which Seller is back-up
withholding as of the Closing Date.
8.5 Payment of Amount Due under Article 8. Any payment by Seller to
Purchaser, or to Seller from Purchaser, under this Article 8 (other than
payments required by Section 8.3) to the extent due at the Closing may be offset
against any payment due the other party at the Closing. All subsequent payments
under this Article 8 shall be made as soon as determinable and shall be made and
bear interest from the date due to the date of payment as provided in Section
3.2(b).
8.55 Like Kind Exchange. Purchaser acknowledges that the Seller may
desire to complete one or more like kind exchanges (including transactions which
are intended to qualify under Section 1031 of the Code). If requested by Seller,
Purchaser shall cooperate to the extent reasonably necessary in order to
accomplish such like kind exchanges and shall execute all documents and provide
all consents reasonably necessary to complete such like kind exchanges
including, without limitation, an amendment to or an assignment of this
Agreement; provided, however, that (a) Purchaser's obligations under this
Agreement shall not be increased, (b) Seller's representations, warranties,
covenants and obligations under this Agreement shall continue in full force and
effect and (c) the total Purchaser Price will not change as a result of this
assignment.
8.6 Assistance and Cooperation. After the Closing Date, each of Seller
and Purchaser shall:
(a) Make available to the other and to any taxing authority as
reasonably requested all relevant information, records, and documents relating
to taxes with respect to the Assets or income therefrom, the Liabilities or
payments in respect thereof, or the operation of the Branches;
(b) Provide timely notice to the other in writing of any pending or
proposed tax audits (with copies of all relevant correspondence received from
any taxing authority in connection with any tax audit or information request) or
tax assessments with respect to the Assets or income therefrom, the Liabilities
or payments in respect thereof, or the operation of the Branches for taxable
periods for which the other may have a liability under this Article 8; and
(c) The party requesting assistance or cooperation shall bear the other
party's out-of-pocket expenses in complying with such request to the extent that
those expenses are attributable to fees and other costs of unaffiliated third
party service providers.
8.7 Transferred Employees. (a) As soon as reasonably practicable and in
any event within thirty (30) days of the date hereof, Seller shall deliver to
Purchaser a true and complete list of all Branch Employees by name, date of hire
and position, as of the date hereof Seller shall not release any other personnel
information without having first
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obtained the written consent of the respective Branch Employee. Purchaser may,
at its discretion, interview any and all Branch Employees. Purchaser shall make
employment available to all Branch Employees on the Closing Date upon the terms
and conditions described below. On and after the Closing Date, Branch Employees
employed by Purchaser shall be defined as "Transferred Employees" for purposes
of this Agreement. Subject to the provisions of this Section 8.7, Transferred
Employees shall be subject to the employment terms, conditions and rules
applicable to other employees of Purchaser. Nothing contained in this Agreement
shall be construed as an employment contract between Purchaser and any Branch
Employee or Transferred Employee.
(b) Purchaser may interview Branch Employees during normal working
hours. Purchaser shall be solely responsible for any activity in connection with
interviewing Branch Employees. Purchaser shall indemnify and hold Seller
harmless from and against any claim, liability, loss, costs or expenses,
including reasonable attorneys' fees, resulting or arising from Purchaser's acts
or omissions in connection with such interviews.
(c) Subject to the conditions set forth in Section 4.13 of this
Agreement relating to employee training and orientation, Seller agrees that
Purchaser shall have the right to conduct orientation sessions with Branch
Employees as soon as reasonably practicable and in any event within 30 days
after execution of this Agreement. The orientation sessions may include personal
appearances by Purchase's senior management and will cover subject such as
Purchaser's Compensation and Benefits Programs, including a Business Retention
and Sales Incentive Program specifically designed for Branch Employees who
become Transferred Employees on the date after the Closing Date.
(d) Each Transferred Employee shall be provided employment subject to
the following terms and conditions:
(i) Base salary shall be at least equivalent to the rate of base
salary paid by Seller to such Transferred Employee as of the close of
business on the day prior to the Closing Date.
(ii) Except as otherwise specifically provided herein,
Transferred Employees shall be provided employee benefits that are no
less favorable in the aggregate than those provided to similarly
situated employees of Purchaser. Purchaser shall provide each
Transferred Employees with credit for such Transferred Employee's period
of service with Seller (including any service credited from predecessors
by merger or acquisition to Seller) towards the calculation of
eligibility and vesting for such purposes as vacation, severance and
other benefits and participation and vesting in Purchaser's qualified
pension and/or profit sharing 401(k) plans, as such plans may exist
(but, except as set forth in (v) below and for vacation, not for
purposes of benefit accruals, including, without limitation, funding of
accrued pension or profit sharing plans for such Transferred Employee
with respect to any period prior to the Closing Date).
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(iii) Each Transferred Employee shall be eligible to participate
in the medical, dental, or other welfare plans of Purchaser, as such
plans may exist, on and after the Closing Date, and, subject to
insurance company approval, any preexisting conditions provisions of
such plans shall be waived with respect to any such Transferred
Employees; provided, however, that if Purchaser's relevant health or
disability insurance policy or plan has a pre-existing condition
limitation and a Transferred Employee's condition is being excluded (as
a pre-existing condition) under Seller's plan as of the Closing Date,
Purchaser may treat such condition as a pre-existing condition for the
period such condition would have been treated as a pre-existing
condition under Seller's plan.
(iv) With respect to any Transferred Employee on short-term
disability or temporary leave of absence, upon conclusion of his or her
short-term disability or temporary leave of absence, subject to the
terms and conditions of the Purchaser's plans and policies and
applicable law, each Transferred Employee on such leave shall receive
the salary and vacation benefits in effect when he or she went on leave,
shall otherwise be treated as a Transferred Employee, and, to the extent
practicable, shall be offered by the Purchaser the same or a
substantially equivalent position to his or her position with Seller
prior to having gone on leave.
(v) Purchaser shall be responsible for all severance obligations
arising out of the termination of any Transferred Employee's employment
after the Closing Date in accordance with Purchaser's severance plan,
policies and procedures with credit for the period of years of credited
service with Seller towards the calculation of benefits; provided,
however, if, before the one year anniversary of the Closing Date, any
Transferred Employee experiences a reduction in base salary, a worksite
relocation of more than 30 miles or a termination of employment by
Purchaser for any reason other than cause (as defined by Purchaser's
personnel policies and procedures), such Transferred Employee shall be
entitled to severance pay in an amount at least equivalent to the
severance pay the Transferred Employee would have received under
Seller's severance plan had such employee been eligible for payments
under such plan.
(e) Except as provided herein. Seller shall pay, discharge, and be
responsible for (i) all salary and wages arising out of employment of the
Transferred Employees through the Closing Date, and (ii) any employee benefits
(including, but not limited to, accrued vacation) arising under Seller's
employee benefit plans and employee programs prior to the Closing Date (but not
including medical benefits, if any, to Transferred Employees who retire after
the Closing Date), including benefits with respect to claims incurred prior to
the Closing Date but reported after the Closing Date. From and after the Closing
Date, Purchaser shall pay, discharge, and be responsible for all salary, wages,
and benefits arising out of or relating to the employment of the Transferred
Employees by Purchaser from and after the Closing Date, including, without
limitation, all claims for welfare benefits plans incurred after the Closing
Date. Claims are incurred as of the date
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services are provided or disability payments are accrued, notwithstanding when
the injury or illness may have occurred.
(f) To the extent permitted under Purchaser's 401(k) plan, Seller and
Purchaser shall cooperate in arranging for the transfer to Purchaser's 401(k)
plan, as soon as practicable after the Closing Date and in a manner that
satisfies sections 414(l) and 411(d)(6) of the Code, of those accounts held
under Seller's 401(k) plan on behalf of Transferred Employees, subject to
receipt of any necessary consents and approvals of the Transferred Employees.
(g) For a period of twelve (12) months following the Closing Date,
Seller will not directly solicit any Transferred Employee hired by Purchaser as
of the Closing Date to again become an employee of Seller; provided, however,
that Seller shall not be prohibited from hiring a Transferred Employee if such
Transferred Employee contacts Seller or an Affiliate of Seller to seek hiring or
retention, whether in response to general advertising or otherwise, or if a
Transferred Employee is terminated by Purchaser.
8.8 Branch Employee Representations. (a) Seller represents and warrants
to Purchaser, to Seller's knowledge, as follows:
(i) none of the Branch Employees are represented by any labor
union;
(ii) Seller is not a party to any individual contract, written
or oral, express or implied, for the employment of any Branch Employee,
and Seller is not subject to any collective bargaining arrangement with
respect to any Branch Employee;
(iii) Seller's 401(k) Plan is in compliance in all material
respects with applicable law;
(iv) no liabilities exist or are reasonably expected to exist
under any employee benefit plan of Seller that, individually or in the
aggregate, would have a Material Adverse Effect; and
(v) Seller has not entered into any individual agreement or
otherwise made any individual commitment to any Branch Employee with
respect to continued employment with Purchaser.
(b) Seller shall indemnify and hold Purchaser harmless from and against
any claims, losses, damages or expenses (including attorney's fees) suffered as
a result of any failure to give any notice to the Branch Employees required by
the Worker Adjustment and Retraining Notification Act (the "WARN Act"), provided
such notice is required as a result of action by Seller prior to the Closing
Date.
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ARTICLE 9
CONDITIONS TO CLOSING
9.1 Conditions to Obligations of Purchaser. Unless waived in writing by
Purchaser, the obligation of Purchaser to consummate the P&A Transaction is
conditioned upon satisfaction of each of the following conditions:
(a) Regulatory Approvals. All consents, approvals and authorizations
required to be obtained prior to the Closing from governmental and regulatory
authorities in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby to be consummated at
the Closing, including the Regulatory Approvals, shall have been made or
obtained, and shall remain in full force and effect, and all waiting periods
applicable to the consummation of the P&A Transaction shall have expired or been
terminated; provided, however, that no Regulatory Approval shall have imposed
any condition or requirement (a "Burdensome Condition") that would (i) result in
any Material Adverse Effect or (ii) require Purchaser to effect any divestiture
that would constitute a substantial portion of the business or properties of the
Branches, taken as a whole.
(b) Orders. No court or governmental authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent)(any of the foregoing, an "Order") which is in effect
and which prohibits or makes illegal the consummation of the P&A Transaction or
would otherwise result in a Material Adverse Effect.
(c) Representations and Warranties; Covenants. Each of the
representations and warranties of Seller contained in this Agreement shall be
true in all material respects when made and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties relating to
Assets and Liabilities transferred at the Closing Date shall only be made, and
need only be true in all material respects, on and as of the Closing Date).
Purchaser shall have received at Closing a certificate to that effect dated as
of such Closing Date and executed by the President or any Executive Vice
President of Seller. Each of the covenants and agreements of Seller to be
performed on or prior to the Closing Date shall have been duly performed in all
material respects. Purchaser shall have received at Closing a certificate to
that effect dated as of such Closing Date and executed by the President or any
Executive Vice President of Seller.
Notwithstanding any other provision of this Agreement, if there shall be
a failure of any condition specified in this Section 9.1 to the obligations of
Purchaser in respect of the acquisition of any specific Branch or Branches the
aggregate Deposits of which as of the date hereof shall constitute less than 25%
of the Deposits in all of the Branches as of the date hereof, Purchaser
nevertheless shall be obligated to consummate the P&A Transaction but may, upon
written notice to Seller, exclude from the transaction the
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Branch or Branches in respect of which the failure of condition shall exist, in
which case, appropriate adjustment shall be made in the schedules hereto and the
other documents to be delivered pursuant hereto so as to duly reflect the
deletion of such Branch or Branches from the transactions contemplated hereby
(and, consequently, to the calculation of the Estimated Purchase Price,
Estimated Payment Amount, Purchase Price and Adjusted Payment Amount). If any
Branch is excluded from this Agreement or if Purchaser nevertheless elects to
purchase any Branch which would otherwise be so excluded and such Branch is
transferred to Purchaser at the Closing (subject to Purchaser's rights under
Section 12.1(a)), any event that would otherwise constitute a breach of warranty
or failure of condition in respect of such Branch arising solely from or
relating to the operation of this paragraph shall not constitute a breach of
warranty or failure of consideration.
9.2 Conditions to Obligations of Seller. Unless waived in writing by
Seller, the obligation of Seller to consummate the P&A Transaction is
conditioned upon satisfaction of each of the following conditions:
(a) Regulatory Approvals. All consents, approvals and authorizations
required to be obtained prior to the Closing from governmental and regulatory
authorities in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby to be consummated at
the Closing, including the Regulatory Approvals, shall have been made or
obtained, and shall remain in full force and effect, and all waiting periods
applicable to the consummation of the P&A Transaction shall have expired or been
terminated.
(b) Orders. No Order shall be in effect that prohibits or makes illegal
the consummation of the P&A Transaction.
(c) Representations and Warranties; Covenants. Each of the
representations and warranties of Purchaser contained in this Agreement shall be
true in all material respects when made and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date (except that representations and warranties as of a
specific date need be true in all material respects only as of such date).
Seller shall have received at Closing a certificate to that effect dated as of
such Closing Date and executed by the President or any Executive Vice President
of Purchaser. Each of the covenants and agreements of Purchaser to be performed
on or prior to the Closing Date shall have been duly performed in all material
respects. Seller shall have received at Closing a certificate to that effect
dated as of such Closing Date and executed by the President or any Executive
Vice President of Purchaser.
(d) Consummation of the Merger. The Merger shall have been consummated
in accordance with the terms of the Merger Agreement.
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ARTICLE 10
ENVIRONMENTAL MATTERS
10.1 Environmental Matters. (a) Seller has provided to Purchaser and
Purchaser hereby acknowledges receipt of copies of Phase I environmental site
assessments for all Owned Real Property and asbestos reports with respect to all
the Real Property, except for Real Property where the improvements have been
completed after December 31, 1978. Such Phase I environmental site assessments
for all Owned Real Property have been dated (or supplemented) on or after
September 1, 1998.
(b) If such Phase I site assessments and asbestos reports reasonably
indicate the necessity or desirability of further investigation to determine
whether or not an Environmental Hazard or an Asbestos Hazard exists at such Real
Property, Purchaser may elect, not later than ten (10) days after the signing of
this Agreement, to have an environmental consultant reasonably acceptable to
Seller (the "Environmental Consultant"), to the extent reasonable and
appropriate, conduct Phase II environmental site assessments and additional
asbestos investigations, the cost of which shall be paid by Purchaser. Any such
further investigation or testing shall be conducted in such a manner so as not
to interfere with the normal operation of the Branch(es) involved. All such
Phase II environmental site assessments and additional asbestos reports shall be
treated as information subject to Section 7.2(b) and shall be completed not more
than ninety (90) days after the signing of this Agreement.
(c) In the event that the Environmental Consultant has discovered an
Environmental Hazard, and/or Asbestos Hazard, during any such Phase II
environmental site assessments and additional asbestos investigation at any
single parcel of Owned Real Property, the remediation of which, in the
reasonable judgment of the Environmental Consultant, is or would be the
responsibility of Seller, or Purchaser should it acquire such Owned Real
Property, and will cost $100,000 or more for such single parcel of Owned Real
Property, Purchaser shall lease from Seller such single parcel of Owned Real
Property pursuant to a Lease Agreement that shall provide as follows:
(i) Such Lease Agreement shall be for a term of two (2) years,
with no obligation or right to renew (it being the intention of Seller
that Purchaser locate an alternative branch site during such two years),
at a rental equal to a fair market rental value;
(ii) Seller may sell such Owned Real Property to any person,
subject to such Lease Agreement, for any price;
(iii) During the term of such Lease Agreement, in the event
Seller shall deliver to Purchaser a report of qualified environmental
engineer or consultant stating that in the opinion of the Environmental
Engineer the Environmental Hazard, and/or Asbestos Hazard, at or on any
such leased parcel of Owned Real Property has been remediated to the
extent required under applicable
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Environmental Laws, Purchaser shall be required to purchase such parcel
of Owned Real Property at the net book value as of the close of business
of the month-end day most recently preceding the Closing Date;
(iv) Other terms and conditions of the Lease Agreement shall be
typical of such branch leases in the market as negotiated between Seller
and Purchaser; and
(v) Seller shall be responsible for all remediation costs
related to such Owned Real Property except for remediation costs caused
solely by Purchaser's use or disposal of Hazardous Substances at the
site and Seller shall otherwise indemnify and hold Purchaser harmless
from third party claims.
If the remediation cost is less than $100,000 for any single parcel of Owned
Real Property, Purchaser shall acquire such parcel and such cost shall be borne
by Purchaser without indemnity or price adjustment under this Agreement.
(d) Purchaser agrees that it and its Environmental Consultant shall
conduct any Phase II environmental site assessments or other investigations
pursuant to this Section with reasonable care and subject to customary practices
among environmental consultants and engineers, including, without limitation,
following completion thereof, the restoration of any site to the extent
practicable to its condition prior to such site assessment or investigation and
the removal of all monitoring wells.
(e) Any lease of a parcel of Owned Real Property under Section 10.1(c)
shall in no way affect the transfer of any Assets or Liabilities, other than
such parcel of Owned Real Property, to the Purchaser at the Closing.
ARTICLE 11
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) By the mutual written agreement of Purchaser and Seller;
(b) By Seller or Purchaser, in the event of a material breach by the
other of any representation, warranty or agreement contained herein which is not
cured or cannot be cured within thirty (30) days after written notice of such
termination has been delivered to the breaching party; provided, however, that
termination pursuant to this Section 11.1(b) shall not relieve the breaching
party of liability arising out of or related to such breach;
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(c) By Seller or Purchaser, in the event the Closing has not occurred by
April 30, 1999 unless the failure to so consummate is due to a breach of this
Agreement by the party seeking to terminate;
(d) By Seller or Purchaser if the Merger shall have been abandoned;
(e) By Seller, if the Merger has been consummated but the Closing has
not occurred within six months thereafter;
(f) By Seller or Purchaser at any time after the denial or revocation of
any Regulatory Approval or by Purchaser if any such approval has been obtained
which contains a Burdensome Condition; or
(g) By Seller if, at any time prior to the Closing Date, an appropriate
official of any governmental agency or authority whose consent, approval or
authorization is required in order for Purchaser to consummate the transactions
contemplated hereby shall have advised that such authority will not grant such
consent, approval or authorization or will grant the same only subject to a
Burdensome Condition (unless Purchaser shall have waived the condition provided
for in the proviso to Section 9.1(a)), or where there shall be in effect any
Order, or if there shall exist any proceeding which, in Seller's reasonable
judgment, would result in an Order; provided, however, that Purchaser shall have
fifteen (15) days following receipt of notice from Seller to remedy any such
situation or to provide assurances reasonably acceptable to Seller that such
situation will be remedied by the Closing Date.
11.2 Effect of Termination. In the event of termination of this
Agreement and abandonment of the transactions contemplated hereby pursuant to
Section 11.1, no party hereto (or any of its directors, officers, employees,
agents or Affiliates) shall have any liability or further obligation to any
other party, except as provided in Section 7.2(b) and except that nothing herein
will relieve any party from liability for any breach of this Agreement.
ARTICLE 12
INDEMNIFICATION
12.1 Indemnification. (a) Subject to Sections 12.2 and 13.1, Seller
shall indemnify and hold harmless Purchaser and any person directly or
indirectly controlling Purchaser from and against any and all Losses which
Purchaser may suffer, incur or sustain arising out of or attributable to:
(i) any breach of any representation or warranty (excluding the
representations and warranties contained in Section 5.10 and Section
5.11 as it relates to information regarding Loans, the sole and
exclusive remedy for breach of which is set forth in Section 12.2) made
by Seller in this Agreement;
47
<PAGE>
(ii) any material breach of any covenant or agreement to be
performed by Seller pursuant to this Agreement;
(iii) any claim, penalty asserted, legal action or
administrative proceeding based upon any action taken or omitted to be
taken by Seller or conditions existing prior to the Closing Date,
relating in any such case to the operation of the Branches, the Assets
or the Liabilities; or
(iv) any liability, obligation or duty of Seller that is not a
Liability.
(b) Subject to Section 13.1, Purchaser shall indemnify and hold harmless
Seller and any person directly or indirectly controlling Seller from and against
any and all Losses which Seller may suffer, incur or sustain arising out of:
(i) any breach of any representation or warranty made by
Purchaser in this Agreement;
(ii) any material breach of any covenant or agreement to be
performed by Purchaser pursuant to this Agreement;
(iii) any claim, penalty asserted, legal action or
administrative proceeding based upon any action taken or omitted to be
taken by Purchaser on or after the Closing Date, relating in any such
case to the operation of the Branches or the Assets;
(iv) physical damage caused solely by Purchaser or the
Environmental Consultant in connection with any environmental site
assessment or investigation pursuant to Article 10; or
(v) the Liabilities.
(c) To exercise its indemnification rights under this Section 12.1 as a
result of the assertion against it of any claim or potential liability for which
indemnification is provided, the indemnified party shall promptly notify the
indemnifying party of the assertion of such claim, discovery of any such
potential liability or the commencement of any action or proceeding in respect
of which indemnity may be sought hereunder (including, with respect to claims
arising from a breach of representation or warranty made in Article 8, the
commencement of an audit, administrative investigation or judicial proceeding by
any governmental authority); provided, however, that in no event shall notice of
original claim for indemnification under this Agreement shall be given later
than the expiration of one (1) year from the Closing Date (excluding only claims
for indemnification under Section 12.1(a)(iii), which shall be within three (3)
years of the Closing Date, and Section 12.1(a)(iv), which may be given at any
time). The indemnified party shall advise the indemnifying party of all facts
relating to such assertion within the knowledge of the indemnified party, and
shall afford the indemnifying party the
48
<PAGE>
opportunity, at the indemnifying party's sole cost and expense, to defend
against such claims for liability. In any such action or proceeding, the
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at its own expense unless (i) the
indemnifying party and the indemnified party mutually agree to the retention of
such counsel or (ii) the named parties to any such suit, action, or proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party, and in the reasonable judgment of the indemnified party,
representation of the indemnifying party and the indemnified party by the same
counsel would be inadvisable due to actual or potential differing defenses or
conflicts of interests between them.
(d) The indemnified party shall have the right to settle or compromise
any claim or liability subject to indemnification under this Section, and to be
indemnified from and against all Losses resulting therefrom, unless the
indemnifying party, within sixty (60) calendar days after receiving written
notice of the claim or liability in accordance with Section 12.1(c) above,
notifies the indemnified party that it intends to defend against such claim or
liability and undertakes such defense, or, if required in a shorter time than
sixty (60) calendar days, the indemnifying party makes the requisite response to
such claim or liability asserted.
(e) Notwithstanding anything to the contrary contained in this
Agreement, an indemnifying party shall not be liable under this Section 12.1 for
any Losses sustained by the indemnified party unless and until the aggregate
amount of all indemnifiable Losses sustained by the indemnified party shall
exceed $50,000, in which event the indemnifying party shall provide
indemnification hereunder in respect of all such indemnifiable Losses in excess
of $50,000; provided, however, that the aggregate amount of indemnification
payments payable pursuant to this Section 12.1, shall not exceed the amount of
the Purchase Price. An indemnifying party shall not be liable under this Section
12.1 for any settlement effected, without its consent, of any claim or liability
or proceeding for which indemnity may be sought hereunder except in the case of
a settlement in an amount which does not exceed $50,000. In no event shall
either party hereto be entitled to consequential or punitive damages or damages
for lost profits in any action relating to the subject matter of this Agreement.
12.2 Loans. (a) Notwithstanding anything to the contrary contained in
this Agreement, subject to Section 12.3 and 12.4, in order for Purchaser to
claim a breach of a representation or warranty of Seller under Section 5.10 or
under Section 5.11 insofar as such claimed breach may relate to one or more
Loans, Purchaser shall deliver to Seller, within thirty (30) days following
Purchaser's discovery of such breach but in no event later than the one hundred
eightieth (180th) day following the Closing Date, a certificate (a
"Certificate of Defective Loan"), setting forth the identity of the affected
Loan, the exact nature of such claimed breach, the subsection or subsections of
Section 5.10, as applicable, under which such breach is claimed and reasonable
evidence of the existence of such breach.
49
<PAGE>
(b) If Purchaser delivers a Certificate of Defective Loan to Seller,
Seller shall have the option, in its sole and absolute discretion, to correct or
cure such breach with respect to such affected Loan within sixty (60) days
following the receipt of the Certificate (the "Cure Period") or to repurchase
any such affected Loan on a whole loan servicing-released basis within sixty
(60) days following receipt of the Certificate for an amount equal to the Loan
Value thereof as of the date of repurchase (the "Repurchase Price"). If Seller
elects to attempt to cure or correct any material breach with respect to any
Loan but fails to cure or correct such material breach on or before the
expiration of the Cure Period, then Seller shall repurchase such Loan on a whole
loan servicing-released basis within thirty (30) days following the expiration
of the Cure Period for the Repurchase Price, subject to Sections 12.2(d).
(c) In connection with any repurchase of a Loan by Seller pursuant to
this Section 12.2, and as a condition to the payment by Seller to Purchaser of
the Repurchase Price thereof, Purchaser shall deliver to Seller all Loan
Documents (and, if applicable, any collateral deposit account associated with
such Loan) with respect to such Loan previously delivered to Purchaser pursuant
to this Agreement, and each document that constitutes a part of the Loan
Documents which was endorsed or assigned to Purchaser shall be endorsed or
assigned to Seller in the same manner as provided in Sections 3.6 and 5.10.
(d) Notwithstanding anything to the contrary contained herein, Seller
shall have no obligation hereunder to correct or cure any material breach or to
repurchase any Loan pursuant to this Section 12.2, if after the Closing Date,
(i) Purchaser or its permitted assignee is not the owner of such Loan or does
not have the full right to sell and assign such Loan hereunder (it being
understood that the rights under this Section 12.2 shall not survive any sale,
conveyance, assignment or transfer of the subject Loan by Purchaser to an
unaffiliated third party); (ii) any lien, pledge, charge or security interest of
any nature exists with respect to such Loan as of the time of repurchase; (iii)
the related security interests or mortgages, if any, have been waived, modified,
altered, satisfied, canceled, rescinded or subordinated in any respect, or the
related collateral has been released from its obligations under such security
interests or mortgages, in whole or in part, in a manner which materially
interferes with the benefits of the security intended to be provided by such
mortgages or the use, enjoyment, value or marketability of such collateral for
the purposes specified in such mortgages; or (iv) Purchaser has otherwise
altered, amended or modified the terms of such Loan.
12.3 [intentionally omitted]
12.4 Exclusivity. After the Closing, Article 12 will provide the
exclusive remedy for any misrepresentation, breach of warranty, covenant or
other agreement or other claim arising out of this Agreement or the transactions
contemplated hereby; provided, however, that Section 12.2 shall be Purchaser's
sole and exclusive remedy or any breach of Seller's representations or
warranties under Section 5.10. In no event shall Purchaser have any such claim
with respect to any Loan which is paid in full on or before the one hundred
twentieth (120th) day after the Closing Date.
50
<PAGE>
12.5 AS-IS Sale; Waiver of Warranties. Except as set forth in Article 5
and Sections 8.1 and 8.8, Purchaser acknowledges that the Assets and Liabilities
are being sold and accepted on an "AS-IS-WHERE-IS" basis, and are being accepted
without any representation or warranty. As part of Purchaser's agreement to
purchase and accept the Assets and Liabilities AS-IS-WHERE-IS, and not as a
limitation on such agreement, TO THE FULLEST EXTENT PERMITTED BY LAW, SELLER
HEREBY DISCLAIMS AND PURCHASER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES AND
RELEASES ANY AND ALL ACTUAL OR POTENTIAL RIGHTS PURCHASER MIGHT HAVE AGAINST
SELLER OR ANY PERSON DIRECTLY OR INDIRECTLY CONTROLLING SELLER REGARDING ANY
FORM OF WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND OR TYPE, RELATING TO THE
ASSETS AND LIABILITIES INCLUDING, BUT NOT LIMITED TO, THE LOANS AND/OR THE
COLLATERAL THEREFOR EXCEPT THOSE SET FORTH IN ARTICLE 5 AND SECTIONS 8.1 AND
8.8. SUCH WAIVER AND RELEASE IS, TO THE FULLEST EXTENT PERMITTED BY LAW,
ABSOLUTE, COMPLETE, TOTAL AND UNLIMITED IN EVERY WAY. SUCH WAIVER AND RELEASE
INCLUDES TO THE FULLEST EXTENT PERMITTED BY LAW, BUT IS NOT LIMITED TO, A WAIVER
AND RELEASE OF EXPRESS WARRANTIES (EXCEPT THOSE SET FORTH IN ARTICLE 5 AND
SECTIONS 8.1 AND 8.8), IMPLIED WARRANTIES, WARRANTIES OF FITNESS FOR A
PARTICULAR USE, WARRANTIES OF MERCHANTABILITY, WARRANTIES OF HABITABILITY,
STRICT LIABILITY RIGHTS AND CLAIMS OF EVERY KIND AND TYPE, INCLUDING BUT NOT
LIMITED TO CLAIMS REGARDING DEFECTS WHICH WERE NOT OR ARE NOT DISCOVERABLE, ALL
OTHER EXTANT OR LATER CREATED OR CONCEIVED OF STRICT LIABILITY OR STRICT
LIABILITY TYPE CLAIMS AND RIGHTS.
ARTICLE 13
MISCELLANEOUS
13.1 Survival. (a) The parties' respective representations and
warranties contained in this Agreement shall survive until the first anniversary
of the Closing Date, and thereafter neither party may claim any Loss in relation
to a breach thereof; provided, however, that each of the representations and
warranties of Seller set forth in Section 5.10 and in Section 5.11 insofar as
such Section may relate to one or more Loans, shall survive the Closing Date for
a period of one hundred eighty (180) days, and thereafter neither party may
claim any damage for breach thereof. The agreements and covenants contained in
this Agreement shall not survive the Closing except to the extent expressly set
forth herein.
(b) No claim based on any breach of any representation or warranty shall
be valid or made unless notice with respect thereto is given to Seller in
accordance with this Agreement on or before the date specified in Section
12.1(c).
51
<PAGE>
13.2 Assignment. Except as otherwise provided in Section 8.55, neither
this Agreement nor any of the rights, interests or obligations of either party
may be assigned by either party hereto without the prior written consent of the
other party, and any purported assignment in contravention of this Section 13.2
shall be void. Purchaser further agrees not to sell, transfer or assign any of
the Loans prior to the Closing Date.
13.3 Binding Effect. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
13.4 Public Notice. Prior to the Closing Date, neither Purchaser nor
Seller shall directly or indirectly make or cause to be made any press release
for general circulation, public announcement or disclosure or issue any notice
or general communication to employees with respect to any of the transactions
contemplated hereby without the prior written consent of the other party (which
consent shall not be unreasonably withheld or delayed). Purchaser agrees that,
without Seller's prior written consent, it shall not release or disclose any of
the terms or conditions of the transactions contemplated herein to any other
person. Notwithstanding the foregoing, each party may make such public
disclosure as, in the opinion of its counsel, may be required by law or as
necessary to obtain the Regulatory Approvals.
13.5 Notices. All notices, requests, demands, consents and other
communications given or required to be given under this Agreement and under the
related documents shall be in writing and delivered to the applicable party at
the address indicated below:
If to Seller: Wells Fargo Bank, National Association
420 Montgomery Street
San Francisco, California 94163
Attention: __________________
Fax: _______________
With a copy to: Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Attention: Secretary
Fax: 612-667-4399
If to Purchaser: California Federal Bank, A Federal Savings Bank
135 Main Street, 20th Floor
San Francisco, California 94105-1817
Attention: Scott A. Kisting, EVP
Fax: 415-904-0416
52
<PAGE>
With a copy to: California Federal Bank
135 Main Street, 4th Floor
San Francisco, California 94105-1817
Attention: Bill Primozic, Esq.
Fax: 415-904-0203
or, as to each party at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. Any notices shall be in writing, including telegraphic or
facsimile communication, and may be sent by registered or certified mail, return
receipt requested, postage prepaid, or by fax, or by overnight delivery service.
Notice shall be effective upon actual receipt thereof.
13.6 Expenses. Except as expressly provided otherwise in this Agreement,
each party shall bear any and all costs and expenses which it incurs, or which
may be incurred on its behalf, in connection with the preparation of this
Agreement and consummation of the transactions described herein, and the
expenses, fees, and costs necessary for any approvals of the appropriate
regulatory authorities.
13.7 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Nevada.
13.8 Entire Agreement; Amendment. (a) This Agreement contains the entire
understanding of and all agreements between the parties hereto with respect to
the subject matter hereof and supersedes any prior or contemporaneous agreement
or understanding, oral or written, pertaining to any such matters which
agreements or understandings shall be of no force or effect for any purpose;
provided, however, that the terms of any confidentiality agreement between the
parties hereto previously entered into, to the extent not inconsistent with any
provisions of this Agreement, shall continue to apply.
(b) This Agreement may not be amended or supplemented in any manner
except by mutual agreement of the parties and as set forth in a writing signed
by the parties hereto or their respective successors in interest. The waiver of
any beach of any provision under this Agreement by any party shall not be deemed
to be waiver of any preceding or subsequent breach under this Agreement. No such
waiver shall be effective unless in writing.
13.9 Third Party Beneficiaries. Except as expressly provided in Section
12.1 or 12.2, this Agreement shall not benefit or create any right or cause of
action in or on behalf of any person other than Seller and Purchaser.
13.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
53
<PAGE>
13.11 Headings. The headings used in this Agreement are inserted for
purposes of convenience of reference only and shall not limit or define the
meaning of any provisions of this Agreement.
13.12 [intentionally omitted]
13.13 Severability. If any provision of this Agreement, as applied to
any party or circumstance, shall be judged by a court of competent jurisdiction
to be void, invalid or unenforceable, the same shall in no way effect any other
provision of this Agreement, the application of any such provision and any other
circumstances or the validity or enforceability of the other provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date and year first above
written.
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: _____________________________
Name: ____________________
Title: ___________________
By: _____________________________
Name: ____________________
Title: ___________________
CALIFORNIA FEDERAL BANK,
A FEDERAL SAVINGS BANK
By: _____________________________
Name: ____________________
Title: ___________________
54
<PAGE>
13.11 Headings. The headings used in this Agreement are inserted for
purposes of convenience of reference only and shall not limit or define the
meaning of any provisions of this Agreement.
13.12 (intentionally omitted)
13.13 Severability. If any provision of this Agreement, as applied to
any party or
circumstance, shall be judged by a court of competent jurisdiction to be void,
invalid or unenforceable, the same shall in no way effect any other provision of
this Agreement, the application of any such provision and any other
circumstances or the validity or enforceability of the other provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement, to be
executed by their duly authorized officers as of the date and year first above
written.
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ William Henderson
---------------------------------
Name: William Henderson
Title: Executive Vice President
By: /s/ Patrick Yalung
---------------------------------
Name: Patrick Yalung
Title: Senior Vice President
CALIFORNIA FEDERAL BANK,
A FEDERAL SAVINGS BANK
By:
---------------------------------
Name: _____________
Title: _______________
<PAGE>
SCHEDULE 1.1(b)
BRANCHES/REAL PROPERTIES
WELLS FARGO BANK, NATIONAL ASSOCIATION
Branch Name Branch Address Lease/Own
1 Fallon 1995 West Williams Leased
Fallon, NV 89406
2 Yerington 14 South Main Street Owned
Yerington, NV 89447
<PAGE>
SCHEDULE 1.1(d)
EXCLUDED DEPOSITS
See Attached
<PAGE>
WELLS FARGO & CO
WEST FALLON - AU 3729
SCHEDULE OF EXCLUDED DEPOSITS
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
BALANCE
ACCOUNT 9/30/98 PRODUCT BRANCH CUSTOMER NAME CITY STATE ZIP
<S> <C> <C> <C> <C> <C> <C> <C>
0832-247746 2,942.44 002 03729 NORM TRIGUEIRO FALLON NV 89406-7442
0832-260400 2,482.70 054 03729 SHAUNA L TRACY FALLON NV 89406-8146
0832-264881 76.27 054 03729 RACHEL A WINGATE YUBA CITY CA 95993-2229
0832-266860 3,642.45 054 03729 LINDA WIDMER FALLON NV 89406-7850
0895-320752 795.72 054 03729 TINA SLOWAN FALLON NV 89406-7214
6701-869026 60.00 201 03729 CHRISTOPHER S MALOY FALLON NV 89406-8430
</TABLE>
<PAGE>
WELLS FARGO & CO
YERINGTON - AU 6504
SCHEDULE OF EXCLUDED DEPOSITS
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
BALANCE
ACCOUNT 9/30/98 PRODUCT BRANCH CUSTOMER NAME CITY STATE ZIP
<S> <C> <C> <C> <C> <C> <C> <C>
0832-093553 830.23 040 06504 MARY L MATTICE YERINGTON NV 89447
0871-829446 942.86 054 06504 NICHOLAS J RICE YERINGTON NV 89447-2242
6291-743540 457.84 210 06504 LISA M FITZPATRICK YERINGTON NV 89447-2936
</TABLE>
<PAGE>
SCHEDULE 1.1(e)
OTHER LOANS
See List delivered to Purchaser October 22, 1998
<PAGE>
SCHEDULE 2.1(a)(vii)
OTHER ASSETS
NONE
<PAGE>
SCHEDULE 2.2(a)(v)
ACCRUED LIABILITIES
NONE
<PAGE>
SCHEDULE 2.4(c)
EXCLUDED IRA/KEOGH ACCOUNT DEPOSITS
[TO COME]
<PAGE>
SCHEDULE 3.6(a)
FORM OF DEED
Recording Requested by:
When Recorded Mail to:
DOCUMENT TRANSFER TAX $______
( ) COMPUTED ON FULL VALUE OF PROPERTY CONVEYED, OR
( ) COMPUTED ON FULL VALUE LESS LIENS AND ENCUMBRANCES
REMAINING THEREON AT TIME OF SALE.
Signature of declarant or agent determining tax - Firm Name
() Unincorporated Area () City of _______________________
Assessor's parcel No. ______________________
________________________________________ with its principal office
located in _______________________, _______________, the undersigned grantor,
for a valuable consideration, receipt of which is hereby acknowledged, does
hereby remise, release and forever grant, bargain, sell and convey to [NAME OF
GRANTEE(S)] a ___________________ ________________, with its principal office
located in _________________________, all of the real property in the City of
_________________________, County of __________________, State of _____
________________, described in Attachment A hereto.
Date: ____________________________ ______________________________
_______________________
By: __________________________
Name:
Title:
MAIL TAX STATEMENTS TO GRANTEE
AT ADDRESS ABOVE
<PAGE>
Attachment A
Property
2
<PAGE>
SCHEDULE 3.6(b)
FORM OF BILL OF SALE
BILL OF SALE, dated as of _________________, ______ by
____________________________ _________________________, with its principal
office located in ___________________________, _______________ ("Seller"), to
______________________________________________, with its principal office
located in __________________________________________________, ("Purchaser").
Capitalized terms not otherwise defined herein shall have the same meanings as
set forth in the Purchase and Assumption Agreement, dated as of
_______________________, _______ (the "P&A Agreement"), between Seller and
Purchaser, unless the context herein otherwise requires.
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions set forth in the P&A
Agreement, Seller has agreed to transfer to Purchaser the Assets;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller does hereby convey, grant,
bargain, sell, transfer, set over, assign, alienate, remise, release, deliver
and confirm unto Purchaser, its successors and assigns, forever, all of Seller's
right, title, interest and claim in and to the Personal Property (including
without limitation, the items described in Attachment A hereto), as of
11:59 p.m., ____________ time, the day prior to the date hereof.
TO HAVE AND TO HOLD all and singular of the foregoing (the "Transferred
Properties") unto Purchaser, its successors and assigns, to its and their own
use and enjoyment forever.
SELLER FURTHER COVENANTS AND AGREES AS FOLLOWS:
1. This instrument shall not constitute an assignment of any covenant,
obligation, liability, contract, agreement, license, lease or commitment
pertaining to the Transferred Properties if an attempted assignment thereof
without the consent of any other party thereto or with an interest therein would
constitute a breach thereof or would materially and adversely affect the rights
of Seller thereunder. If any such consent is not obtained with respect to any
such covenant, obligation, liability, contract, agreement, license, lease or
commitment, or if an attempted assignment with respect thereto would be
ineffective or would impair the rights of Seller thereunder so that Purchaser
would not in fact receive the benefit of all such rights, then Seller, its
successors and assigns, shall act as Purchaser's agent in order to obtain for
Purchaser, its successors and assigns, the benefits thereunder, and Seller will
cooperate with Purchaser in any other reasonable arrangement designed to provide
such benefits for Purchaser.
<PAGE>
2. The Transferred Properties are being delivered "AS IS," "WHERE IS" and with
all faults.
3. From time to time, Seller, its successor and assigns, shall execute and
deliver all such further bills of sale, assignments or other instruments of
conveyance and transfer as Purchaser, its successors or assigns, may reasonably
request more effectively to transfer to and vest in Purchaser all of Seller's
interest in the Transferred Properties.
4. This Bill of Sale is made pursuant to the provisions of the P&A Agreement,
and, except as herein otherwise provided, the transfer of property hereunder is
made subject to the terms and provisions of the P&A Agreement.
5. This Agreement shall be governed by and interpreted in accordance with the
laws of the State of _______________ applicable to contracts made and to be
performed entirely within such State.
IN WITNESS WHEREOF, Seller has duly executed and delivered this Bill of
Sale as of the day and year first above written.
_________________________________________
By: _____________________________________
Name:
Title:
PURCHASER:
By: _____________________________________
Name:
Title:
2
<PAGE>
Attachment A
Personal Property
[To be provided]
3
<PAGE>
SCHEDULE 3.6(c)
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of ______________, ______
(the "Agreement"), between ________________________________, organized under the
laws of __________________________, with its principal office located in
______________________, ____________ ("Seller"), and
______________________________, with its principal office located in
_________________________, ____________________ ("Purchaser"). Capitalized terms
not otherwise defined herein shall have the meanings set forth in the Purchase
and Assumption Agreement, dated as of _________________________, (the "P&A
Agreement"), between Seller and Purchaser, unless the context herein otherwise
requires.
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions set forth in the P&A
Agreement, Seller has agreed to assign, and Purchaser has agreed to assume, the
Liabilities;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Seller hereby sells, assigns, conveys transfers and delivers, and
Purchaser assumes, without warranty or representation, express or implied, or
recourse to, Seller, except as expressly provided in the P&A Agreement, the
Liabilities, other than the Branch Leases, as set forth in the P&A Agreement.
2. Seller hereby (a) resigns as the trustee or custodian of each Deposit
in an IRA or Keogh Account of which it is the trustee or custodian, and (b) to
the extent permitted by the documentation governing such IRA or Keogh Account,
appoints Purchaser as successor trustee or custodian of each such IRA or Keogh
Account, and Purchaser hereby accepts each such trusteeship or custodianship and
assumes all fiduciary obligations with respect thereto.
3. This Agreement shall not constitute an assignment or assumption of
any covenant, fiduciary or other obligation, liability, contract, agreement,
license, lease or commitment pertaining to any Liability if an attempted
assignment or assumption thereof without the consent of any other party thereto
or with an interest therein would constitute a breach thereof or would
materially and adversely affect the rights of Seller thereunder. If any such
consent is not obtained with respect to any such covenant, fiduciary or other
obligation, liability, contract, agreement, license, lease or commitment, or if
an attempted assignment or assumption of any covenant, fiduciary or other
obligation, liability, contract, agreement, license, lease or commitment
pertaining to any Liability would be ineffective or would impair the rights of
Seller thereunder so that Purchaser would not in fact receive the benefit of all
such rights, then Seller, its successors and assigns shall act as Purchaser's
agent in order to obtain for Purchaser, its successors and assigns, the benefits
<PAGE>
thereunder, and Seller will cooperate with Purchaser in any other reasonable
arrangement designed to provide such benefits for Purchaser.
4. This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective permitted
successors and permitted assigns; provided, that neither this Agreement nor any
of the rights, interests or obligations of either party may be assigned by
either party hereto without the prior written consent of the other party, and
any purported assignment in contradiction of this Section 4 shall be void.
5. This Agreement is made pursuant to the provisions of the P&A
Agreement and, except as herein otherwise provided, the assignment and
assumption of any other Liabilities hereunder are made subject to the terms and
provisions of the P&A Agreement.
6. Except as otherwise provided herein, all of the transactions provided
for herein shall be effective as of 11:59 p.m., ____________________ time, the
day prior to the date hereof.
7. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of ____________________ applicable to contracts made
and to be performed entirely within such State.
IN WITNESS WHEREOF, the parties herein have duly executed and delivered
this Agreement as of the day and year first above written.
___________________________________________
By: _______________________________________
Name:
Title:
[PURCHASER]
By: _______________________________________
Name:
Title:
2
<PAGE>
SCHEDULE 3.6(d)
FORM OF ASSIGNMENT OF LEASE AND ASSUMPTION
KNOW THAT __________________________________________________, a
_____________________, organized under the laws of the ____________________,
having its principal office in _________________, ______________ ("Assignor"),
in consideration of One Dollar ($1.00) and other good and valuable consideration
paid by ____________________ ____________________, with its principal office
located in _________________________, ("Assignee"), hereby sells, transfers and
assigns unto the Assignee all of Assignor's right, title and interest as tenant
under a certain lease more particularly described on Attachment A hereto,
covering premises described on such attachment and in such Lease (the "Lease")
including any security deposits, prepaid rentals and other deposits, if any.
TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns
from and after 8:00 a.m. on the date hereof (the "Effective Time"), subject to
the terms, covenants, conditions and provisions set forth in the Lease.
ASSIGNEE hereby assumes, effective as of the Effective Time, the
performance of all terms, covenants and obligations of the Lease on the part of
Assignor to be performed under the Lease accruing from and after the Effective
Time.
This Assignment may be executed in any number of counterparts. Each such
counterpart hereof shall be deemed an original, but all counterparts shall
constitute but one agreement.
This Assignment shall inure to the benefit of and shall be binding upon
the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement
as of the __________ day of ____________________, ______.
_________________________________________
By: _____________________________________
Name:
Title:
CALIFORNIA FEDERAL BANK,
A FEDERAL SAVINGS BANK
<PAGE>
By: _____________________________________
Name:
Title:
2
<PAGE>
Attachment A
Lease
3
<PAGE>
SCHEDULE 3.6(e)
FORM OF LANDLORD CONSENT
CONSENT, dated as of __________________, ______, of ____________________
________, with its principal office located in ________________________________
("Landlord"), in favor of ____________________________________________ organized
under the laws of the _____ ________________, with its principal office located
in ________________, ______________ ("Seller").
W I T N E S S E T H:
WHEREAS, Landlord is the owner of certain premises and a party to a
certain lease, each described on Attachment A hereto (the "Lease"); and
WHEREAS, Seller desires to assign its entire interest (including without
limitation, renewal rights, if any) in the Lease to ________________________,
with its principal office located in ______________________, ("Purchaser"); and
WHEREAS, Seller has requested Landlord's consent to said assignment and
to Purchaser's use of said premises as a banking office and for all other
purposes authorized under the Lease for the balance of the term of the Lease and
Landlord desires to consent to the same for all purposes required under the
Lease.
NOW, THEREFORE,
1. Subject to the limitations set forth below, Landlord hereby consents
to the assignment of the Lease by Seller to Purchaser and to Purchaser's use of
said premises as a banking office and for all other purposes authorized under
the Lease for the balance of the term of the Lease; provided that Purchaser
shall agree to assume all of the obligations of Seller arising under the Lease
from and after the effective date of the assignment.
2. Except for the aforementioned assignment by Seller to Purchaser,
nothing contained herein shall constitute a waiver of the obligation, if any, of
the holder of the leasehold interest created under the Lease to obtain
Landlord's consent to future assignments of the Lease or a sublease of the
premises demised thereunder.
3. Nothing contained herein shall be construed to obligate Seller to
assign the Lease to Purchaser, it being understood and acknowledged by Landlord
that the execution and delivery of this Consent is in anticipation of said
assignment, which may or may not be effected. If said assignment shall be
effected, Seller or Purchaser shall promptly provide to Landlord a fully
executed counterpart of said assignment and notify Landlord of the effective
date thereof.
4. Landlord acknowledges and certified that, except for the conditions
contained herein, all conditions set forth in the Lease, if any, to the
effectiveness of the
<PAGE>
aforementioned assignment or to the consent of Landlord contained herein have
been either waived by Landlord or satisfied.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this instrument as of the day and year first above written.
[LANDLORD]
By: _____________________________
Name:
Title:
2
<PAGE>
Attachment A
Lease
3
<PAGE>
SCHEDULE 3.6(g)
FORM OF CERTIFICATE OF OFFICER
The undersigned, the [title of officer] of ___________________________, a
______________________, organized under the laws of the _____________________,
with its principal office located in __________________, ______________________
("Seller"), hereby certifies, to the best of [his] [her] knowledge after
reasonable inquiry, as follows:
1. Each of the representations and warranties made by Seller in the
Purchase and Assumption Agreement, dated as of __________________, ______, (the
"P&A Agreement"), between Seller and _________________________________, with its
principal office located in ____________________, California, are true and all
material respects, as of the date hereof.
2. Each of the covenants and agreements of Seller to be performed on or
prior to the date hereof have been duly performed in all material respects.
3. Attached hereto are true and correct copies of the resolutions of the
Seller's Board of Directors, dated as of ____________________, ______,
authorizing the execution, delivery and performance of the transactions
contemplated by the P&A Agreement, which resolutions were duly adopted and, as
of the date hereof, remain in full force and effect without amendment or
modification.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ______ day
of ______________________, _____.
_________________________________
By: _____________________________
Name:
Title:
<PAGE>
SCHEDULE 3.7(d)
FORM OF CERTIFICATE OF OFFICER
The undersigned, the [title of officer] of ____________________________,
with its principal office located in _________________________, ("Purchaser"),
hereby certifies, to the best of [his] [her] knowledge after reasonable inquiry,
as follows:
1. Each of the representations and warranties made by Purchaser in the
Purchase and Assumption Agreement, dated as of __________________, ______ (the
"P&A Agreement"), between Purchaser and _______________________________________,
organized under the laws of _______________, with its principal office located
in ______________________, ______________, are true in all material respects, as
of the date hereof (except for representations and warranties that are made as
of a specific date).
2. Each of the covenants and agreements of Purchaser to be performed on
or prior to the date hereof have been duly performed in all material respects.
3. Attached hereto are true and correct copies of the resolutions of the
Purchaser's Board of Directors, dated as of ____________________, ______,
authorizing the execution, delivery and performance of the transactions
contemplated by the P&A Agreement, which resolutions were duly adopted and, as
of the date hereof, remain in full force and effect without amendment or
modification.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ______ day
of ______________________, _____.
[PURCHASER]:
By: _____________________________
Name:
Title:
<PAGE>
SCHEDULE 4.11
SCHEDULE OF PROCESSING FEES
See Attached
<PAGE>
Schedule 4.11
Schedule of Cost from Operations for Divestiture
<TABLE>
<CAPTION>
<S> <C>
|---------------------------------------|-----------------------------------------------------|
|Daily Cash Letter | $25.00 per letter |
|---------------------------------------|-----------------------------------------------------|
|Return Deposited Items | $2.50 per item |
|---------------------------------------|-----------------------------------------------------|
|ACH File | $35.00 per transmitted file |
|---------------------------------------|-----------------------------------------------------|
|Photocopies (per item) | $3.00 per item |
|---------------------------------------|-----------------------------------------------------|
|Research Request (per item) | $20.00 per hour, $20.00 minimum |
|---------------------------------------|-----------------------------------------------------|
|Courier |Dedicated in-city run (time sensitive) $35 per run |
| |Non-Dedicated in-city run $25 per run |
|---------------------------------------|-----------------------------------------------------|
</TABLE>
This is the best we could do given the short time frame to get the numbers. I
did check with the Texas folks and we are not charging Crane for any of these
items. I assume it because Crane is small compared to this one.
<PAGE>
SCHEDULE 5.4
TENANT LEASES
NONE
<PAGE>
SCHEDULE 5.7
LITIGATION/UNDISCLOSED LIABILITIES
NONE
<PAGE>
SCHEDULE 5.10(a)(ix)
EXCEPTIONS TO SELLER'S SOLE OWNERSHIP OF LOANS
NONE
<PAGE>
SCHEDULE 5.10(f)(i)
FORM OF AFFIDAVIT OF LOST NOTE
I, ____________________________________, being duly sworn, do hereby state under
oath that:
1. I, as ________________________ (title) of ____________________________, am
authorized to make this Affidavit on behalf of ________________________________
(the "Lender").
2. The Lender is the Payee under the following described mortgage note (the
"Note"):
Date: ___________________________
Loan No.: ___________________________
Borrower(s): ___________________________
Original Payee (if not the Lender): ___________________________
Original Amount: ___________________________
Rate of Interest: ___________________________
Address of Mortgaged Property: ___________________________
3. The Lender is the lawful owner of the Note, and the Lender has not canceled,
altered, assigned or hypothecated the Note.
4. The Note was not located after a thorough and diligent search which consisted
of the following actions:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
5. The Note was sold to ______________________ by ____________________________
pursuant to the terms and provisions of a ____________________ Agreement dated
and effective as of ______________________, _____.
6. Attached hereto is a true and correct copy of (i) the Note, endorsed in blank
by Lender, and (ii) the Mortgage or Deed of Trust [strike one] which secures the
Note, which Mortgage or Deed of Trust is recorded at:
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
7. ____________________________________________, hereby agrees to defend,
indemnify and hold harmless __________________________________________, its
successors, and assigns, against any loss, liability or damage, including
reasonable attorney's fees, resulting from the unavailability of any notes,
including but not limited to any loss, liability or damage arising from (i) any
false statement contained in this Affidavit, (ii) any claim of any party that it
has already purchased a mortgage loan evidenced by a Lost Note or any interest
in such loan, (iii) any claim of any borrower with respect to the existence or
terms of a Mortgage Loan evidenced by a Lost Note, or (iv) any inability to
enforce the Note according to its terms or inability to receive any related
insurance proceeds due to the lack of an original Note.
8. This Affidavit is intended to be relied on by ______________________________,
its successors, and assigns and ________________________________ represents and
warrants that it has the authority to perform its obligations under this
Affidavit of Lost Note.
Date: ________________________
By: ___________________________
Name:
Title:
2
<PAGE>
SCHEDULE 5.10(k)
EXCEPTIONS TO RIGHTS OF MORTGAGORS
NONE
<PAGE>
SCHEDULE 5.16
DEPOSITS - COMPLIANCE WITH LAWS AND CONTRACTS
NONE
<PAGE>
SCHEDULE 5.17
ENVIRONMENTAL MATTERS
NONE
<PAGE>
SCHEDULE 8.1
OUTSTANDING TAX LIABILITIES
NONE
<PAGE>
REIMBURSEMENT AND EXPENSE ALLOCATION AGREEMENT
THIS REIMBURSEMENT AND EXPENSE ALLOCATION AGREEMENT, is entered into
effective as of November 23, 1998 (this "Agreement"), by and between Golden
State Bancorp Inc., a Delaware corporation ("GSB") and California Federal Bank,
A Federal Savings Bank. ("CFB").
RECITALS
WHEREAS, CFB is a wholly owned subsidiary of GSB, and GSB may, from time
to time, incur expenses on behalf or for the direct benefit of CFB, and
WHEREAS, CFB desires to reimburse GSB for such expenses incurred for the
benefit of CFB in a manner consistent with the requirements of Section 23B of
the Federal Reserve Act.
AGREEMENTS
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
REIMBURSEMENT FOR SERVICES PROVIDED
Section 1. Services. CFB shall reimburse GSB for all costs and
out-of-pocket expenses incurred by GSB with respect to any services provided for
the direct benefit of CFB.
ARTICLE II
PAYMENT
Section 2.1 Payment. (a) GSB shall invoice CFB on or before the 30th day
following each month for the costs and out-of-pocket expenses to be reimbursed
pursuant to Section 1, annexing schedules in reasonable detail itemizing the
charges so invoiced and the calculations thereof. Payment shall be due within 15
days of the receipt of each such invoice.
(b) It is expressly agreed that the costs and out-of-pocket expenses
incurred by GSB that are to be reimbursed pursuant to this Agreement shall not
include any mark-up, overhead or profit factor for GSB.
<PAGE>
ARTICLE III
TERM AND TERMINATION
Section 3.1 Term and Termination. This Agreement shall remain in effect
until terminated. Either party may terminate this Agreement on 90 days written
notice to the other party.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Amendment and Modification; Waiver. This Agreement may be
amended, modified or supplemented only by written agreement of the parties
hereto. The failure of any of the parties hereto to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefit thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
Section 4.2 Successors and Assigns; Parties in Interest; Assignment.
This Agreement shall be binding upon and inure solely to the benefit of the
parties hereto and their respective permitted successors and assigns, and
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person or persons any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties
hereto.
Section 4.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given upon receipt by
the respective parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to GSB, to:
Golden State Bancorp Inc.
135 Main Street, 20th Floor
San Francisco, CA 94105
Attention: General Counsel
(b) if to CFB, to:
California Federal Bank
135 Main Street, 20th Floor
San Francisco, CA 94105
Attention: General Counsel
<PAGE>
Section 4.4 Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense.
Section 4.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 4.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 4.7 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements, understandings and negotiations, both
written and oral, among the parties with respect to the subject matter of this
Agreement.
Section 4.8 Captions. The captions herein are included for convenience
of reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
Section 4.9 Severability. This Agreement shall be deemed severable; the
invalidity or unenforceability of any term or provision of this Agreement shall
not affect the validity or enforceability of this Agreement or of any other term
hereof, which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
GOLDEN STATE BANCORP INC.
By /s/ Eric K. Kawamura
------------------------------------------------
Name: Eric K. Kawamura
Title: Senior Vice President
CALIFORNIA FEDERAL BANK,
A FEDERAL SAVINGS BANK
By: /s/ Renee Nichols Tucei
------------------------------------------------
Name: Renee Nichols Tucei
Title: Senior Vice President and Controller
<PAGE>
AGREEMENT
FOR PROVISION OF SERVICES
THIS AGREEMENT FOR THE PROVISION OF SERVICES (the "Agreement") is
entered into effective November 23, 1998, between CALIFORNIA FEDERAL BANK, A
FEDERAL SAVINGS BANK ("Cal Fed") and Golden State Management Inc. ("GSM"), a
Delaware corporation, in reference to the following facts and understandings:
RECITALS
WHEREAS, Cal Fed and GSM mutually benefit from performance of
services by Cal Fed for Golden State Bancorp Inc.and its subsidiaries:
NOW THEREFORE, in consideration of the foregoing, and of their
mutual covenants herein, and intending to be legally bound thereby, the parties
agree as follows:
AGREEMENT
1. Services
1.1 Services Provided. Cal Fed shall, upon the request of GSM, and
subject to the availability of resources and personnel on the part of the Cal
Fed, provide GSM with such services as may be agreed between the parties in the
manner set forth in this Agreement. All services between the parties that are
not the subject of other separate written agreements between the parties shall
be governed by the terms and conditions of this Agreement.
1.2 Compliance with Laws, Regulations, Policies and Procedures.
The services provided by Cal Fed to GSM shall comply with all applicable laws
and regulations, and, except as may be otherwise specifically agreed by the
parties, shall conform to all of the internal policies and procedures of Cal
Fed and GSM that are applicable to such services.
1.3 Operating Rules. The provision of services under this
Agreement, to the extent not inconsistent with the terms of this Agreement,
shall be governed by a set of "Operating Procedures," established by the mutual
agreement of the parties, a copy of which is attached to this Agreement as
Exhibit A. The Operating Procedures may be amended from time to time with the
written agreement of all the parties.
<PAGE>
2. Compensation. In consideration of the services provided pursuant to
this Agreement, GSM shall pay Cal Fed fees in amounts and in such a manner as
may be established under the Operating Procedures and such other documents and
agreements adopted thereunder.
3. Independent Contractor. Cal Fed is, and shall be, considered for all
purposes to be an independent contractor of GSM. Cal Fed recognizes and agrees
that as an independent contractor, it, its employees, agents and
representatives shall not be eligible to participate in any of GSM's employee
benefits or similar programs, and the exclusive consideration payable by GSM to
Cal Fed for the provision of products and services hereunder shall be as set
forth in Section 2 of this Agreement.
Cal Fed shall select its own employees, agents and representatives to
provide services to GSM pursuant to this Agreement who shall be and act under
the exclusive supervision and control of Cal Fed and who shall not be, or
deemed for any purpose to be, employees or agents of GSM. Cal Fed is solely and
exclusively responsible for determining and adhering to the terms and
conditions of hiring, employment or engagement of itself, and its employees,
agents and representatives, including hours of work, rates and payment of
compensation and benefits, and the payment, reporting, collection, withholding
and deduction of all federal, state and local taxes.
4. Powers of Attorney. Each party agrees to designate one or more of the
employees, officers, or representatives of another party as its agent-in-fact
under a limited power of attorney, in a form agreeable to both parties and
their legal counsel, as may be necessary or appropriate to facilitate the
performance of the services provided under this Agreement.
5. Indemnification. GSM shall defend and indemnify Cal Fed against and
hold it harmless from any and all claims made by third parties for loss or
damage arising directly or indirectly from any and all services and products
provided by Cal Fed to GSM pursuant to this Agreement, except those claims that
result from the knowing and willful misconduct of Cal Fed or the gross
negligence of Cal Fed. In the foregoing sentence the words "loss or damage"
include, but are not limited to: (1) loss or damage arising directly or
indirectly from any actions or omissions of any employee or authorized
representative of Cal Fed and; (2) the value of time spent, reasonable
attorney's fees and other fees incurred in defending a claim.
6. Term of Agreement. This Agreement shall be effective for five (5)
years from the date hereof.
7. Notices. Except as provided in the Operating Procedures, all notices,
requests, demands, payments or other communications under this Agreement shall
be in writing and shall be deemed to have been given upon personal delivery to
a party's designated representative.
2
<PAGE>
8. Confidentiality. All information disclosed by one party to another
party under the terms of this Agreement, except such information as may be
generally available to the public or the thrift and banking industries, is and
will be kept confidential unless its disclosure is required by law or is
required to be submitted to the regulatory supervisor(s) of the affected party.
9. Breach. Upon the breach of any obligation under this Agreement by
either party, the aggrieved party shall give to the breaching party prompt
written notice of such breach, which notice shall specify the exact nature of
the breach. If this Agreement is terminated, the right of the aggrieved party
to any damages for such breach shall not be prejudiced.
10. Integration: Amendments. This Agreement, including its attached
exhibits, contains the entire agreement among the parties with respect to its
subject matter, and supersedes all prior oral or written agreements,
understandings, representation and communications. No amendments can be made to
this Agreement except by a writing signed by both of the parties.
11. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
12. Termination. Either party may terminate this Agreement upon at least
30 days prior written notice given to the other party.
13. Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which shall
constitute one and the same instrument, and any party may execute this
Agreement by signing any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective on the date first above written by their duly authorized officers.
CALIFORNIA FEDERAL BANK, GOLDEN STATE
A Federal Savings Bank MANAGEMENT INC.,
A Delaware Corporation
By: /s/ Eric K. Kawamura By: /s/ Renee Nichols Tucei
---------------------------- ----------------------------
3
<PAGE>
AGREEMENT
FOR THE PROVISION OF SERVICES
EXHIBIT A
OPERATING PROCEDURES
Effective November 23, 1998
The following Operating Procedures have been adopted by California Federal
Bank, A Federal Savings Bank ("Cal Fed") and Golden State Management Inc.
("GSM"), a Delaware corporation, to the provisions of the AGREEMENT FOR THE
PROVISION OF SERVICES (the "Agreement") dated effective on November 23, 1998.
1. GENERAL MATTERS
The purpose of these Operating Procedures is to establish the procedural basis
for the provision of services between the parties pursuant to the Agreement.
While the majority of all services rendered will be provided pursuant to the
Agreement and these Operating Procedures ("general services" arrangements), the
parties acknowledge that certain services are and may be governed by separate
written agreements and not by the Agreement and these Operating Procedures
("transactional" arrangements). The parties agree that all services that are
not subject to separate written agreement shall be governed by the Agreement
and these Operating Procedures.
2. SERVICE SCHEDULES
Services provided under the Agreement shall be documented for
each six-month period beginning on January 1 and July 1 of each calendar
year.(1) The documentation shall consist of two schedules agreed to among
the parties describing the services rendered and the amounts to be charged
therefor. At the beginning of each six month period described above, the
parties shall agree to a preliminary Services Schedule which shall set forth
the parties' good faith agreed estimates for the services to be provided during
such six month period and the estimated compensation to be paid for such
services. As soon as practicable following the completion of such six month
period, the parties shall agree to a final Services Schedule which shall
describe the actual services provided during the six month period just ended
and the agreed compensation therefor.
- -------------------------------
(1) However, the initial services period shall cover the period from
September 14, 1998 through June 30, 1999.
<PAGE>
3. PROVISION OF SERVICES
Unless specified in a Services Schedule or in a separate written agreement
among the affected parties, the services described in a Services Schedule shall
be performed in accordance with the terms, conditions, rules and procedures
provided in these Operating Procedures and the Agreement.
4. APPROVALS
Each preliminary and final Services Schedule must be approved by each party.
5. COMPENSATION FOR SERVICES
5.1 Payment for Services. On or before the first day of each calendar
month during the period covered by the Services Schedule, GSM shall pay Cal Fed
the amount identified in the preliminary Services Schedule to be due for
services estimated to be provided as of the date of the payment. (Should a
preliminary Services Schedule be unavailable for any particular month, the
preliminary Services Schedule for the immediately preceding six month period
shall be used.) On the date on which the parties agree to the final Services
Schedule (as provided in Paragraph 2 above), GSM shall pay Cal Fed any
remaining amount due under the final Services Schedule; or Cal Fed shall
reimburse GSM for any overpayment.
5.3 Basis of Charges. Services shall be provided on terms and under
circumstances, including credit standards, that are substantially the same, or
at least as favorable to Cal Fed as those prevailing at the time for comparable
transactions with or involving other nonaffiliated companies. In the absence of
comparable transactions, services shall be provided on terms and under
circumstances, including credit standards, that in good faith would be offered
to, or would apply to, nonaffiliated companies. The parties expect that, in the
absence of comparable transactions with other nonaffiliated companies,
compensation terms will cover Cal Fed's costs and include a reasonable profit
for Cal Fed. In all circumstances, GSM agrees to pay Cal Fed compensation
sufficient to satisfy all applicable regulatory requirements, including, but
not limited to, Section 11 of the Home Owners' Loan Act, Section 23A and 23B of
the Federal Reserve Act, and Section 30 of the Federal Deposit Insurance Act.
5.4 Cost Allocation and Documentation. Where charges to GSM are based on
the cost to Cal Fed, the allocation of the costs of the services provided under
the Agreement by Cal Fed shall be governed, to the greatest extent practicable,
by a specific accounting of the services provided to GSM and documented costs
of providing such services. Appropriate measures for such allocations will
depend on the nature of the services being provided, but might include, as
appropriate, comparisons of numbers of employees or accounts served, number of
transactions
- 2 -
<PAGE>
performed, assets managed, time expended by staff on such services, or
equipment costs attributable to providing such services.
6. REGULATORY OVERSIGHT
Each party acknowledges that the arrangements governed by these Operating
Procedures are subject to the regulatory oversight of the Department of the
Treasury, Office of Thrift Supervision (the "OTS"), the Board of Governors of
the Federal Reserve System (the "Board") and the Federal Deposit Insurance
Corporation (the "FDIC"). Each of the parties agrees to cooperate in any
regulatory inquiries into these arrangements. Further, each party agrees that
it will consent to any adjustment to or reversal of any charges under the
Agreement necessary or appropriate to comply with the authorized mandate of the
OTS, the Board, or the FDIC.
8. AMENDMENTS
These Operating Procedures may be amended from time to time by the mutual
written agreement of the parties. A copy of all amendments to the Operating
Procedures shall be attached to the Agreement.
- 3 -
<PAGE>
AGREEMENT
FOR PROVISION OF SERVICES
THIS AGREEMENT FOR THE PROVISION OF SERVICES (the
"Agreement") is entered into effective January 1, 1999, between MAFCO HOLDINGS
INC., a Delaware corporation ("Mafco") and GOLDEN STATE BANCORP INC. ("GSB"), a
Delaware corporation, in reference to the following facts and understandings:
RECITALS
WHEREAS, GSB and its subsidiaries have and continue to benefit
from certain services which have been and continue to be provided by Mafco for
the benefit of GSB and its subsidiaries;
WHEREAS, GSB desires to compensate Mafco for such services in a
manner that is fair and equitable to both GSB and Mafco and to formally
document such arrangements;
NOW THEREFORE, in consideration of the foregoing, and of their
mutual covenants herein, and intending to be legally bound thereby, the parties
agree as follows:
AGREEMENT
1. Services. Mafco shall, upon the request of GSB, provide GSB with such
services as may be agreed between the parties in the manner set forth in
Exhibit 1 to this Agreement. All services between the parties that are not the
subject of other separate written agreements between the parties shall be
governed by the terms and conditions of this Agreement.
2. Compensation. In consideration of the services provided pursuant to
this Agreement, GSB shall pay Mafco a periodic fee in the sum of $125,000 per
month during the term of this Agreement payable on the first day of each month
during the Term.
3. Independent Contractor. Mafco is, and shall be, considered for all
purposes to be an independent contractor of GSB. Mafco recognizes and agrees
that as an independent contractor, it, its employees, agents and
representatives shall not be eligible to participate in any of GSB's employee
benefits or similar programs, and the exclusive consideration payable by GSB to
Mafco for the provision of services hereunder shall be as set forth in Section
2 of this Agreement.
Mafco shall select its own employees, agents and representatives to
provide services to GSB pursuant to this Agreement who shall be and act under
the exclusive supervision and control of Mafco and who shall not be, or deemed
for any purpose to be, employees or agents
<PAGE>
of GSB. Mafco is solely and exclusively responsible for determining and
adhering to the terms and conditions of hiring, employment or engagement of
itself, and its employees, agents and representatives, including hours of work,
rates and payment of compensation and benefits, and the payment, reporting,
collection, withholding and deduction of all federal, state and local taxes.
4. Powers of Attorney. Each party agrees to designate one or more of the
employees, officers, or representatives of another party as its agent-in-fact
under a limited power of attorney, in a form agreeable to both parties and
their legal counsel, as may be necessary or appropriate from time to time to
facilitate the performance of the services provided under this Agreement.
5. Indemnification. Each party agrees to indemnify and defend the other
party against, and hold it harmless from, any and all losses, costs (including
reasonable attorney fees), liabilities, damages, claims and causes of actions
resulting from the indemnifying party's negligence or willful misconduct and/or
resulting from the indemnifying party's breach or default under this Agreement.
6. Term of Agreement. This Agreement shall be effective for one year
from the date hereof.
7. Notices. All notices, requests, demands, payments or other
communications under this Agreement shall be in writing and shall be deemed to
have been given upon delivery to a party's designated representative.
8. Confidentiality. All information disclosed by one party to another
party under the terms of this Agreement, except such information as may be
generally available to the public, is and will be kept confidential unless its
disclosure is required by law or is required to be submitted to the regulatory
supervisor(s) of the affected party.
9. Breach. Upon the breach of any obligation under this Agreement by
either party, the aggrieved party shall give to the breaching party prompt
written notice of such breach, which notice shall specify the exact nature of
the breach. If this Agreement is terminated, the right of the aggrieved party
to any damages for such breach shall not be prejudiced.
10. Compliance with Laws, Regulations, Policies and Procedures. The
services provided by Mafco to GSB shall comply with all applicable laws and
regulations, and, except as may be otherwise specifically agreed by the
parties, shall conform to all of the internal policies and procedures of Mafco
and GSB that are applicable to such services.
11. Integration; Amendments. This Agreement, including its attached
exhibits, contains the entire agreement among the parties with respect to its
subject matter, and supersedes all prior oral or written agreements,
understandings, representation and
2
<PAGE>
communications. No amendments can be made to this Agreement except by a writing
signed by both of the parties.
12. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
13. Termination. Either party may terminate this Agreement upon at least
30 days prior written notice given to the other party.
14. Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which shall
constitute one and the same instrument, and any party may execute this
Agreement by signing any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective on the date first above written by their duly authorized officers.
MAFCO HOLDINGS INC. GOLDEN STATE BANCORP INC.
a Delaware corporation a Delaware corporation
By: By: /s/ Eric K. Kawamura
------------------------- -------------------------
Eric K. Kawamura
Senior Vice President
3
<PAGE>
EXHIBIT 1
Schedule of Services Provided by Mafco to GSB
1. Services provided in support of Chairman and CEO of GSB.
Office facilities, secretarial support, and office services at Mafco's
offices located at 35 E. 62nd St., New York, New York. Transportation for
Chairman and CEO in the New York metropolitan area.
2. Services provided in support of other GSB executives.
Office facilities provided to an executive of GSB located at 625 Madison
Ave., New York, New York. Office facilities, secretarial services and
office support located in Washington, D.C. (particularly in support of
certain litigation).
3. Insurance related services.
Consulting services regarding corporate insurance matters, including
assistance in soliciting and negotiating insurance coverage agreements.
4. Legal services.
Legal support and consultation on general corporate, securities,
litigation, tax and environmental matters.
5. Security matters.
Consultation on security and ethics matters involving GSB and its
customers.
6. Public relations.
Consultation and services in support of public relations and investor
relations functions.
7. Legislative services.
Legislative and governmental relations support through Mafco's E. 62nd
Street, New York and Washington, D.C. offices.
8. Airline and other travel services.
Provide cost savings through use of airline, hotel and auto rental
discounts negotiated by and available to Mafco.
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated effective as of December 1,
1998 (this "Agreement"), between Golden State Bancorp Inc., a Delaware
corporation ("Buyer"), and Trans Network Insurance Services Inc., a Delaware
corporation ("Seller").
WITNESSETH
WHEREAS, Seller is engaged in the marketing of life, property
and casualty insurance to California Federal Bank's retail and consumer loan
customers (the "Business"); and
WHEREAS, Buyer has agreed to acquire from Seller, and Seller has
agreed to sell to Buyer, the Business, on the terms and subject to the
conditions set forth herein.
NOW THEREFORE, the parties agree as follows:
ARTICLE I
TRANSFER OF ASSETS AND LIABILITIES
Section 1.1 Assets Transferred. Seller hereby transfers, assigns
and conveys to Buyer, and Buyer hereby acquires and accepts from Seller, for
the consideration set forth in Section 1.3 herein, all of Seller's rights,
title and interest in and to its property, assets and rights of every kind,
character and description, tangible and intangible, wherever located, related
to the Business, including including those properties, assets and rights
reflected on the balance sheet (the "Balance Sheet") of Seller at November 30,
1998 attached hereto as Annex I (the "Purchased Assets"). Buyer is not
acquiring from Seller, and Seller shall retain ownership of all right, title
and interest in and to, and exclude from sale hereunder, all of the assets,
properties and rights, tangible or intangible, wherever located, of Seller,
other than the Purchased Assets (collectively, the "Excluded Assets").
Section 1.2 Liabilities Assumed. Seller hereby assigns to Buyer,
and Buyer hereby assumes from Seller and agrees to pay, perform and discharge,
all of the liabilities and obligations of Seller (whether or not known,
contingent, incurred or accrued) related to the Purchased Assets (the "Assumed
Liabilities"). Buyer is not assuming from Seller, and Seller shall pay perform
and discharge, all liabilities and obligations of Seller, other than the
Assumed Liabilities (collectively, the "Excluded Liabilities").
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<PAGE>
Section 1.3 Consideration; Purchase Price. In exchange for the
transfer of the Purchased Assets, Buyer hereby (i) assumes the Assumed
Liabilities and (ii) is paying Seller $56,019 in immediately available funds to
an account designated in writing by Seller.
Section 1.4 Closing. Upon the terms and subject to the
conditions of this Agreement, the consummation of the transactions contemplated
by this Agreement ("Closing") will take place on January 20, 1999 at 10:00
a.m., New York City time, at the offices of Seller, 625 Madison Avenue, New
York, New York, or at such other time or such other place as shall be agreed
upon by the parties.
Section 1.5 Employees. Buyer shall offer employment to all
employees of Seller engaged in activities related to the Business. Such offers
of employment shall include compensation and employee benefit arrangements
which, subject to the specific terms of the Buyer's existing benefit plans or
arrangements, shall in the aggregate be substantially similar to those provided
to such employees on the date hereof.
Section 1.6 Deliveries by Buyer and Seller. In connection with
the transactions contemplated hereby, contemporaneously herewith Buyer and
Seller are taking the following actions:
(a) Seller is duly executing and delivering to Buyer a
bill of sale substantially in the form of Exhibit A hereto (the "Bill of
Sale").
(b) Buyer is duly executing and delivering an instrument
of assignment and assumption substantially in the form of Exhibit B hereto (the
"Instrument of Assignment and Assumption").
(c) Buyer and Seller are duly executing and delivering
all other documents, certificates or instruments reasonably requested by
another party at or prior to the date hereof to effect the transactions
contemplated hereby (such documents, certificates and instruments, collectively
with the Bill of Sale and the Instrument of Assumption, the "Additional
Instruments").
Section 1.7 Third Party Consents. Notwithstanding any other
provisions of this Agreement, to the extent that any of the Purchased Assets to
be conveyed under Section 1.1 are not assignable or transferable without the
consent of another party (including any governmental authority) and such
consent has not been obtained, this Agreement shall not constitute an
assignment or transfer or an attempted assignment or transfer of such Purchased
Assets if such assignment or transfer or attempted assignment or transfer would
constitute a breach thereof. Seller agrees to use its best efforts to obtain
the consent of such other party to such an assignment or transfer as promptly
as practicable. In those cases where consents, releases or waivers have not
been obtained to the sale, conveyance, assignment or transfer to Buyer of such
Purchased Assets, this Agreement shall constitute an equitable
2
<PAGE>
assignment by Seller to Buyer of all of Seller's rights, benefits, title and
interest in and to such Purchased Assets, and where necessary or appropriate,
Seller shall be deemed to be Buyer's agent for the purpose of completing,
fulfilling and discharging all of Buyer's rights and liabilities arising after
the date hereof with respect to such Purchased Assets. Seller shall take all
necessary steps and actions to provide Buyer with the benefit of such Purchased
Assets (including, but not limited to, (i) enforcing any rights of Seller
arising with respect to any such Purchased Assets (including without limitation
the right to terminate in accordance with the terms thereof upon the advice of
Buyer) or (ii) permitting Buyer to enforce any rights arising with respect to
Purchased Assets) as if they had been sold, conveyed, assigned or transferred
to Buyer. Buyer shall, to the extent Buyer is provided with the benefits of
such Purchased Assets, assume, perform and in due course pay and discharge all
debts, obligations and liabilities of Seller with respect to such Purchased
Assets. If and so long as Seller is acting as Buyer's agent pursuant to this
Section 1.6, Buyer will indemnify and hold harmless Seller, its directors,
officers and employees against any liabilities and obligations incurred by any
of them in connection with Seller's continued performance as such agent,
including the payment of any associated Assumed Liabilities.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
Section 2.1 Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Seller has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Seller is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions in
which applicable law does not provide for such qualification, licensing or
being in good standing and except in such jurisdictions where the failure to be
so duly qualified or licensed and in good standing would not, in the aggregate,
have a material adverse effect on the business, results of operations or
financial or other condition or prospects (a "Material Adverse Effect") on the
Business.
Section 2.2 Authority. Seller has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement. This Agreement and each Additional
Instrument to which Seller is party has been duly and validly executed and
delivered by Seller and constitutes a valid and binding obligation of Seller
enforceable against Seller in accordance with its terms except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors rights generally,
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
3
<PAGE>
discretion of the court before which any proceeding therefor may be brought.
Section 2.3 Consents and Approvals; No Violation. No filing
with, and no permit, authorization, consent or approval of any court of
competent jurisdiction, regulatory authority or other governmental authority,
or any third party is necessary for the consummation by Seller of the
transactions contemplated by this Agreement. Neither the execution and delivery
of this Agreement by Seller nor the consummation by Seller of the transactions
contemplated by this Agreement nor compliance by Seller with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or by-laws of Seller, (ii)
without regard for the provisions of Section 1.6 hereof, result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, contract, agreement, permit, license, lease,
purchase order, sales order, arrangement or other commitment or obligation
(each a "Contract") to which Seller is a party or by which Seller or its assets
or properties may be bound or (iii) violate any order, writ, injunction,
decree, statute, treaty, rule or regulation (each an "Order") applicable to
Seller or its assets or properties, except in the case of (ii) or (iii) for
violations, breaches or defaults which would not, in the aggregate, have a
Material Adverse Effect on the Business.
Section 2.4 No Undisclosed Liabilities. No liabilities
(absolute, accrued, contingent or otherwise) relating to the Business have been
incurred, except liabilities relating to the Business incurred since the
Balance Sheet Date in the ordinary course of business consistent with past
practice, and liabilities incurred in connection with this Agreement.
Section 2.5 No Default
(a) Seller is not in default or violation (and no event
has occurred which with notice or the lapse of time or both would constitute a
default or violation) of any term, condition or provision of its certificate of
incorporation or by-laws.
(b) There exists no default or violation (and no event
has occurred which with notice or lapse of time would constitute a default or
violation) of any term, condition or provision of (i) any Contract or (ii) any
Order except for violations, breaches or defaults which would not, in the
aggregate, have a Material adverse Effect on the Business.
Section 2.6 Contracts. Each Contract is in full force and
effect, has not been modified or amended and constitutes the legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with the
terms of such Contract. Seller has performed in all respects all obligations
required to be performed by it to date under such Contract, except where such
failure to perform would not have a Material Adverse Effect on the Business.
4
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 3.1 Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. Buyer has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Buyer is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions in which applicable law does
not provide for such qualification, licensing or being in good standing and
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not in the aggregate, have a Material
Adverse Effect on Buyer and its subsidiaries, taken as a whole.
Section 3.2 Authority. Buyer has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement. This Agreement and each Additional
Instrument to which Buyer is a party has been duly and validly executed and
delivered by Buyer and constitutes a valid and binding obligation of Buyer
enforceable against Buyer in accordance with its terms except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors rights generally,
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 3.3 Consents and Approvals; No Violation. No filing
with, and no permit, authorization, consent or approval of any court of
competent jurisdiction, regulatory authority or other governmental authority,
or any third party is necessary for the consummation by Buyer of the
transactions contemplated by this Agreement. Neither the execution and delivery
of this Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated by this Agreement nor compliance by Buyer with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or bylaws of Buyer, (ii) result
in a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any Contract to which Buyer is a party or by which Buyer or its assets or
properties may be bound or (iii) violate any Order applicable to Buyer or its
assets or properties, except in the case of (ii) or (iii) for violations,
breaches or defaults which would not, in the aggregate, have a Material Adverse
Effect on Buyer and its subsidiaries, taken as a whole.
5
<PAGE>
Section 3.4 No Default.
(a) Buyer is not in default or violation (and no event has
occurred which with notice or the lapse of time or both would constitute a
default or violation) of any term, condition or provision of its certificate of
incorporation or by-laws.
(b) There exists no default or violation (and no event has
occurred which with notice or lapse of time would constitute a default or
violation) of any term, condition or provision of (i) any Contract or (ii) any
Order except for violations, breaches or defaults which would not, in the
aggregate, have a Material adverse Effect on the Buyer and its subsidiaries,
taken as a whole.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Further Assurances. From time to time after the
Closing, without additional consideration, each of Seller and Buyer will
execute and deliver such further instruments and take such other action as may
be necessary to make effective the transactions contemplated by this Agreement.
Section 4.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given upon receipt if
delivered personally, telecopied (which is confirmed) or mailed by registered
or certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Seller, to:
MacAndrews & Forbes Holdings Inc.
35 East 62nd Street
New York, New York 10021
Attn: General Counsel
(b) if to Buyer, to:
Golden State Bancorp Inc.
135 Main Street, 20th Flr.
San Francisco, CA 94105
Attn: General Counsel
6
<PAGE>
Section 4.3 Expenses. Except as otherwise provided herein, (i)
all costs and expenses associated with the transfer of assets and liabilities
hereunder, including but not limited to filing fees, recording fees, value
added taxes and other fees and taxes, shall be paid by Seller and (ii) all
other costs and expenses incurred in connection with this Agreement shall be
paid by the party incurring such cost or expense.
Section 4.4 Headings. The headings herein are inserted for
convenience only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
Section 4.5 Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
instrument.
Section 4.6 Amendment; Waiver. This Agreement may be amended,
modified or waived at any time by the parties hereto, but only by an instrument
in writing signed on behalf of each of the parties hereto. Neither the failure
nor the delay on the part of any party to exercise any right, remedy, power or
privilege under this Agreement shall operate as a waiver thereof.
Section 4.7 Entire Agreement. This Agreement, the schedules
hereto and the Additional Instruments constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof, and supersedes
all prior and contemporaneous agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof.
Section 4.8 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without regard
to any applicable principles of conflicts of law.
Section 4.9 Specific Performance. The parties hereto agree that
if any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached, irreparable damage would
occur, no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance or
the terms hereof, in addition to any other remedy at law or equity.
Section 4.10 Binding Nature. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto and their permitted
successors and assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon an other person or persons any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 4.11 Severability. This Agreement shall be deemed
severable; the invalidity or unenforceability of any term or provision of this
Agreement shall not affect the validity or enforceability of this Agreement or
of any other term hereof, which shall remain in
7
<PAGE>
full force and effect.
Section 4.12 Use of Intellectual Property and Corporate Name.
The Seller agrees that following the Closing, the Seller will not use any
intellectual property sold or conveyed herein. Within 30 days following the
Closing, the Seller shall change its corporate name and such new name will not
contain the words "Trans Network Insurance Services," or any variation thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their respective authorized officers as of
the day and year first above written.
TRANS NETWORK INSURANCE SERVICES, INC.
By: /s/ Glenn P. Dickes
-----------------------------------
Glenn P. Dickes
Vice President
GOLDEN STATE BANCORP INC.
By: /s/ Eric K. Kawamura
-----------------------------------
Eric K. Kawamura
Senior Vice President
8
<PAGE>
Annex I
Trans Network Insurance Services Inc.
Balance Sheet
November 30, 1998
Unaudited
<TABLE>
<CAPTION>
Adjusted
Balance FMV Balance
11/30/98 Adjustment 11/30/98
-------------------------------------------------
<S> <C> <C> <C>
Cash, Wells Fargo Bank 95,872 95,872
Furniture and Equipment 10,023 10,023
Accumulated Depreciation (5,916) (5,916)
Prepaid Expenses 5,404 5,404
Intangible Asset - Goodwill 410,506 410,506
Accumulated Amortization (35,919) (35,919)
------- ------- -------
Total Assets 105,383 374,587 479,970
======= ======= =======
Accrued Payroll Taxes 4,613 4,613
Accrued Employee Benefits 5,594 5,594
Advance from MacAndrews 413,744 413,744
Common Equity 374,587 374,587
Retained Earnings (318,568) (318,568)
-------- ------- --------
Total Liabilities & Capital 105,383 374,587 479,970
======== ======= ========
</TABLE>
<PAGE>
Exhibit A
BILL OF SALE
The undersigned, Trans Network Insurance Services Inc., a Delaware
corporation, ("Seller"), for and in consideration of One Dollar ($1.00) paid by
Golden State Bancorp Inc. ("Buyer") and for other good and valuable
consideration, receipt of which is hereby acknowledged, does on the date set
forth below grant, convey, transfer, bargain, sell, assign, deliver and set
over all of its right, title and interest in, the properties, assets and rights
(whether or not reflected on the balance sheet of Seller at November 30, 1998)
constituting the Business of Seller, as such term is defined in the Asset
Purchase Agreement dated effective as of December 1, 1998 between Buyer and
Seller.
Dated: Effective as of
December 1, 1998
TRANS NETWORK INSURANCE
SERVICES INC.
By: /s/ Glenn P. Dickes
-------------------------------
Glenn P. Dickes
Vice President
<PAGE>
Exhibit B
THIS ASSIGNMENT and ASSUMPTION is made effective as of December 1,
1998 between Trans Network Insurance Services Inc., a Delaware corporation,
("Assignor") and Golden State Bancorp Inc.,
a Delaware corporation ("Assignee").
WHEREAS, Assignor and Assignee are parties to an Asset Purchase
Agreement dated effective as of December 1, 1998 (the "Agreement").
WHEREAS, Assignor desires to assign all of the liabilities and
obligations of Assignor (whether or not known, contingent, incurred or accrued)
related to the Purchased Assets (as such term is defined in the Agreement) (the
"Assumed Liabilities"), and Assignee is willing to accept such assignment of
the Assumed Liabilities.
NOW THEREFORE, intending to be legally bound hereby, Assignor and
Assignee hereby agree as follows:
1. ASSIGNMENT. Effective as of the date hereof, Assignor hereby
assigns all of the Assumed Liabilities to Assignee.
2. ACCEPTANCE OF ASSIGNMENT. Assignee hereby accepts such
assignment and assumes all of the Assumed Liabilities.
3. GOVERNING LAW. This Assignment and Assumption shall be governed
by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have duly executed this Assignment
and Assumption.
TRANS NETWORK INSURANCE GOLDEN STATE BANCORP INC.
SERVICES INC.
By: /s/ Glenn P. Dickes By: /s/ Eric K. Kawamura
------------------------------- ------------------------------
Glenn P. Dickes Eric K. Kawamura
Vice President Senior Vice President
<PAGE>
THIS ASSIGNMENT and ASSUMPTION is made effective as of December 1,
1998 between Trans Network Insurance Services Inc., a Delaware corporation,
("Assignor") and Golden State Bancorp Inc.,
a Delaware corporation ("Assignee").
WHEREAS, Assignor and Assignee are parties to an Asset Purchase
Agreement dated effective as of December 1, 1998 (the "Agreement").
WHEREAS, Assignor desires to assign all of the liabilities and
obligations of Assignor (whether or not known, contingent, incurred or accrued)
related to the Purchased Assets (as such term is defined in the Agreement) (the
"Assumed Liabilities"), and Assignee is willing to accept such assignment of
the Assumed Liabilities.
NOW THEREFORE, intending to be legally bound hereby, Assignor and
Assignee hereby agree as follows:
1. ASSIGNMENT. Effective as of the date hereof, Assignor hereby
assigns all of the Assumed Liabilities to Assignee.
2. ACCEPTANCE OF ASSIGNMENT. Assignee hereby accepts such
assignment and assumes all of the Assumed Liabilities.
3. GOVERNING LAW. This Assignment and Assumption shall be governed
by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have duly executed this Assignment
and Assumption.
TRANS NETWORK INSURANCE GOLDEN STATE BANCORP INC.
SERVICES INC.
By: /s/ Glenn P. Dickes By: /s/ Eric K. Kawamura
--------------------------- -----------------------------
Glenn P. Dickes Eric K. Kawamura
Vice President Senior Vice President
<PAGE>
BILL OF SALE
The undersigned, Trans Network Insurance Services Inc., a Delaware
corporation, ("Seller"), for and in consideration of One Dollar ($1.00) paid by
Golden State Bancorp Inc. ("Buyer") and for other good and valuable
consideration, receipt of which is hereby acknowledged, does on the date set
forth below grant, convey, transfer, bargain, sell, assign, deliver and set
over all of its right, title and interest in, the properties, assets and rights
(whether or not reflected on the balance sheet of Seller at November 30, 1998)
constituting the Business of Seller, as such term is defined in the Asset
Purchase Agreement dated effective as of December 1, 1998 between Buyer and
Seller.
Dated: Effective as of
December 1, 1998
TRANS NETWORK INSURANCE
SERVICES INC.
By: /s/ Glenn P. Dickes
--------------------------
Glenn P. Dickes
Vice President
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of October 7, 1998
("Agreement"), by and between Golden State Management Inc., a Delaware
corporation (the"Purchaser") and RGI Group Incorporated, a Delaware corporation
(the "Seller").
WHEREAS, the Seller beneficially owns 1,000 shares of common stock,
par value $1.00 per share ("Company Common Stock"), of GSB Aviation Inc.
("Company") representing 100% of the issued and outstanding capital stock of
the Company; and
WHEREAS, the Seller wishes to sell to the Purchaser, and the
Purchaser wishes to purchase from the Seller, upon the terms and conditions
hereinafter set forth herein, all of the Company Common Stock beneficially
owned by the Seller.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE 1. PURCHASE AND SALE OF THE SHARES
Section 1.1 Purchase and Sale of the Shares. Upon the terms and subject
to the conditions of this Agreement, at the Closing (as defined below in
Section 1.3), the Seller shall sell, convey, assign, transfer and deliver to
the Purchaser and the Purchaser shall purchase, acquire and accept from the
Seller 1,000 shares of Company Common Stock ("Shares").
Section 1.2 Purchase Price. The purchase price for the Shares is
$26,427.23 per share of Company Common Stock, or an aggregate purchase price of
$26,427,230 ("Purchase Price").
Section 1.3 Closing. Upon the terms and subject to the conditions of
this Agreement, the consummation of the transactions contemplated by this
Agreement ("Closing") will take place on November 4, 1998, at 10:00 a.m., New
York City time, at the offices of Seller, 625 Madison Avenue, New York, New
York, or at such other time or such other place as shall be agreed upon by the
parties. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
<PAGE>
Section 1.4 Delivery by the Seller. At the Closing, the Seller shall
deliver or cause to be delivered to the Purchaser a stock certificate or
certificates representing the Shares purchased by the Purchaser pursuant to
this Agreement, accompanied by a stock power or powers duly executed in blank.
Section 1.5 Delivery by the Purchaser. At the Closing, the Purchaser
shall deliver or cause to be delivered to the Seller the Purchase Price payable
by wire transfer in immediately available funds to an account specified in
writing by the Seller. Immediately after the Closing, the Purchaser shall cause
the removal of the directors and officers of the Company and the election of
directors and officers selected by the Purchaser.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 2.1 Ownership of Shares. The Seller is the record and
beneficial owner, and has sole power to vote and dispose, of the Shares. On the
date hereof, the Shares constitute all of the issued and outstanding shares of
Company Common Stock and such shares are owned of record and beneficially by
the Seller.
Section 2.2 Authorization; Validity of Agreement; Necessary Action. The
Seller has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Seller of this Agreement and the
consummation by the Seller of the transactions contemplated hereby have been
duly and validly authorized. This Agreement has been duly executed and
delivered by the Seller, and constitutes a valid and binding obligation of the
Seller, enforceable against it in accordance with its terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 2.3 No Violations. (a) (i) No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Seller and
the consummation by the Seller of the transactions contemplated hereby and (ii)
neither the execution and delivery of this Agreement by the Seller does, nor
the consummation by the Seller of the transactions contemplated hereby nor
2
<PAGE>
compliance by the Seller with any of the provisions hereof will (x) conflict
with or result in any breach of any applicable partnership agreement or other
agreements or organizational documents applicable to the Seller, (y) result in
a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Seller is a party or by which the Seller
or any of its properties or assets may be bound or (z) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to the
Seller or any of its properties or assets.
(b) The Shares and the certificates representing such Shares are held
by the Seller, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever. Seller currently has, and on the Closing Date
shall sell, assign, transfer and deliver to the Purchaser at the Closing, and
the Purchaser shall receive at the Closing, good, valid and marketable title to
the Company Common Stock.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 3.1 Organization. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
Section 3.2 Authorization; Validity of Agreement; Necessary Action. The
Purchaser has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Purchaser of this Agreement and the
consummation by the Purchaser of the transactions contemplated hereby have been
duly and validly authorized. This Agreement has been duly executed and
delivered by the Purchaser, and constitutes a valid and binding obligation of
the Purchaser, enforceable against it in accordance with its terms, except that
(i) such enforcement may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors, rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
3
<PAGE>
Section 3.3 No Violations. (i) No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Purchaser and
the consummation by it of the transactions contemplated hereby; and (ii)
neither the execution and delivery of this Agreement by the Purchaser does, nor
the consummation by it of the transactions contemplated hereby nor compliance
by it with any of the provisions hereof will (x) conflict with or result in any
breach of any organizational documents of the Purchaser, (y) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Purchaser is a party or by which the
Purchaser or any of its properties or assets may be bound or (z) violate any
order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to the Purchaser or any of its properties or assets.
ARTICLE 4. CONDITIONS TO THE OBLIGATIONS OF BOTH PARTIES
The respective obligation of each party to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction or waiver,
at or prior to the Closing, of the following conditions:
Section 4.1 Accuracy of Representations and Warranties. The
representations and warranties of the Seller or the Purchaser, as the case may
be, in this Agreement shall be true and correct as of the date hereof and at
and as of the Closing with the same effect as though such representations and
warranties had been made at and as of such time.
Section 4.2 No Prohibition. No court, arbitrator or governmental body,
agency or official shall have issued any order, decree or ruling (which shall
not have been stayed or suspended pending appeal) and there shall not be any
effective statute, rule or regulation, restraining, enjoining or prohibiting
the Closing.
ARTICLE 5. MISCELLANEOUS
Section 5.1 Survival. All representation and warranties contained
herein shall survive the Closing.
4
<PAGE>
Section 5.2 Entire Agreement; Assignment. This Agreement (i)
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (ii) shall not be assigned by operation of law or
otherwise without the prior written consent of the other party (except that the
Purchaser may assign its rights, interests and obligations to any of its
affiliates without the consent of the Seller provided no such assignment shall
relieve the Purchaser of any liability for any breach by such assignee).
Section 5.3 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
Section 5.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed duly given
when delivered or (unless specified otherwise) mailed by United States
certified or registered mail, return, receipt, requested, addressed as follows:
If to Seller:
RGI Group Incorporated
625 Madison Avenue
New York, New York 10022
Attn: General Counsel
If to Buyer:
Golden State Management Inc.
135 Main Street, 20th floor
San Francisco, California 94105
Attn: General Counsel
Section 5.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
5
<PAGE>
Section 5.6 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
Section 5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but both of
which shall constitute one and the same Agreement.
Section 5.8 Descriptive Headings. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
RGI GROUP INCORPORATED
By: /s/ Glenn P. Dickes
-----------------------------------
Glenn P. Dickes
Senior Vice President
GOLDEN STATE MANAGEMENT INC.
By: /s/ Charles W. Kay
-----------------------------------
Name: Charles W. Kay
Title: Senior Vice President
6
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated effective as of December 1, 1998
("Agreement"), by and between Golden State Management Inc., a Delaware
corporation (the"Purchaser") and Trans Network Insurance Services Inc., a
Delaware corporation (the "Seller").
WHEREAS, the Seller beneficially owns 1,000 shares of common stock,
par value $1.00 per share ("Company Common Stock"), of FGB Services Inc.
("Company") representing 100% of the issued and outstanding capital stock of
the Company; and
WHEREAS, the Seller wishes to sell to the Purchaser, and the
Purchaser wishes to purchase from the Seller, upon the terms and conditions
hereinafter set forth herein, all of the Company Common Stock beneficially
owned by the Seller.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE 1. PURCHASE AND SALE OF THE SHARES
Section 1.1 Purchase and Sale of the Shares. Upon the terms and subject
to the conditions of this Agreement, at the Closing (as defined below in
Section 1.3), the Seller shall sell, convey, assign, transfer and deliver to
the Purchaser and the Purchaser shall purchase, acquire and accept from the
Seller 1,000 shares of Company Common Stock ("Shares").
Section 1.2 Purchase Price. The purchase price for the Shares is
$149.10 per share of Company Common Stock, or an aggregate purchase price of
$149,097 ("Purchase Price").
Section 1.3 Closing. Upon the terms and subject to the conditions of
this Agreement, the consummation of the transactions contemplated by this
Agreement ("Closing") will take place on January 20, 1999, at 10:00 a.m., New
York City time, at the offices of Seller, 625 Madison Avenue, New York, New
York, or at such other time or such other place as shall be agreed upon by the
parties. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
Section 1.4 Delivery by the Seller. At the Closing, the Seller shall
deliver or cause to be delivered to the Purchaser a stock certificate or
certificates
<PAGE>
representing the Shares purchased by the Purchaser pursuant to this Agreement,
accompanied by a stock power or powers duly executed in blank.
Section 1.5 Delivery by the Purchaser. At the Closing, the Purchaser
shall deliver or cause to be delivered to the Seller the Purchase Price payable
by wire transfer in immediately available funds to an account specified in
writing by the Seller. Immediately after the Closing, the Purchaser shall cause
the removal of the directors and officers of the Company and the election of
directors and officers selected by the Purchaser.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 2.1 Ownership of Shares. The Seller is the record and
beneficial owner, and has sole power to vote and dispose, of the Shares. On the
date hereof, the Shares constitute all of the issued and outstanding shares of
Company Common Stock and such shares are owned of record and beneficially by
the Seller.
Section 2.2 Authorization; Validity of Agreement; Necessary Action. The
Seller has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Seller of this Agreement and the
consummation by the Seller of the transactions contemplated hereby have been
duly and validly authorized. This Agreement has been duly executed and
delivered by the Seller, and constitutes a valid and binding obligation of the
Seller, enforceable against it in accordance with its terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 2.3 No Violations. (a) (i) No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Seller and
the consummation by the Seller of the transactions contemplated hereby and (ii)
neither the execution and delivery of this Agreement by the Seller does, nor
the consummation by the Seller of the transactions contemplated hereby nor
compliance by the Seller with any of the provisions hereof will (x) conflict
with or result in any breach of any applicable partnership agreement or other
agreements or organizational documents applicable to the Seller, (y) result in
a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation,
2
<PAGE>
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which the Seller is a party or by which the Seller or
any of its properties or assets may be bound or (z) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to the
Seller or any of its properties or assets.
(b) The Shares and the certificates representing such Shares are held
by the Seller, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever. Seller currently has, and on the Closing Date
shall sell, assign, transfer and deliver to the Purchaser at the Closing, and
the Purchaser shall receive at the Closing, good, valid and marketable title to
the Company Common Stock.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 3.1 Organization. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
Section 3.2 Authorization; Validity of Agreement; Necessary Action. The
Purchaser has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Purchaser of this Agreement and the
consummation by the Purchaser of the transactions contemplated hereby have been
duly and validly authorized. This Agreement has been duly executed and
delivered by the Purchaser, and constitutes a valid and binding obligation of
the Purchaser, enforceable against it in accordance with its terms, except that
(i) such enforcement may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors, rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 3.3 No Violations. (i) No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Purchaser and
the consummation by it of the transactions contemplated hereby; and (ii)
neither the execution and delivery of this Agreement by the Purchaser does, nor
the consummation by it of the transactions contemplated hereby nor compliance
by it with any of the provisions hereof will (x) conflict with or result in any
breach
3
<PAGE>
of any organizational documents of the Purchaser, (y) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which the Purchaser is a party or by which the
Purchaser or any of its properties or assets may be bound or (z) violate any
order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to the Purchaser or any of its properties or assets.
ARTICLE 4. CONDITIONS TO THE OBLIGATIONS OF BOTH PARTIES
The respective obligation of each party to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction or waiver,
at or prior to the Closing, of the following conditions:
Section 4.1 Accuracy of Representations and Warranties. The
representations and warranties of the Seller or the Purchaser, as the case may
be, in this Agreement shall be true and correct as of the date hereof and at
and as of the Closing with the same effect as though such representations and
warranties had been made at and as of such time.
Section 4.2 No Prohibition. No court, arbitrator or governmental body,
agency or official shall have issued any order, decree or ruling (which shall
not have been stayed or suspended pending appeal) and there shall not be any
effective statute, rule or regulation, restraining, enjoining or prohibiting
the Closing.
ARTICLE 5. MISCELLANEOUS
Section 5.1 Survival. All representation and warranties contained
herein shall survive the Closing.
Section 5.2 Entire Agreement; Assignment. This Agreement (i)
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (ii) shall not be assigned by operation of law or
otherwise without the prior written consent of the other party (except that the
Purchaser may assign its rights, interests and obligations to any of its
affiliates without the consent of the Seller provided no such assignment shall
relieve the Purchaser of any liability for any breach by such assignee).
4
<PAGE>
Section 5.3 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
Section 5.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed duly given
when delivered or (unless specified otherwise) mailed by United States
certified or registered mail, return, receipt, requested, addressed as follows:
If to Seller:
Trans Network Insurance Services Inc.
35 East 62nd Street
New York, New York 10021
Attn: General Counsel
If to Buyer:
Golden State Management Inc.
135 Main Street, 20th floor
San Francisco, California 94105
Attn: General Counsel
Section 5.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 5.6 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
Section 5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but both of
which shall constitute one and the same Agreement.
Section 5.8 Descriptive Headings. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
TRANS NETWORK INSURANCE
SERVICES INC.
By: /s/ Glenn P. Dickes
----------------------------------
Glenn P. Dickes
Vice President and Secretary
GOLDEN STATE MANAGEMENT INC.
By: /s/ Charles W. Kay
----------------------------------
Name: Charles W. Kay
Title: Senior Vice President
6
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated effective as of December 1, 1998
("Agreement"), by and between Golden State Management Inc., a Delaware
corporation (the"Purchaser") and Trans Network Insurance Services Inc., a
Delaware corporation (the "Seller").
WHEREAS, the Seller beneficially owns 1,000 shares of common stock,
par value $1.00 per share ("Company Common Stock"), of First Nationwide
Management Corp. ("Company") representing 100% of the issued and outstanding
capital stock of the Company; and
WHEREAS, the Seller wishes to sell to the Purchaser, and the
Purchaser wishes to purchase from the Seller, upon the terms and conditions
hereinafter set forth herein, all of the Company Common Stock beneficially
owned by the Seller.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE 1. PURCHASE AND SALE OF THE SHARES
Section 1.1 Purchase and Sale of the Shares. Upon the terms and subject
to the conditions of this Agreement, at the Closing (as defined below in
Section 1.3), the Seller shall sell, convey, assign, transfer and deliver to
the Purchaser and the Purchaser shall purchase, acquire and accept from the
Seller 1,000 shares of Company Common Stock ("Shares").
Section 1.2 Purchase Price. The purchase price for the Shares is
$1,114.98 per share of Company Common Stock, or an aggregate purchase price of
$1,114,978 ("Purchase Price").
Section 1.3 Closing. Upon the terms and subject to the conditions of
this Agreement, the consummation of the transactions contemplated by this
Agreement ("Closing") will take place on January 20, 1999, at 10:00 a.m., New
York City time, at the offices of Seller, 625 Madison Avenue, New York, New
York, or at such other time or such other place as shall be agreed upon by the
parties. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
Section 1.4 Delivery by the Seller. At the Closing, the Seller shall
deliver or cause to be delivered to the Purchaser a stock certificate or
certificates
<PAGE>
representing the Shares purchased by the Purchaser pursuant to this Agreement,
accompanied by a stock power or powers duly executed in blank.
Section 1.5 Delivery by the Purchaser. At the Closing, the Purchaser
shall deliver or cause to be delivered to the Seller the Purchase Price payable
by wire transfer in immediately available funds to an account specified in
writing by the Seller. Immediately after the Closing, the Purchaser shall cause
the removal of the directors and officers of the Company and the election of
directors and officers selected by the Purchaser.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 2.1 Ownership of Shares. The Seller is the record and beneficial
owner, and has sole power to vote and dispose, of the Shares. On the date
hereof, the Shares constitute all of the issued and outstanding shares of
Company Common Stock and such shares are owned of record and beneficially by
the Seller.
Section 2.2 Authorization; Validity of Agreement; Necessary Action. The
Seller has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Seller of this Agreement and the
consummation by the Seller of the transactions contemplated hereby have been
duly and validly authorized. This Agreement has been duly executed and
delivered by the Seller, and constitutes a valid and binding obligation of the
Seller, enforceable against it in accordance with its terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 2.3 No Violations. (a) (i) No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Seller and
the consummation by the Seller of the transactions contemplated hereby and (ii)
neither the execution and delivery of this Agreement by the Seller does, nor
the consummation by the Seller of the transactions contemplated hereby nor
compliance by the Seller with any of the provisions hereof will (x) conflict
with or result in any breach of any applicable partnership agreement or other
agreements or organizational documents applicable to the Seller, (y) result in
a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation,
2
<PAGE>
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which the Seller is a party or by which the Seller or
any of its properties or assets may be bound or (z) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to the
Seller or any of its properties or assets.
(b) The Shares and the certificates representing such Shares are held by
the Seller, free and clear of all liens, claims, security interests, proxies,
voting trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever. Seller currently has, and on the Closing Date shall
sell, assign, transfer and deliver to the Purchaser at the Closing, and the
Purchaser shall receive at the Closing, good, valid and marketable title to the
Company Common Stock.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 3.1 Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Section 3.2 Authorization; Validity of Agreement; Necessary Action. The
Purchaser has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Purchaser of this Agreement and the
consummation by the Purchaser of the transactions contemplated hereby have been
duly and validly authorized. This Agreement has been duly executed and
delivered by the Purchaser, and constitutes a valid and binding obligation of
the Purchaser, enforceable against it in accordance with its terms, except that
(i) such enforcement may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors, rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 3.3 No Violations. (i) No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Purchaser and
the consummation by it of the transactions contemplated hereby; and (ii)
neither the execution and delivery of this Agreement by the Purchaser does, nor
the consummation by it of the transactions contemplated hereby nor compliance
by it with any of the provisions hereof will (x) conflict with or result in any
breach
3
<PAGE>
of any organizational documents of the Purchaser, (y) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which the Purchaser is a party or by which the
Purchaser or any of its properties or assets may be bound or (z) violate any
order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to the Purchaser or any of its properties or assets.
ARTICLE 4. CONDITIONS TO THE OBLIGATIONS OF BOTH PARTIES
The respective obligation of each party to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction or waiver,
at or prior to the Closing, of the following conditions:
Section 4.1 Accuracy of Representations and Warranties. The
representations and warranties of the Seller or the Purchaser, as the case may
be, in this Agreement shall be true and correct as of the date hereof and at
and as of the Closing with the same effect as though such representations and
warranties had been made at and as of such time.
Section 4.2 No Prohibition. No court, arbitrator or governmental body,
agency or official shall have issued any order, decree or ruling (which shall
not have been stayed or suspended pending appeal) and there shall not be any
effective statute, rule or regulation, restraining, enjoining or prohibiting
the Closing.
ARTICLE 5. MISCELLANEOUS
Section 5.1 Survival. All representation and warranties contained herein
shall survive the Closing.
Section 5.2 Entire Agreement; Assignment. This Agreement (i) constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (ii) shall not be assigned by operation of law or otherwise without the
prior written consent of the other party (except that the Purchaser may assign
its rights, interests and obligations to any of its affiliates without the
consent of the Seller provided no such assignment shall relieve the Purchaser
of any liability for any breach by such assignee).
4
<PAGE>
Section 5.3 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
Section 5.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed duly given
when delivered or (unless specified otherwise) mailed by United States
certified or registered mail, return, receipt, requested, addressed as follows:
If to Seller:
Trans Network Insurance Services Inc.
35 East 62nd Street
New York, New York 10021
Attn: General Counsel
If to Buyer:
Golden State Management Inc.
135 Main Street, 20th floor
San Francisco, California 94105
Attn: General Counsel
Section 5.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 5.6 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
Section 5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but both of
which shall constitute one and the same Agreement.
Section 5.8 Descriptive Headings. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
TRANS NETWORK INSURANCE
SERVICES INC.
By: /s/ Glenn P. Dickes
-------------------------------
Glenn P. Dickes
Vice President and Secretary
GOLDEN STATE MANAGEMENT INC.
By: /s/ Charles W. Kay
-------------------------------
Name: Charles W. Kay
Title: Senior Vice President
6
<PAGE>
EQUITY PURCHASE AGREEMENT
EQUITY PURCHASE AGREEMENT, dated as of January 19, 1999 ("Agreement"),
by and between Golden State Management Inc., a Delaware corporation (the
"Purchaser") and RGI Group Incorporated, a Delaware corporation (the "Seller").
WHEREAS, the Seller beneficially owns all of the equity interest (the
"Company Equity") of GSB Aviation (Two) LLC ("Company"); and
WHEREAS, the Seller wishes to sell to the Purchaser, and the Purchaser
wishes to purchase from the Seller, upon the terms and conditions hereinafter
set forth herein, all of the Company Equity beneficially owned by the Seller.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE 1. PURCHASE AND SALE OF THE EQUITY
Section 1.1 Purchase and Sale of the Equity. Upon the terms and subject
to the conditions of this Agreement, at the Closing (as defined below in
Section 1.3), the Seller shall sell, convey, assign, transfer and deliver to
the Purchaser and the Purchaser shall purchase, acquire and accept from the
Seller all of the Company Equity.
Section 1.2 Purchase Price. The purchase price for the Company Equity
is One Million Five Hundred Ninety Nine Thousand Six Hundred Thirty Three
Dollars ($1,599,633) ("Purchase Price").
Section 1.3 Closing. Upon the terms and subject to the conditions of
this Agreement, the consummation of the transactions contemplated by this
Agreement ("Closing") will take place on February 1, 1999, at 10:00 a.m., New
York City time, at the offices of Seller, 625 Madison Avenue, New York, New
York, or at such other time or such other place as shall be agreed upon by the
parties. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
Section 1.4 Delivery by the Seller. At the Closing, the Seller shall
deliver or cause to be delivered to the Purchaser a bill of sale evidencing
transfer to the Purchaser of the Company Equity.
Section 1.5 Delivery by the Purchaser. At the Closing, the Purchaser
shall deliver or cause to be delivered to the Seller the Purchase Price payable
by wire transfer in immediately available funds to an account specified in
writing by the
<PAGE>
Seller. Immediately after the Closing, the Purchaser shall cause the removal of
the officers of the Company and the election of officers selected by the
Purchaser.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 2.1 Ownership of Equity. The Seller is the beneficial owner, and
has sole power to vote and dispose, of the Company Equity and such Company
Equity is owned beneficially by the Seller.
Section 2.2 Authorization; Validity of Agreement; Necessary Action. The
Seller has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Seller of this Agreement and the
consummation by the Seller of the transactions contemplated hereby have been
duly and validly authorized. This Agreement has been duly executed and
delivered by the Seller, and constitutes a valid and binding obligation of the
Seller, enforceable against it in accordance with its terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 2.3 No Violations. (a) (i) No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Seller and
the consummation by the Seller of the transactions contemplated hereby and (ii)
neither the execution and delivery of this Agreement by the Seller does, nor
the consummation by the Seller of the transactions contemplated hereby nor
compliance by the Seller with any of the provisions hereof will (x) conflict
with or result in any breach of any applicable partnership agreement or other
agreements or organizational documents applicable to the Seller, (y) result in
a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Seller is a party or by which the Seller
or any of its properties or assets may be bound or (z) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to the
Seller or any of its properties or assets.
(b) The Company Equity is held by the Seller, free and clear of all
liens, claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever. Seller
currently has, and on
2
<PAGE>
the Closing Date shall sell, assign, transfer and deliver to the Purchaser at
the Closing, and the Purchaser shall receive at the Closing, good, valid and
marketable title to the Company Equity.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Section 3.1 Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Section 3.2 Authorization; Validity of Agreement; Necessary Action. The
Purchaser has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Purchaser of this Agreement and the
consummation by the Purchaser of the transactions contemplated hereby have been
duly and validly authorized. This Agreement has been duly executed and
delivered by the Purchaser, and constitutes a valid and binding obligation of
the Purchaser, enforceable against it in accordance with its terms, except that
(i) such enforcement may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors, rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 3.3 No Violations. (i) No filing with, and no permit,
authorization, consent or approval of, any state or federal public body or
authority is necessary for the execution of this Agreement by the Purchaser and
the consummation by it of the transactions contemplated hereby; and (ii)
neither the execution and delivery of this Agreement by the Purchaser does, nor
the consummation by it of the transactions contemplated hereby nor compliance
by it with any of the provisions hereof will (x) conflict with or result in any
breach of any organizational documents of the Purchaser, (y) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Purchaser is a party or by which the
Purchaser or any of its properties or assets may be bound or (z) violate any
order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to the Purchaser or any of its properties or assets.
3
<PAGE>
ARTICLE 4. CONDITIONS TO THE OBLIGATIONS OF BOTH PARTIES
The respective obligation of each party to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction or waiver,
at or prior to the Closing, of the following conditions:
Section 4.1 Accuracy of Representations and Warranties. The
representations and warranties of the Seller or the Purchaser, as the case may
be, in this Agreement shall be true and correct as of the date hereof and at
and as of the Closing with the same effect as though such representations and
warranties had been made at and as of such time.
Section 4.2 No Prohibition. No court, arbitrator or governmental body,
agency or official shall have issued any order, decree or ruling (which shall
not have been stayed or suspended pending appeal) and there shall not be any
effective statute, rule or regulation, restraining, enjoining or prohibiting
the Closing.
ARTICLE 5. MISCELLANEOUS
Section 5.1 Survival. All representations and warranties contained
herein shall survive the Closing.
Section 5.2 Entire Agreement; Assignment. This Agreement (i) constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (ii) shall not be assigned by operation of law or otherwise without the
prior written consent of the other party (except that the Purchaser may assign
its rights, interests and obligations to any of its affiliates without the
consent of the Seller provided no such assignment shall relieve the Purchaser
of any liability for any breach by such assignee).
Section 5.3 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
Section 5.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed duly given
when delivered or (unless specified otherwise) mailed by United States
certified or registered mail, return, receipt, requested, addressed as follows:
4
<PAGE>
If to Seller:
RGI Group Incorporated
35 East 62nd Street
New York, New York 10021
Attn: General Counsel
If to Buyer:
Golden State Management Inc.
135 Main Street, 20th floor
San Francisco, California 94105
Attn: General Counsel
Section 5.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 5.6 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
Section 5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but both of
which shall constitute one and the same Agreement.
5
<PAGE>
Section 5.8 Descriptive Headings. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
RGI GROUP INCORPORATED
By: /s/ Glenn P. Dickes
----------------------------------
Glenn P. Dickes
Senior Vice President
GOLDEN STATE MANAGEMENT INC.
By: /s/ Charles W. Kay
----------------------------------
Name: Charles W. Kay
Title: Senior Vice President
6
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND MINORITY INTEREST
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------
FIXED CHARGES (EXCLUDING INTEREST ON DEPOSITS):
<S> <C> <C> <C> <C> <C>
Interest on borrowings $1,028,433 $751,432 $429,120 $287,456 $98,888
Total fixed charges (excluding interest on deposits) 1,028,433 751,432 429,120 287,456 98,888
Rent interest factor 9,060 7,857 5,044 6,628 1,746
Income before income taxes, extraordinary item
and minority interest 402,264 238,398 507,547 122,450 31,928
Earnings 1,439,757 997,687 941,711 416,534 132,562
Fixed charges (excluding interest on deposits) 1,037,493 759,289 434,164 294,084 100,634
Minority interest 110,527 102,135 48,045 34,584 0
Combined fixed charges (excluding interest on
deposits) and minority interest 1,148,020 861,424 482,209 328,668 100,634
Ratio of earnings to combined fixed charges
(excluding interest on deposits) and minority
interest 1.25 x 1.16 x 1.95 x 1.27 x 1.32 x
FIXED CHARGES (INCLUDING INTEREST ON DEPOSITS):
Interest on deposits $791,112 $746,985 $419,174 $447,359 $100,957
Interest on borrowings 1,028,433 751,432 429,120 287,456 98,888
Total fixed charges (including interest on deposits) 1,819,545 1,498,417 848,294 734,815 199,845
Rent interest factor 9,060 7,857 5,044 6,628 1,746
Income before income taxes, extraordinary item
and minority interest 402,264 238,398 507,547 122,450 31,928
Earnings 2,230,869 1,744,672 1,360,885 863,893 233,519
Fixed charges (including interest on deposits) 1,828,605 1,506,274 853,338 741,443 201,591
Minority interest 110,527 102,135 48,045 34,584 0
Combined fixed charges (including interest on
deposits) and minority interest 1,939,132 1,608,409 901,383 776,027 201,591
Ratio of earnings to combined fixed charges
(including interest on deposits) and minority
interest 1.15 x 1.08 x 1.51 x 1.11 x 1.16 x
</TABLE>
<PAGE>
SUBSIDIARIES OF GOLDEN STATE BANCORP INC.
<TABLE>
<CAPTION>
<S> <C>
A. Golden State Financial Corporation (Delaware)
(1) Golden State Holdings, Inc. (Delaware)
(a) California Federal Bank, A Federal Savings Bank (Federally chartered)
(1) Auto One Acceptance Corporation (Texas)
(a) Auto Depot, Inc. (Texas)
(2) Cal Fed Credit Inc. (California)
(3) Cal Fed Enterprises (California)
(4) Cal Fed Holdings, Inc. (California)
(a) FGB Realty Advisors, Inc. (Texas)
(b) First Prudential Corporation (Missouri)
(c) FNB Real Estate Corp. (Texas)
(d) Glenfed Properties, Inc. (Florida)
(i) Glenco Executive Center (Florida)
(ii) Oceanside Communities, Inc. (Florida)
(d) Unified Mortgage Company (Texas)
(i) Frederick Mortgage Corporation (Texas)
(5) Cal Fed Investments dba Cal Fed Financial and Insurance Services
(California)
(a) Cal Fed Investments of Nevada (Nevada)
(6) Cal Fed Mortgage Company (California)
(7) Cal Fed Service Corporation (California)
(8) Cal Fed Syndications (California)
(9) California Communities, Inc. (California)
(10) California Federal Preferred Capital Corporation (Maryland)
(11) California Outlook, Inc. (California)
(12) Capital Conveyance Company (California)
(13) CF Management Corp. (California)
(14) CF Recovery Corp. Two (California)
(15) Development Credit Corporation (California)
(16) EFT Services, Inc. (California)
(17) Glendale Brokerage Services, Inc. (California)
(18) FNB Mortgage Corp. (California)
(19) First Nationwide Mortgage Corporation dba Cal Fed Lending
(Delaware)
(a) FNC Insurance Agency, Inc. (California)
(i) Cal Fed Insurance Agency, Inc. (California)
(b) Master Mortgage Company (California)
(c) Verdugo Trustee Service Corporation (California)
(20) First Estate Corporation (California)
(a) Glenfed Development Corp. (California)
(i) Glenfed Development Ventures Corp. (California)
(b) Glenfed Investment Properties, Inc. (California)
(c) Redlands Financial Services, Inc. (California)
(d) Crescent Bay Diversified, Inc. (California)
<PAGE>
(21) Franciscan Financial Corporation (California)
(a) San Francisco Auxiliary Corporation (California)
(22) Glendale Investment Corporation (California)
(a) Glenfed Capital Corp. (California)
(b) Glenfed Financial Corporation (California)
(c) Glenfed Reimbursement, Inc. (California)
(23) Glenfed Service Corporation (California)
(a) August Financial Corporation (California)
(i) AGP, Inc. (California)
(ii) August Advisors, Inc. (California)
(iii) August Management, Inc. (California)
(b) Esandel, Inc. (California)
(24) United California Financial Company (California)
(25) United California Funding Corporation (California)
(26) United Resources Capital Corporation (California)
(a) United Energy Finance Corporation (California)
(27) XCF Acceptance Corporation (California)
B. Golden State Management, Inc. (Delaware)
(1) GSB Aviation, Inc. (Delaware)
(2) GSB Aviation, II, LLC (Delaware)
(3) First Nationwide Management Corp. (Delaware)
(4) FGB Services, Inc. (Texas)
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Golden State Bancorp Inc.:
We consent to the incorporation by reference in the registration statements (No.
333-67837; 333-74615 on Form S-8 and in the registration statements (No.
333-49477; 333-28037) on Form S-3 of Golden State Bancorp Inc. of our report
dated January 26, 1999, relating to the consolidated statements of financial
condition of Golden State Bancorp Inc. as of December 31, 1998, and 1997, and
the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998, which report appears in the December 31, 1998
annual report on Form 10-K of Golden State Bancorp Inc.
KPMG LLP
San Francisco, California
March 23, 1999
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Christie S. Flanagan, Renee Nichols Tucei, and
Eric K. Kawamura or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution for him and in his
name, place and stead, in any and all capacities, in connection with the GOLDEN
STATE BANCORP INC. (the "Corporation"), Annual Report on Form 10-K for the year
ended December 31, 1998 under the Securities Exchange Act of 1934, as amended
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission, the Office
of Thrift Supervision, or other appropriate regulatory authority and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents
this 11th day of March 1999.
/s/ Ronald O. Perelman
-----------------------
Ronald O. Perelman
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Christie S. Flanagan, Renee Nichols Tucei, and
Eric K. Kawamura or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution for him and in his
name, place and stead, in any and all capacities, in connection with the GOLDEN
STATE BANCORP INC. (the "Corporation"), Annual Report on Form 10-K for the year
ended December 31, 1998 under the Securities Exchange Act of 1934, as amended
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission, the Office
of Thrift Supervision, or other appropriate regulatory authority and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents
this ________ day of March 1999.
/s/ Paul M. Bass, Jr.
----------------------------
Paul M. Bass, Jr.
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Christie S. Flanagan, Renee Nichols Tucei, and
Eric K. Kawamura or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution for him and in his
name, place and stead, in any and all capacities, in connection with the GOLDEN
STATE BANCORP INC. (the "Corporation"), Annual Report on Form 10-K for the year
ended December 31, 1998 under the Securities Exchange Act of 1934, as amended
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission, the Office
of Thrift Supervision, or other appropriate regulatory authority and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents
this 9 day of March 1999.
/s/ Gabrielle K. McDonald
--------------------------------
Gabrielle K. McDonald
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Christie S. Flanagan, Renee Nichols Tucei, and
Eric K. Kawamura or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution for him and in his
name, place and stead, in any and all capacities, in connection with the GOLDEN
STATE BANCORP INC. (the "Corporation"), Annual Report on Form 10-K for the year
ended December 31, 1998 under the Securities Exchange Act of 1934, as amended
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or in
connection with the Form 10-K or amendments thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, including
this power of attorney, with the Securities and Exchange Commission, the Office
of Thrift Supervision, or other appropriate regulatory authority and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents
this 11th day of March 1999.
/s/ Howard Gittis
---------------------------
Howard Gittis
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and statements of income found on pages 3 and 4 of
the Company's audited financial statements for the year ended December 31, 1998.
</LEGEND>
<CIK> 0001019508
<NAME> GOLDEN STATE BANCORP INC.
<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 854,954
<INT-BEARING-DEPOSITS> 52,671
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,718,739
<INVESTMENTS-CARRYING> 3,021,877
<INVESTMENTS-MARKET> 3,076,715
<LOANS> 32,647,527<F1>
<ALLOWANCE> 588,533
<TOTAL-ASSETS> 54,868,984
<DEPOSITS> 24,620,066
<SHORT-TERM> 14,045,658
<LIABILITIES-OTHER> 1,459,750
<LONG-TERM> 12,568,294
0
0
<COMMON> 128,688
<OTHER-SE> 1,453,090
<TOTAL-LIABILITIES-AND-EQUITY> 54,868,984
<INTEREST-LOAN> 1,855,008
<INTEREST-INVEST> 693,805
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,548,813
<INTEREST-DEPOSIT> 791,112
<INTEREST-EXPENSE> 1,819,545
<INTEREST-INCOME-NET> 729,268
<LOAN-LOSSES> 40,000
<SECURITIES-GAINS> 1,131
<EXPENSE-OTHER> 764,003
<INCOME-PRETAX> 402,264
<INCOME-PRE-EXTRAORDINARY> 398,088
<EXTRAORDINARY> 150,333
<CHANGES> 0
<NET-INCOME> 247,755
<EPS-PRIMARY> 3.11
<EPS-DILUTED> 3.04
<YIELD-ACTUAL> 7.23
<LOANS-NON> 226,188
<LOANS-PAST> 0
<LOANS-TROUBLED> 31,937
<LOANS-PROBLEM> 86,340
<ALLOWANCE-OPEN> 418,674
<CHARGE-OFFS> 46,126
<RECOVERIES> 5,971
<ALLOWANCE-CLOSE> 588,533
<ALLOWANCE-DOMESTIC> 17,561
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 570,972
<FN>
<F1>Tag 17 - Loans includes Loans held for sale of $2,366,583 and Allowance for
loan losses of $588,533
</FN>
</TABLE>
